Monday, May 03, 2021 / 10:30AM / By Oluwapelumi C. Omoniyi(AELEX) / Header Image Credit: AELEX

On 19 December2020, the Securities Exchange Commission, Nigeria ("SEC") published astatement, informing the public that the Investments and Securities Tribunal,("IST") had made interim Orders restraining a Fintech company, ChakaTechnologies Limited, and its promoters from advertising or offering for saleshares, stock or other securities of companies or other entities¹. SEC's position was that companiesthat offer a platform for the purchase of shares in foreign companies("investment tech" or "wealth tech") acted outside its regulatory purview and inbreach of extant laws and regulations particularly the Investments andSecurities Act and the Rules and Regulations of the SEC.

Investmenttech companies were faced with another dilemma again when on 8 April 2021, SEC statedthat by the provisions of Sections 67-70 of the Investments and Securities Act(ISA), 2007 and Rules 414 & 415 of the SEC Rules and Regulations, onlyforeign securities listed on any Exchange registered in Nigeria may be issued, sold,or offered for sale or subscription to the Nigerian public². Therefore, their activities werecontrary to the laws and regulations governing securities in Nigeria. The SECnoted that it is aware the must investment tech companies like Chaka havepartnerships with registered Capital Market Operators in Nigeria to offerforeign shares to Nigerians. However, according to SEC, such arrangement isillegal.

Nigerianswho used such platforms and saw the innovation they offered as the democratisationof the purchase of shares were frustrated by the actions of the regulator,especially those who had purchased many shares. However, stakeholders in theecosystem informed Nigerians to stay calm as a way forward was being discussedwith the SEC.

Now, itseems that way forward has come to the fore. On 22 April 2021, SEC released amendmentsto their Consolidated Rules and Regulations (the "Amendments"). The Amendmentsprovide a new definition of who a Sub-Broker is by defining such person (s) asany person or entity not being a dealing member of an Exchange who acts onbehalf of a sponsoring Broker/Dealer as an agent or otherwise for assisting theinvestors in buying, selling, or dealing in securities through such sponsoringBroker/Dealer³.

It alsostates that a Sub-broker who is serving multiple brokers through a DigitalPlatform is a sub-broker who utilizes a digital platform to serve clients andinteract with the sponsoring broker or brokers⁴.

Thedefinitions encapsulate the activities of most investment tech companies asthey leverage on their digital platforms and partner with registered brokers tooffer shares on their platforms. Consequently, according to the amendments, anapplication for registration as a Sub-Broker/Sub-BrokerServing Multiple Brokers through a Digital Platform must be made to SECalongside the requirements listed in the Amendment such as:

1.     Paymentof Filing Fees and ensuring the application is accompanied by the required dulyexecuted SEC Form.

2.    Sub-Brokers/Sub-BrokersServing Multiple Brokers through a Digital Platform are required to have aminimum paid up capital of N10,000,000(Ten Million Naira) and

3.    a CurrentFidelity Insurance Bond covering at least 20% of the minimum paid-up capital asstipulated by the Commission's Rules and Regulations⁵. Applicants must also submit thenecessary information on their Sponsored Individuals⁶,

4.    the CompanyProfile and other required business organisation documents, and the Company'scorporate documents like a copy of their Certificate of Incorporation.

5.    Sub-BrokersServing Multiple Brokers through a Digital Platforms must submit a copy oftheir Principal Agreement with Brokers, a description of the technology onwhich its infrastructure is built (Structure, Capability/limitation, Security back-up,and recovery process).

6.    Theymust also submit a Certification showing that their Infrastructure issufficient to perform the required function by an IT Service Providerregistered by the National Information Technology Development Agency (NITDA) orother recognized Agency and endorsed by a representative of the Association ofSecurities Exchanges,

7.    Evidenceof the companies documented policies and procedures for managing technologyrisks, and the company's Know-Your-Customer process amongst other things.

DownloadHere - Major Amendments to the SEC Nigeria Rules

Innovatorsand existing companies who leverage on digital platforms to offer shares to Nigerians,should examine the amendments to see whether their business structure requiresthem to register as a Sub-Brokers Serving Multiple Brokers through a DigitalPlatform.

Footnotes

1.      "The Investments andSecurities Tribunal (IST) Restrains Unregistered Fintech Company from StockTrading" by the Securities and Exchange Commission, Nigeria, accessed 30 April2021. https://sec.gov.ng/the-investments-and-securities-tribunal-ist-restrains-unregistered-fintech-company-from-stock-trading/ 

2.     "Proliferation ofUnregistered Online Investment and Trading Platforms Facilitating Access toTrading in Securities Listed in Foreign Markets" by the Securities and ExchangeCommission, Nigeria, accessed 30 April 2021. https://sec.gov.ng/proliferation-of-unregistered-online-investment-and-trading-platforms-facilitating-access-to-trading-in-securities-listed-in-foreign-markets/

3.     The amendment can beaccessed here.

4.     The amendment can beaccessed here. 

5.     The amendment can beaccessed here. 

6.     According to Paragraph 19of the Consolidated Rules and Regulations of SEC, Sponsored Individuals are theprincipal officers and/or professionals held out by the applicant (company) asexperts and on whose advice or actions investors are expected to rely.

Credit: This post first appeared on Aelex here

Previous Posts by Aelex

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4.              ExploringInitial Public Offers (IPO) and the Regulatory Framework in Nigeria

5.              Exploring Initial Public Offers (IPO) and theRegulatory Framework in Nigeria

6.              Introductionto Stablecoin - The Stable Cryptoasset

7.              LawFirms as Targets For Hackers - Risks and the Way Forward

8.              Open Banking in Nigeria andEmerging Opportunities for Fintechs and Financial Institutions

9.              The Right to be Left Alone -Examining the Impact of the NDPR on Cold Marketing

10.           An Appraisal of The CBN'sFrameworks for Sandbox Operations and Quick Response Code Payments

11.            Diaspora Remittances in Nigeria:Examining the New CBN Policy (2)

12.           Sharing Of Content Through OnlinePlatforms - Considering Digital Piracy In Nigeria

13.           Diaspora Remittances in Nigeria:Examining The New CBN Policy (1) 

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