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SEC Proposes New Rule on Shariah Advisory Services for Non-Interest Capital Market Products and Services

Sep 30, 2022   •   by   •   Source: SEC Nigeria   •   eye-icon 216 views

Preamble
The Non-interest Capital Market activities in recent times are exponentially increasing. The market is witnessing the entrance of more asset managers, emergence of i-REIT, listing of sovereign Sukuk on the Exchanges, issuance of corporate Sukuk, emergence of shariah advisory function etc.


These developments coupled with the necessity of shariah services for the market affirms the critical need for a framework/guideline to set a minimum standard for persons (corporate or individual) seeking to provide shariah advisory services for Non-Interest Capital Market activities. The guideline is essential for the development of this nascent sector, as it will promote transparency and confidence, whilst creating a level playing field for all participants in the market.

 

Further to the above, a review exercise on the SEC existing Rules on shariah governance undertaken by the Standing Committee of Deepening Non-interest Capital Market led to the recommendation that rules be drafted to provide for the registration and regulation of shariah advisory services in line with international best practices.

 

Hence, the following proposed Rules for Shariah Advisory Services for Non-Interest Capital Market Products and Services.

 

Proposed New Rules on Shariah Advisory Services for Non-Interest Capital Market Products and Services

 

1.0   Definition of Terms


In these rules:


Shariah Adviser means an independent professional (individual or corporate), who is a trained Shariah scholar, or in the case of a corporation has a minimum of two (2) staff trained as Shariah scholars, registered by the SEC to advise and/or provide certification to a financial institution or entity on Shariah compliance of its products or services provided that the Commission may allow/recognise foreign Shariah Advisors to participate in any kind of transaction.

 

2.0   Scope of Products and Services
 The products and services which require the services of a Shariah Adviser include all Islamic/Non-Interest Capital Market Products and Services as may be approved by the Commission from time to time.

 

3.0   Appointment of Shariah Adviser

An issuer or fund manager with the consent of the trustee (where applicable) shall appoint a Shariah Adviser to provide Shariah Advisory services for Shariah products, issuances and schemes.
 A capital market operator seeking to provide Shariah compliant products and services shall appoint a registered Shariah Adviser for the firm and notify the Commission of such appointment within five (5) business days of the appointment.
 

4.0   Criteria for Registration and Renewal of Registration

The SEC may register a Shariah Adviser or renew the registration of a registered Shariah Adviser subject to the applicant satisfying the criteria set out below:


Individual
 

4.1    Qualification
 An individual eligible to provide Shariah Advisory services under these rules shall satisfy the following requirements:
 a)     Possession of a minimum of a Bachelor’s degree in Shariah, which includes study in Usul Fiqh (principles of Islamic jurisprudence) or Fiqh Muamalat (Islamic transaction/commercial law) or a person with vast knowledge in Usul Fiqh (principles of Islamic jurisprudence) or Fiqh Muamalat (Islamic transaction/commercial law) acquired through Islamic system of education.
 b)     Ability to read and write in Arabic and English Language respectively
 c)      Possession of basic knowledge of business or finance particularly in Islamic finance and capital market.

 

4.2    Experience

The applicant should:

a.    Have at least two years of relevant experience in Islamic finance; or
 b.    Have at least one year of relevant experience in Islamic finance and have attended at least five relevant Islamic finance courses/workshops.

 

5.0     Fit and proper criteria
 The applicant must:
 i.        not have been convicted for any offence arising from criminal proceedings;
 ii.       not have been convicted of an offence under the securities law;
 iii.      not have ever been declared bankrupt;
 iv.      be a person of good repute and character.
 

Corporate
 

6.0    Where the applicant is a corporation, it shall employ two full-time officers to be responsible for Shariah matters for the products and services provided for under 2.0 (the Scope of Products and Services). It must also satisfy the criteria set out in paragraphs 4.1 – 4.2 above.

 

7.0    Fit and proper criteria
 The Sponsored Individuals and Directors of the company must:
 i.        not have been convicted for any offence arising from criminal proceedings.
 ii.       not have been convicted of an offence under the securities law;
 iii.      not have ever been declared bankrupt
 iv.      be a person of good repute and character
 
8.0    Requirements for Non-Resident Individual Shariah Adviser
 A Fund Manager or Issuer or any other capital market operator who seeks to appoint a non-resident individual Shariah Adviser shall file the following information with the Commission:
 i.      Full name and address of the Shariah Adviser;
 ii.     Jurisdiction of residence;
 iii.   Contact information;
 iv.   Shariah qualification and experience;
 v.    Letter of appointment/registration as Shariah Adviser from any other jurisdiction;
 vi.   Any other information as the Commission may require.

 

9.0    Requirements for Non-resident Corporate Shariah Adviser
 A Fund Manager or Issuer or other capital market operator who seeks to appoint a non-resident corporate Shariah Adviser shall file the following information with the Commission:
 i.        Name and registered address of the Shariah Adviser;
 ii.       Jurisdiction of incorporation/company number;
 iii.      Shariah qualification/experience of relevant personnel;
 iv.      Letter of appointment/registration as Shariah Adviser from other jurisdictions;
 v.       Contact person/contact details;

 

10.0   Roles and Responsibilities of a Shariah Adviser

10.1     The roles of a Shariah Adviser shall include the following: –

a)       Advising on all aspects of the Non-Interest Capital Market Products and Services including documentation and structuring;
 b)    Issuing Shariah certification which outlines the basis and rationale of the structure and mechanism, the applicable Shariah principles used and relevant Shariah matters relating to the documentation of the Non-Interest Capital Market Products and Services;
 c)      Providing Shariah expertise/guidance on all matters, particularly on investment instruments,
 d)      Reviewing compliance reports of the Shariah product’s proceeds utilization (where applicable) to ensure that investment activities are Shariah compliant;
 e)      Providing a periodic report to the trustees certifying whether Sukuk proceeds, Islamic fund or any other Non-Interest Capital Market products have been managed/administered in accordance with Shariah principles and rules;
 f)       Ensuring that the applicable Shariah principles and any relevant resolutions and rulings endorsed are complied with;
 g)      Applying ijtihad (where applicable) to ensure all aspects of the Non-Interest Capital Market products comply with Shariah principles; and
 h)      Accountability for the quality, accuracy and   soundness of his own decision or advice.

 

11.0    Restrictions on Shariah Adviser

11.1    A Shariah Adviser shall not accept any appointment in more than one registered Islamic Fund Management Company/Fund Management company offering Islamic products provided that the Shariah Adviser could serve in multiple Fund Management Companies with the consent of the Fund Managers, Trustees, and prior approval of the SEC.
 11.2    A Shariah Adviser shall immediately disclose to the Commission, Issuing House or Fund Manager any circumstances that may affect his ability to meet any of the requirements of this rule.

 

12.0   Procedures of Registration and Renewal of Registration
 12.1   To register or to renew the registration as a Shariah Adviser, an applicant is required to submit to the SEC the relevant forms and documents specified for the registration.
 12.2   A registered Shariah Adviser shall submit his application for renewal of registration to the SEC not later than 30 days before the expiry date of registration or such other period as the Commission may direct from time to time.

 

13.0   Registration Fees 

13.1     A qualified individual seeking to register as Shariah Adviser shall pay the relevant fees to the Commission as Registration Fee for Shariah Advisory services.
 13.2  A qualified corporate body seeking to register as Shariah Adviser shall pay the relevant fees to the Commission as Registration Fee for Shariah Advisory services.
 13.3  A registered Shariah Adviser seeking to renew his registration shall pay the relevant fees in the case of individual and the relevant fees in the case of corporate body to the Commission as renewal fee for the registration.

 

14.0   Exemption

Registered Shariah Advisers shall be exempted from appointing compliance officers as required under the Commission’s Rules and Regulation on Appointment of Compliance Officers.

 

15.0   Sanction

Any registered Shariah Adviser who violates these Rules and Regulations will be sanctioned in accordance with the provision of Rule 7 provided the Commission may impose additional sanctions as it deems appropriate.

 

Justification
 a)    Shariah governance is crucial considering that compliance with Shariah rules and principles is raison d’être of the Non-interest Capital Market operations/transactions.
 b)    The provision of the rules is in line with local and international best practices. The regulatory organization in the Nigerian Financial System such as CBN, NAICOM had issued such guidelines to provide clear and good Shariah governance in their respective sectors.
 c)    Making the Shariah Advisory service a registrable function in the market will assist in effective implementation of the proposed consolidation of the Shariah governance rules and will also be an additional source of revenue to the Commission.

 

All comments and input should be forwarded by e-mail to the Secretariat, Rules Committee of the Commission, at r[email protected] or by letter addressed to the Director-General, SEC, not later than two (2) weeks from date of publication.

 

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