Wednesday, January 27, 2021 / 6:03PM / By SEC / Header Image Credit: The Guardian Nigeria
The RULE on NOMINEE COMPANIES in Nigeria
A Nominee for the purpose of this Regulation is a company formed by a bank or other financial institution for the purpose of holding securities and other assets and administering them on behalf of the actual owners under the terms of a custodial or nominee agreement.
Holding Company/Parent Company:
For the purpose of these rules, means a bank or other eligible financial institution that owns and controls a nominee company.
Means a person who has entered into agreement with a nominee company to hold and manage its securities or other assets.
a) The business of the Nominee shall be to take title of property, money or securities in trust for and on behalf of clients as Nominee for, or representative of such clients, to hold and deal with such property, money or securities strictly in accordance with any directions given by the respective clients from time to time to the Nominee Company.
b) A Nominee shall not engage in any business or activity except the business of Nominee companies described above
3. Functions of Nominee Companies
a) Maintaining accounts of securities of clients
b) Collecting all rights and benefits on behalf of, or accruing to clients in respect of securities held
c) Managing the holding of clients including facilitating sale, purchase, lending and borrowing securities and settlement of investment obligations based on the clients' mandates d) Ensuring compliance with contractual obligations with clients and custodians
e) Maintaining and reconciling records of the services referred to in sub-clauses (i) to (iv) above;
f) Maintaining sufficient information and record to identify the beneficial owners of securities held by it.
g) Providing periodic information to clients and custodians (where securities and other assets are transferred to the nominee company by a custodian).
The Nominee Company shall deal with the assets that it holds on behalf of clients including custodians as follows:
i. Securities as defined in the Investments and Securities Act (ISA) 2007 shall be registered in the name of the nominee or in the name of nominee and client
ii. Securities shall be stored and held in safe and secure custody or electronically administered and maintained and shall be protected by adequate and appropriate security and administrative systems.
iii. The Nominee Company shall collect corporate action entitlements relating to all securities held on behalf of clients, verify the calculations and convey all details to clients
iv. The Nominee Company shall have no authority to demand for board membership of companies or to exercise any voting rights attached to shares registered in the Nominee company`s name unless instructed to do so by its clients
The Nominee Company shall:
i. open a trust account or accounts for clients with one or more banks. The Account name must reflect that it is a Clients' Account
ii. deposit in the account or accounts opened in terms of the above clause, any money, which is accepted or received by it
iii. deal with Funds so deposited in accordance with the directions given to it by its clients from time to time
iv. not co-mingle clients' monies with its own
v. not receive or hold clients' monies except for the purpose of investing in securities under clients' instructions
i. Immovable property shall be registered in the name of the client with power of attorney in favour of the Nominee Company
ii. Immovable property shall be managed and secured in accordance with sound property management practices in relation to the particular property concerned, and shall be maintained in a like manner
iii. Movable property received shall be dealt with as if it is the property of the Nominee Company and shall be kept in safe and secure custody and shall be properly maintained if necessary
iv. Any title deed, certificate or document pertaining to property shall be dealt with as if it were a marketable security.
v. The Nominee Company shall collect all rents relating to immovable property and pay all expenses incidental to the maintenance thereof as well as in respect of movable property held on behalf of clients, verify the calculations and timely payment thereof and convey all details to clients.
The Nominee Company shall:
a) maintain a custody account for every client and provide information to such account to the client
b) keep and maintain proper books of account and other records necessary to identify assets of each client and to discharge its obligations to its clients
c) provide clients with any information reasonably required by the client concerning assets held on his or its behalf
d) obtain the written authority of the client prior to receiving or holding any assets on behalf of such client
e) report quarterly to its clients on assets held on their behalf and shall include all movements and changes in the holding concerned which occurred since the date on which the holding commenced or immediately prior to the report or as the client requests
f) maintain basic information on the securities holders including transaction details and maintain documents in relation to transactions that have been made on behalf of the investors
The Nominee Company shall not out of its own volition incur any liability of whatsoever nature excluding liabilities arising from acts performed in carrying out its objectives as set out in its Memorandum and Articles of Association.
a) The Nominee Company shall put in place mechanisms to protect the interest of clients and help preserve market integrity
b) The Nominee Company shall ensure that its assets are segregated from the assets of clients.
c) When a Nominee account is opened with a depository by a Nominee Company, the Nominee shall make a declaration that it is acting as a Nominee for its client,
d) The Nominee Company shall keep clients' assets in such a way as to protect them from foreclosure, appropriation/attachment by creditors or liquidators of the Nominee.
e) In the case of a proposed merger/acquisition, of the Nominee Company, it shall notify the clients, who shall reserve the right to appoint another Nominee or elect to remain with the new entity.
f) In the event that the registration of a Nominee Company is revoked/suspended, it shall within 24 hours of receiving the Commission's notification of revocation/suspension inform its clients who shall appoint another Nominee Company within 90 days from the effective date of revocation/suspension, failing which, the Commission shall appoint another Nominee Company to takeover custody of the assets.
g) In the event of a decision by the Nominee Company to discontinue business, it shall within 2 working days notify the Commission and its clients. The clients shall appoint another Nominee within 90 days from the date of the notice and the Nominee Company shall transfer assets to the appointed Nominee of the clients within 5 working days.
h) A Nominee Company's decision to discontinue business shall not be effective without complying with the Commission's Rule on withdrawal of Registration
The Nominee Company may demand payment for providing custody and asset administration services including providing information to account holders, rights holders and others, including for providing notifications of change and statements of holdings. However, this does not apply in regard to information to which public authorities are entitled by law or regulations.
The Nominee Company shall be wholly or jointly owned by (a) financial institution(s) with a minimum or combined minimum net worth of N30billion.
In consideration of the services to be undertaken from time to time by the Nominee Company, the parent company shall submit a sworn undertaking to the Commission that it:
a) is fit and proper to own a Nominee Company for purposes of carrying out functions of Nominee as provided in SEC Rules and Regulations;
b) has a non- operating structure which allows for oversight by Executive Management and the Board of Directors of holding company over the business of the Nominee Company;
c) has evidence of a documented system of internal controls which ensures that its Nominee Company is effectively run, that the assets of clients are safeguarded and segregated and the records of the Nominee Company accurately reflects the information of clients, their assets and transactions;
d) has evidence of appropriately documented procedures to exclude unauthorized access to critical systems, the thorough testing of systems and the continuity of operations of all critical applications of its Nominee Company, including disaster recovery and a business continuity plan;
e) has an appropriate documented system of risk management;
f) shall pay all expenses of and incidental to the formation of the Nominee Company;
g) shall pay all the liquidation expenses of the Nominee Company of whatsoever nature and kind, in the event of the winding up of the Nominee Company;
h) shall not dispose of the shares it holds in the Nominee Company to any person without the prior written approval of the Commission and its lead Regulator concerned;
i) shall guarantee the due performance of the obligations of the Nominee Company to its clients.
All persons not registered by the Commission as Custodians, carrying on the business of Nominee and holding securities including equities, money market and fixed income securities, derivatives etc. except Pension Assets, on behalf of actual owners shall apply to the Commission for registration as a Nominee.
An applicant for registration as Nominee Company shall be sponsored by its holding company which shall submit the undertaking required under "Obligations of Holding Company" above along with the under listed documents completed by the Nominee Company, its directors and sponsored individuals:
a) Form SEC 3 in duplicate;
b) Form SEC 2 and 2D â€“ completed by all Directors and Sponsored Individuals/ Compliance Officer in duplicates;
c) Evidence of Required Minimum Paid-up Capital of N1,000.00 (One Thousand Naira only) unimpaired by losses;
d) Evidence that the parent company/ shareholders (financial institutions) have a/ combined minimum net worth of N30 billion naira;
e) Current Fidelity Bond covering at least 25% of the minimum capital as stipulated by the Commission's Rules and Regulations;
f) Detailed curriculum vitae of sponsored individuals and Directors which should include details of activities from secondary school to date arranged chronologically with dates; (all gaps in employment and educational history should be explained);
g) Copies of credentials of sponsored individuals from secondary school to date (including NYSC discharge/exemption certificates); originals are required for sighting by officers of the Commission;
h) Sponsored individuals shall meet the requirements specified in the SEC Rules on Sponsored Individuals and Compliance Officers and Qualifications of Sponsored Individuals and Compliance Officers;
i) Police clearance report for each Sponsored Individual: Each sponsored individual is to report at the Commission's head office or any of its zonal offices with three recent passport photographs to commence the process;
j) Copy of means of identification of the Directors and the Sponsored Individuals of the Company (International Passport, Driver's license or Permanent Voters Card);
k) Profile of the Nominee Company which should include among others brief history of the company, organizational and shareholding structure, principal officers as well as details of past and current activities;
l) Operational Manual and Organizational chart of the company;
m) Business plan;
n) A copy of each of the following, duly certified by the Corporate Affairs Commission (CAC);
i. Certificate of Incorporation
ii. Memorandum and Articles of Associationâ€“ this should include the power to perform the specified function;
o) CAC Form(s) showing Share Capital, Return of Allotment, and Particulars of Directors;
p) Latest audited accounts or audited statement of affairs of the company;
q) Sworn undertaking to keep proper records and render returns as may be specified by the Commission from time to time signed by a director and company secretary (to be notarized);
r) Sworn undertaking to abide by SEC Rules and Regulations and Investments and Securities Act signed by a director and company secretary (to be notarized);
s) Evidence of payment of fees as contained in Schedule 1 of SEC Rules and Regulations;
t) Any other documents as may be required by the Commission.
13. Other Registration Requirements
a) A Nominee Company shall have minimum of three sponsored Individuals, one of whom shall be a compliance officer;
b) The Managing Director of the Company shall at all times be among the sponsored individuals by complying with the requirements for registration of sponsored individuals;
c) A Nominee Company shall have necessary infrastructure, including vaults for safe custody of title documents, agreements etc. and information technology capability required to effectively discharge its functions.
A Nominee Company shall abide by the Code of Conduct for Capital Market Operators and their Employees as set out in the Commission's Rules and Regulations. In addition, any person registered by the Commission as Nominee shall:
a) not carry out any business except the business of Nominee prescribed in these rules
b) not invest in securities
c) have a robust risk management procedure and mechanism for compliance with Anti Money Laundering/Combating Financing of Terrorism (AML/CFT) regulations of its parent company
d) in the case of merger/acquisition, notify the clients, who shall reserve the right to appoint another Nominee Company or elect to remain with the new entity.
e) within 24 hours, in the event that its registration is suspended/revoked, notify all its clients including custodians of the suspension/revocation and their obligation to appoint another Nominee Company within 90 days from the effective date of suspension/revocation. Where any client fails to appoint another Nominee, the Commission shall appoint another Nominee to takeover custody of the assets.
f) in the event of a decision by the Nominee Company to discontinue business, notify the Commission and its clients within 24 hours. The Nominee Company shall notify the clients of their obligation to appoint another Nominee within 90 days from the date of the notice and the Nominee Company shall transfer assets to the appointed Nominee of the clients within 5 working days, failing which the Commission shall appoint a Custodian.
g) comply with the Commission's Rules on withdrawal of registration before the decision to discontinue business shall be effective.
15. A Nominee Company shall comply with the Commission's Rules on internal controls; monitoring, review, evaluation and inspection of systems and controls; separate custody account; agreement with the client; preservation of records and disclaimer of liability.
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