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Saturday, August 01, 2020 / 08:20 PM / By NSE
/ Header Image Credit: NSE
I. Introduction
The Nigerian Stock Exchange (The Exchange) is
proposing the following new rules as additions to the Rulebook of The Exchange
(Dealing Members' Rules):
(a) Proposed Rules on Outsourcing of
Functions and Shared Services;
(b) Proposed Rules for Broker to Fintech
Collaborations.
II. Summary of the Proposed Rules
(a) Proposed Rules on Outsourcing of Functions and
Shared Services:
The Exchange has observed that a number of Dealing
Members engage the services of third parties / professional service firms to
perform some activities and functions related to their business operations and
regulatory responsibilities. However, it is noted that these outsourced roles
and functions are not adequately performed and monitored within the operations
of the Dealing Members. The Exchange recognizes that Dealing Members and
related entities share certain services (within Corporate group structures),
and sometimes outsource functions for strategic reasons and to reduce
operational costs. This makes it imperative to provide appropriate guidance, in
order to ensure that the integrity of the market is maintained; and to mitigate
the risks of Dealing Members operating with or through third parties who are
not regulated by The Exchange, or any other recognized regulator.
These proposed Rules seek to:
(i) Clarify the functions or roles
which Dealing Members are required to manage internally, and roles which
Dealing Members may outsource to third parties, or share within a corporate
group structure;
(ii) Standardize and stipulate
parameters of the processes, procedures, and documentation of outsourcing or
service sharing by Dealing Members; and
(iii) Balance Dealing Members' concerns about
operational costs, with The Exchange's desire to mitigate the operational,
reputational, compliance, and other risks associated with outsourcing of
functions and shared services.
(b) Proposed Rules
for Broker to Fintech Collaborations:
Recent trends indicate that many traditional financial
service providers are reviewing their existing business models by incorporating
new technologies to enhance how they interact with clients, provide financial
services, and monitor regulatory compliance. The Exchange has observed that
some Dealing Member Firms have entered into collaborations with financial
technology companies, commonly known as "Fintechs" to provide digital
applications as a platform to attract domestic and foreign investors to trade
securities in the Nigerian capital market.
Therefore, the proposed Rules for Broker to Fintech
Collaborations prescribe the steps and parameters for Dealing Member Firms
(DMFs) who are desirous of engaging in Broker to Fintech Collaborations. The
Rules also propose to empower The Exchange to regulate such Dealing Member and
Fintech relationships, in line with The Exchange's objective to protect
investors from any adverse effect that these relationships may have. This is
without prejudice to the potential benefit of making the market more attractive
to investors through the Broker to Fintech Collaborations.
The proposed Rules will provide numerous benefits
which include:
(i) Setting the requirements for
Dealing Members that wish to enter into such collaborations;
(ii) Regulating the products and
services being offered to clients under the collaborations; and
(iii) Prescribing mandatory requirements aimed at
minimizing the risks associated with Fintech collaborations.
III. Invitation for Comments
The Exchange is pleased to invite you to participate
in its rule making process. Your participation is required by way of reviewing
the proposed Rules and providing your comments thereon. A set of the proposed
Rules may be viewed through the link provided here.
Proposed
Rules on Outsourcing of Functions and Shared Services
Proposed
Rules for Broker to Fintech Collaborations
The Exchange views your participation as important for
the following reasons:
We are involving as many stakeholders as possible in
this commentary process in order to achieve the aforementioned goals. Please be
assured that your comments will be considered in arriving at the final text of
the Rules.
IV. Response and Timeline
We will be grateful to receive your comments later not
than the close of business on Monday, 3 August 2020. Your comments should be
set forth in a WORD document attached to an electronic mail to Mr. Oluwatoyin
Adenugba, Head, Rules and Interpretation at The Exchange at oadenugba@nse.com.ng.
V. Approvals
Please note that the draft Rules are subject to the
approval of the National Council of The Exchange, and the Securities and
Exchange Commission.
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