SUBMISSION RE: THE PROPOSED BILL FOR THE ESTABLISHMENT OF THE CHARTERED INSTITUTE OF SECURITIES AND INVESTMENT MARCH 2013

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1 SUBMISSION RE: THE PROPOSED BILL FOR THE ESTABLISHMENT OF THE CHARTERED INSTITUTE OF SECURITIES AND INVESTMENT MARCH 2013

2 INTRODUCTION The CFA Society Nigeria, registered under the laws of the Federal Republic of Nigeria, is a local society of members of the global CFA Institute. Our members comprise mainly of CFA Charterholders and CFA Institute members resident, practicing or interested in the Nigerian securities and investment industry in various capacities. The CFA Institute is a global association of investment professionals which sets standards for investment practice. The Institute is a champion for ethical behaviour and fair dealings in investment markets and a respected source of knowledge in the global financial community. Our overall goal is to create an environment where investors interests come first, markets function at their best, and economies grow. OUR CONCERNS/OBJECTIONS We, on behalf of the entire members of the CFA Institute in Nigeria and as practising stakeholders in the Nigerian investment community, hereby write to express our concerns about the proposed Bill which seeks to establish the Chartered Institute of Securities and Investment ( CISI ) as a regulator of the practice of securities dealings and investment profession in Nigeria. Conceptually, we are not opposed to an umbrella body for the securities and investment industry but are opposed to a process where the Chartered Institute of Stockbrockers ( CIS ) unilaterally transforms itself into that body without any collaboration, input and contribution from the non-stockbroker stakeholders and 2 P a g e

3 players within the securities and investment industry, a much bigger community encompassing different focus areas and consequently, different skill sets. Our understanding of the Bill as currently drafted, is not a case of the CIS spearheading (on behalf of the other players in the industry) the setting up of an industry-wide Institute but a case of the CIS seeking to transmute by changing its name (making the proposed CISI its successor-in-title, with all assets, liabilities, responsibilities transferred into the new CISI (Sections 21 & 22 of the proposed Act)). Consequently, we have documented below our core concerns and objections to the Bill as currently drafted. a) Unilateral extension of supervisory powers: the proposed Bill seeks to unilaterally extend the scope of supervision of the proposed CISI to all other investment professionals whose practices are entirely beyond the ambits of stockbroking and securities dealings, without due consultations with the other established key players (who were hitherto not subject to its authority) in any form whatsoever. In this process, we see the CIS as seeking to arrogate more powers to itself than its initial Charter and remit permits. The proposed Bill (Section 23, Interpretations ) broadly defines Securities and Investment Professional as a professional who is engaged in Securities and 3 P a g e

4 Investment activities or conducting business in the securities and investment field or activities. It should be noted that the entire Securities and Investment profession and professionals working and practicing in Nigeria, comprises at a minimum of these groups; I. Fund & Portfolio Managers II. III. IV. Trustees Investment Bankers Financial Advisers V. Investment Analysts VI. VII. VIII. IX. Financial Analysts Treasurers Bond Dealers and Traders FX Dealers and Traders X. Custodians XI. XII. Private Equity Managers Venture Capitalists, etc It therefore comprises of different focus areas in terms of the investment horizon and motive for securities dealing and management. 4 P a g e

5 b) Regulator or Industry Trade Group: The bill as currently drafted, is unclear as to the exact status or intention for the proposed Institute i.e. is it a regulator of the Securities and Investment business (a role which, by law, is currently performed by the Securities and Exchange Commission (SEC)) OR an Industry Trade Group that is interested in setting minimum practitioner standards for the industry in order to maintain the integrity and continued viability of the Securities and Investment business. If the intention is that the CISI becomes a regulator, then the Bill as currently drafted, is seeking to duplicate the regulatory functions of the SEC in investment practice within the country. The industry can hardly afford another layer of red tape. If the intention is an Industry Trade group option, it would mean the proposed CISI would provide certification to ensure minimum standard of appropriate skills are acquired and maintained by players. This should be aimed at ensuring clients (investors) are being ethically served, a goal of an industry group interested in the long-term viability of the sector. This objective will however require the development of curriculum for the different areas/sub-sectors/focus of the investment industry (as different skill sets are required) as opposed to the onesize-fits-all that is inferred in the proposed Bill. c) The Governing Council and Conflict of interest: The composition of the Governing Council of the proposed CISI is unduly unwieldy as the proposed Bill 5 P a g e

6 in Section 5, provides for a representative each from the Securities and Exchange Commission (SEC), the Ministry of Education and the Ministry of Finance. We consider this, a source of an avoidable conflict of interest between the CISI and the other bodies which have been established by Acts of the National Assembly to carry out supervisory roles on any investment, academic or financial organisation within the country. These bodies will not be able to effectively and meaningfully carry out their supervisory and regulatory functions on another organisation of which they are key members. d) Corporate membership: Companies and Individuals are currently licensed by the relevant government regulatory agencies (SEC and NSE mainly) to practise in the different sectors of the securities and investment business. While skills and ethics of individual players can be within the ambit of the proposed CISI, we do not see the essence of requiring corporate entities to register since they are licensed by law. We see this as an unnecessary duplication of membership since individual members of the body are still going to be the key management of the corporate entities. We are particularly wary of a situation where membership of the Institute will, sooner than later, be an additional basis for which duly licensed players can practise. 6 P a g e

7 CONCLUSION We therefore implore that your esteemed Committee reject the proposed bill as drafted as it is significantly flawed and has a long-term negative impact on our investment markets. This will serve to impend the flow of long-term capital into our markets, further erode investor confidence and consequently, slow down the growth of our economy. 7 P a g e