Wednesday, September
09, 2020 09:40 AM / by SEC/ Header Image Credit: FE Week

All comments
and input should be forwarded by e-mail to the Secretariat, Rules Committee of
the Commission, at rulescommittee@sec.gov.ng or
by letter addressed to the Director-General, SEC, not later than two (2) weeks
from date of publication.
Exposure Of Proposed New Rules And Sundry Amendments
To The Rules And Regulations Of The Commission
New Rules
- Proposed
Rule on Collateral Management Company
- Proposed
Rule on Crowdfunding (Re-Exposure)
Sundry Amendments
- Proposed
Amendment to Rule 45 (1) and (2)- Registrable Functions
- Proposed
Amendment to Rule 67- Sub-broker (Re-Exposure)
- Proposed
Amendment to Rule 70- Records of Transactions with Clients (Re-Exposure)
- Proposed
Amendment to Rule 76- Risk Management (Re-Exposure)
Legend:
Additions
are underlined
Deletions
are struck through
Proposed Rule On Collateral
Management Company
In this Rule,
unless the context otherwise requires,
"Assayer" is an authorized entity (person/institution) that certifies and
grades the commodities that are delivered in registered warehouses.
"Collateral Management Company" or "CMC" means a Company
registered by the Commission to provide collateral management services;
"Collateral Management Services" means the activity of managing commodities as
collateral, including but not limited to the following-
- Providing
enabling arrangements for collateral commodity financing;
- Issuance
of credible Warehouse receipts and other necessary arrangements for
agricultural commodity financing;
- provision
of quality warehousing services involving storage and preservation of
commodities; and
- Stock
audit, evaluation and verification services.
Collateral Manager means a company registered by the Commission to act as a third
party holder of commodities, deposited by a depositor who is financed by a
lending institution or for commodities to be traded on a recognized Exchange,
in a warehouse owned or effectively controlled by the Collateral Management
Company;
"Commission" means the Securities and Exchange Commission established under the
Investment and Securities Act, 2007.
"Commodity"
- Means
raw material or primary agricultural product that can be bought and sold
such as grains, livestock and its derivative products, extractive minerals
and all other goods and articles, except all services, rights and
interests in which contracts for future delivery are presently or in the
future dealt in; or
- Any
product resulting from any of the above activities, including by- products
of such products; and
- Any
product which is intended to increase the production of anything referred
to in I above sub-clauses or improve the quality thereof;
"Depositor" means a person who delivers Commodities to the Warehouse Operator
for storage or transfer of ownership;

"Electronic Warehouse Receipt" or "EWR" means an
acknowledgment in electronic form that is negotiable and transferable issued in
favour of the holder of the receipt issued by a Collateral Management Company
against deposit of specified Commodities with the Warehouse as proof of title
to the Commodities held at the Warehouse;
"Exchange" means
a Commodity Exchange duly registered by the Commission;
"Financial Institution" means any entity licensed by the Central Bank of
Nigeria to amongst other things provide financing against securities including
Warehouse Receipts"
"Physical Warehouse Receipt" means a temporary non-negotiable and
non-transferable receipt issued by a Collateral Management Company/Warehouse
Operator for a maximum period of two days to a Depositor upon depositing
commodity in the Warehouse, for the purpose of acknowledging the deposit until
the issuance of the Electronic Warehouse Receipt to the Depositor;
"Standard Operating Procedure (SOP)" means a document describing processes, actions
and responsibilities relevant to the operations of a registered and accredited
warehouse;
"Warehouse" means any premises registered by the Commission to be used for the
storage of commodities deposited by a depositor;
"Warehousing Guidelines" means the guidelines issued by an Exchange/
Collateral Management Company, with the approval of the Commission, for
compliance by all registered and accredited Warehouses in relation to storage,
warehousing management and supply chain/inventory maintenance and distribution
standards;
"Warehouse Operator" means any person responsible for managing registered Warehouses;
"Warehouse receipts" means a document of title issued by a Warehouse Operator as
evidence that a specified commodity of stated quantity and quality has been
deposited at a particular warehouse location by a named depositor. It allows
the depositor to confer a security interest in the stored commodity to another
party without requiring physical delivery.
"Weight or Quantity" in relation to a specific Commodity means such weight or quantity
which is duly adjusted for the specified commodity in accordance with the
approved standards.
- Registration
of Collateral Management Company
Conditions applicable to a CMC:
- No
person shall provide collateral management services unless registered by
the Commission.
- A
CMC shall not undertake any other form of business except for collateral
management services and any other incidental services as determined by the
Commission from time to time.
- Registration
Requirements
An application
for registration as Collateral Manager shall be filed on the appropriate S.E.C
Form and shall be accompanied by: -
- Two
sets of completed appropriate S.E.C Forms to be filed by the sponsored
individuals;
- A
copy of the Certificate of Incorporation certified by the Corporate
Affairs Commission where a copy not certified is filed, the applicant
shall present the original for sighting by an authorized officer of the
Commission;
- A
copy of the Memorandum and Articles of Association certified by the
Corporate Affairs Commission, which shall among others, include power to
act as a Collateral Manager
- A
copy of the appropriate CAC Form containing particulars of the directors
certified by the Corporate Affairs Commission;
- Copy
of latest audited accounts or audited statement of affairs for companies
in operation for less than one (1) year;
- Fidelity
Bond representing 20% of paid-up capital;
- Sworn
undertaking to keep proper records and render returns;
- Evidence
of minimum paid-up capital of N50 million.
- Application
for registration of a minimum of two sponsored individuals one of whom
shall be the chief executive officer. The two principal officers of the
Collateral Management Company who shall be registered as sponsored
officers must have a minimum of a university degree or its equivalent with
not less than ten (10) years post-qualification experience;
- A
list of key officers and technical experts engaged and details of their
qualifications, which should capture evidence of financial, technical
capabilities to carry out the functions of a Collateral Manager.
- A
list of relevant technology systems in place as required by collateral
management services;
- Information
relating to the Market Facilities including: Assaying facilities,
Warehousing, Aggregation, Computerization and Telephone systems and a well
finalized Business Plan;
- Two
copies of existing or proposed by-laws or rules, Code of Conduct,
Warehousing Guidelines etc.,
- Instruction
and inspection manuals of warehouse activities;
- Detailed
information about the promoters and principal officers of the Collateral
Management Company;
- Two
copies of Warehouse Accreditation requirements of the Collateral
Management Company;
- Detailed
information about the Technology system to be adopted;
- An
Undertaking by the CMC to always forward copies of amendments of its
Guidelines for approval by the Commission;
- Minimum
Paid-Up Capital And Fidelity Insurance Bond
- Evidence
of required Minimum Paid-up Capital - N50, 000,000 (Fifty Million Naira).
- Maintain
a Fidelity Insurance Bond covering 20% of the minimum paid-up capital as
stipulated by the Commission's Rules and Regulations;
- Maintenance
of Record By a Collateral Manager
(1) Every CMC is required to properly maintain the following: -
(a) All the records relating to the depositors' and investors' complaints, if any;
(b) Such other record as may be required by the Commission.
(2) Every CMC shall ensure that the record referred to in (1) above is
maintained and preserved in good condition for a period of at least 7 (seven
years).
(3) Every CMC shall-
(a) Ensure that the record is kept at such a place and maintained in
such a manner that it is easily accessible; and
(b) Establish a record-retention-policy, which shall ensure that all
relevant legal and regulatory requirements are complied with.
- Duties
And Responsibilities Of A Collateral Management Company
The Collateral
Management Company shall:
- Ensure
that its Board of directors and the chief executive are appointed with
prior approval of the Commission;
- Ensure
that key officers fulfill the fit and proper criteria as provided in these
regulations;
- Maintain
the eligibility criteria provided by the Commission and notify the Commission
immediately if it ceases to fulfill any of the conditions provided in
these rules;
- Maintain
high standard of integrity and fairness in discharging its functions and
its dealing with other persons with whom it has agreed in writing to
render services as CMC;
- Fulfill
its obligations in a fair, efficient, transparent and ethical manner;
- Act
with due skill, care and diligence in performing all its functions and
discharging all its obligations and responsibilities;
- Upon
Registration, display such license, in a conspicuous place, in the
principal place of its business;
- Establish
the procedure for pledging, in favor of a financial institution, the
Depositor's commodities held with the CMC/Warehouse Operator against which
Electronic Warehouse Receipt has been issued;
- Have
inspection arrangements or a list of third party examiners responsible for
the inspection;
- Have
a list of approved third party Assayers, who shall verify and grade the
commodity stored at their accredited Warehouses;
- Certify
a Warehouse.
- Registration
of Warehouses:
- Every
warehouse that stores commodities to be traded on a registered Exchange
shall apply to be registered by the Commission.
- The
Commission shall maintain a Register of all registered warehouses which
shall be published on its website.
- A
warehouse applying for registration shall:
- Present
evidence of construction in compliance with the National Building Code,
- Present
evidence of compliance with relevant Federal and State regulation relating
to the operation of warehouses,
- Have
facility(ies) appropriate for storage of commodities,
- Have
appropriate security arrangements in place,
- Have
adequate trained staff with expertise and knowledge of scientific storage
of commodities,
- Have
requisite equipment for weighing and quality measures,
- Have
comprehensive insurance cover for the building, equipment, stock and other
items as may be necessary,
- Be
located in a place with access to infrastructure to support its operations
and have sufficient space for parking and movement of large vehicles,
- Submit
a Standard Operating Procedure (SOP) which shall cover the following among
others:
- Procedures
for acceptance of goods to be deposited and delivery of goods;
- Procedures
for weighing, sampling of goods to be deposited in compliance with
industry standards,
- Procedure
for verification of commodities and communication to depositors,
- Procedure
for maintaining the quality of the goods stored in line with relevant
specifications,
- Procedure
for Know your depositor,
- Security
policy for ensuring the safety of the goods,
- Procedure
for the use of modern techniques for storage of goods,
- Procedure
for determining and addressing losses due to theft, fire, burglary, fraud,
negligence and force majeure events,
- Procedure
for internal verification of stock,
- Procedure
for maintenance of warehouse and preservations of Stock,
- Organizational
structure,
- Job
description for every staff
- Exchange
Accreditation of Collateral Management Companies/Warehouses/Assayers
- A registered
Collateral Management Company, registered warehouse and Assayer shall be
accredited with an Exchange in order to handle commodities linked to the
Exchange.
- The
Exchange shall make an initial assessment at the time of accrediting a
Warehouse as well as annual assessment in relation to each Warehouse
accredited, and maintain a copy of the report for a minimum period of 7
years.
- Exchanges
shall periodically submit details of Warehouses accredited and inspections
carried out to the Commission as may be prescribed.
- A
Collateral Management Company may be accredited by more than one Exchange.
- In
addition to the provisions of these Rules, the Exchanges may prescribe
additional guidelines for compliance by their accredited Collateral
Management Companies, warehouses and Assayers.
- Certification
of warehouses by Collateral Management Companies
- Every
registered warehouse seeking to issue Electronic Warehouse Receipts to be
traded on a registered Commodity Exchange/used for collateral management
purposes shall be certified by the Collateral Management Company to which
it is linked subject to the following conditions:
- The
Warehouse Operator has submitted proof of ownership or registered-lease
deed or rent agreement, along with disclaimer from owner of the
Warehouse/property providing waiver of ownership regarding Produce stored
in such Warehouse, in case of leased or rented Warehouse;
- The
Warehouse is suitable with respect to the types of Commodities being
stored;
- The
Warehouse is equipped with all the necessary equipment and apparatus
including but not limited to drying, weighing, handling, firefighting,
circulation of stock, alternative power source, and insect/pest
management;
- The
Warehouse has adequate arrangements in place for carrying out sampling, grading
and testing of Commodities stored therein;
- The
Warehouse Operator has financial capability, and adequate trained staff
with expertise and knowledge for the storage of Commodity in the
Warehouse;
- The
Warehouse has an efficient system for loading/unloading of Commodity
including proper mechanism for segregation of different kinds/quality of
Commodity;
- The
Warehouse has adequate security arrangements and is located in a place
which is accessible and is not excessively prone to natural disasters;
- The
Warehouse is comprehensively insured for incidents including but not
limited to natural disaster, fire, and theft;
- The
Warehouse Operator is of a good repute, has no criminal convictions, has
not defaulted on his financial obligations, is competent and has control
over the operations of the Warehouse;
- The
Warehouse Operator has submitted an affidavit that he is responsible for
ensuring maintenance of quantity, weight and quality of Commodity that is
stored for the Depositor;
- The
Warehouse is electronically connected with the CMC, which in turn has a
link to the Commodity Exchange(s);
- Maintain
an efficient electronic inventory management system;
- Establish
effective complaints management procedures; and
- Upon
certifying a Warehouse, the CMC shall inform the Commission and shall
forward the copy of certification, indicating the location, capacity,
types of Commodities the Warehouse is suitable for storing, and other
relevant information;
- Maintain
records and documents in respect of certified Warehouses;
- Issue
credible Warehouse receipts against Commodity stored in the Warehouse;
- Make
an initial assessment report at the time of certifying a Warehouse as well
as annual assessment report in relation to each Warehouse certified, and
maintain a copy thereof for a minimum period of 5 years;
- Maintain
a register of certified Warehouses and publish the list on its website;
- Submit
a monthly report to the Commission about details of Warehouses accredited
and inspections carried out.
- Insurance:
A Collateral
Management Company and Warehouse Operator shall ensure at all times that the
value of commodities stored at registered warehouses is under insurance cover against
all potential risks relevant to the commodities for which insurance cover is
available and necessary. The value of the commodities to be insured should be
marked to market on replacement value on ongoing basis.
- Know
Your Depositor:
A Collateral
Management Company and Warehouse Operator shall at all times be able to
identify the depositor of the commodities deposited in registered warehouses,
the owner of the deposited goods (in case the depositor is an agent of the
actual owner), and the actual beneficiary (in case the depositor and the
beneficiary are different) of the stored commodities.
- Every
depositor shall be issued a physical receipt against commodity deposited
in a warehouse. The physical warehouse receipt shall be replaced within
two days with an Electronic Warehouse Receipt issued by the Collateral
Management Company.
- The
Collateral Management Company/Warehouse Operator shall not issue a
warehouse receipt without actually receiving the commodity.
- The
Collateral Management Company/Warehouse Operator shall not issue more than
one receipt for the same commodities deposited by a depositor provided
that in case of a loss or destruction, a duplicate receipt may be issued
in compliance with the specified process.
- Standardization
And Issuance Of Electronic Warehouse Receipts
- Electronic
Warehouse Receipts shall only be issued by Collateral Management
Companies;
- The
Collateral Management Company shall control and maintain records of
Electronic Warehouse Receipts issued by it.
- The
Collateral Management Company shall prescribe particulars to be contained
in the Electronic Warehouse Receipt subject to the approval of the
Commission which shall include the following:
- Auto-generated
unique receipt number by the Electronic Warehouse Receipt
System/Collateral Management System;
- Warehouse
Registration number, name of the Warehouse and its complete address;
iii. Name and
address of the person by whom or on whose behalf the commodity is deposited;
- Date
of issuance of the Electronic Warehouse Receipt;
- Storage
charges and handling charges;
- Description
of the Commodity and the packages containing them (if any) with
particulars of quantity and quality or grade;
vii. Market
value of the Commodity at the time of deposit;
viii. Declared
shelf-life of the Commodity as determined by the Assayer;
- Validity
of the Electronic Warehouse Receipt which shall be for a maximum period of
the declared shelf-life of the Commodity as determined by the Assayer;
- Name
of the insurance company, policy and policy number of the insurance cover
for indemnifying the Electronic Warehouse Receipt holder for any loss that
may be caused to such person by the wrongful act, negligence, natural
catastrophe based on the criteria predetermined by the Collateral
Management Company;
- Statement
that the Commodity received shall be delivered to the holder thereof, or
that the Commodity shall be delivered to the order of a named person;
- Each
Electronic Warehouse Receipt shall be assigned a serial number, and shall
maintain the same serial number.
- The
Collateral Management Company shall ensure that its Electronic Warehouse
Receipt System/Collateral Management System is electronically linked to
its certified warehouses and the Exchange where the Electronic receipt is
to be traded.
- Tradability
of Electronic Warehouse Receipt
- The
Electronic Warehouse Receipt issued by a Collateral Management Company
shall be tradable on an Exchange,
- For
the purpose of settlement of Electronic Warehouse Receipt, the Electronic
Warehouse Receipt System of the Collateral Management Company shall be
linked to the Exchange and its Depository.
- Maintenance
of Records of Electronic Warehouse Receipt
The Collateral
Management Company shall maintain the following records:
(a) All Electronic Warehouse Receipts issued;
(b) Date of issuance of the Electronic Warehouse Receipts;
(c) Date of expiry of the Electronic Warehouse Receipts;
(d) The commodity for which the Electronic Warehouse Receipt has been
issued;
(e) Quality and quantity of the commodity as specified in the Electronic
Warehouse Receipt;
(f) Any Electronic Warehouse Receipt that has been cancelled by the
Collateral Management Company;
(g) Any transaction that has been carried out on the Electronic
Warehouse Receipt; and
(h) Any other information as may be required by the Commission.
- The
Collateral Management Company shall submit a summary of all Electronic
Warehouse Receipts issued, along with the total value of the relevant
Commodity, on a monthly basis to the Commission.
- The
Collateral Management Company shall inform the Commission immediately of
any loss, damage or destruction of any record or report in relation to the
Electronic Warehouse Receipt.
- Delivery
And Withdrawal Of Commodities
- Delivery
of Commodities shall be made after due charges are paid. The Collateral Management
Company/Warehouse Operator shall deliver the Commodity to the depositor or
endorsee subject to payment of all dues to the warehouse and cancellation
of the Electronic Warehouse Receipt.
- Commodities
deposited in the Warehouse by the Depositor on the basis of which
Electronic Warehouse Receipt has been issued by the Collateral Management
Company may be withdrawn in the manner prescribed by the Collateral
Management Company.
- Pledging
Against Electronic Warehouse Receipt In Respect Of Commodities
- The
Collateral Management Company shall make necessary arrangements for
provision of pledging against the Electronic Warehouse Receipt, issued in
respect of the Commodity, including the matters concerning the collateral
management of such financing and matters connected therewith.
- The
Collateral Management Company shall provide a financial institution
necessary access to the data for verification of Electronic Warehouse
Receipt.
- The
Depositor of Commodities or other person holding an Electronic Warehouse
Receipt may create a Pledge in favor of a financial institution, by
instruction to the Collateral Management Company, against the Commodity
represented in such Electronic Warehouse Receipt in the manner prescribed
by the Collateral Management Company.
- Information
to be provided for the purpose of creation of Pledge on an Electronic
Warehouse Receipt by the Collateral Management Company, Pledgor and the
financial institution shall be in the manner prescribed by the Collateral
Management Company.
- The
Collateral Management Company shall give effect to the Pledge transaction
in favor of the financial institution upon the instructions of the
Depositor of the Commodity or such other person in whose favor Electronic
Warehouse Receipt has been issued, in the manner prescribed by it.
- The
financial institution shall have a lien on the Commodity represented
through the Electronic Warehouse Receipt and the Collateral Management Company
shall not release the Commodity from the warehouse if a pledge exists on
the Electronic Warehouse Receipt issued against the Commodity.
- The
financial institution, upon satisfaction, may release the Pledge as
prescribed.
- Upon
release of the Pledge by the financial institution, such Commodity shall
be available to the Depositor of the Commodity or other person holding the
Electronic Warehouse Receipt.
11.
Inspection
The Commission
shall conduct inspection of registered warehouses and Collateral Management
Companies.
Justification:
These Rules have been developed to provide the
enabling regulatory framework for the operations of Collateral Managers and to
provide certainty regarding the rights, roles and responsibilities of
participants.
Proposed Rule On Crowdfunding
(Re-Exposure)
The following
rules were exposed in March 2020. However, due to the inclusion of some
comments received from stakeholders and further review by the Rules Committee,
there is a need to re-expose the rules to reflect the new amendments for the
information of the public.
Part 1 - General Provisions
- Definition
of Terms
Act - The Investments and Securities Act, 2007 or as amended
AML/CFT - Anti-Money Laundering /Combatting the Financing of Terrorism
Associated Person - "Associated person of a funding portal member" or "person associated with a funding portal member" means any sole
proprietor, partner, officer, director or manager of a funding portal, or other
natural person occupying a similar status or performing similar functions, or
any natural person directly or indirectly controlling or controlled by a
funding portal member, or any employee of a funding portal member;
Blind pool: A business plan which is solely for the purpose of merging with or
acquiring an unidentified entity;
Complex Structures: A complex structure is an entity without immediate transparency of
ownership and/or control thereby making it difficult to immediately ascertain
the beneficial owners of the entity;
Control: For the purpose of this rule, an entity will be regarded as
controlled by the Issuer Fundraiser or being under common control with
the Issuer Fundraiser where the Issuer Fundraiser
or the entity in control:
(a)
beneficially owns more than one half of the issued share capital of the
company; or
(b) is
entitled to vote a majority of the votes that may be cast at a general meeting
of the company, or has the ability to control the voting of a majority of those
votes, either directly or through a controlled entity of that company;
(c) is able to
appoint or to veto the appointment of a majority of the directors of the
company;
(d) is a
holding company, and the company is a subsidiary of that company as
contemplated by the Companies and Allied Matters Act.
(e) has the
ability to materially influence the policy of the company in a manner
comparable to an entity who, in ordinary commercial practice, can exercise an
element of control referred to in paragraphs (a) to (d).
Cooling-off Period: An interval during which the investor can withdraw
the decision to invest.
Crowdfunding: The process of raising funds to finance a project or business from the
public through an online platform;
Crowdfunding Portal: A website, platform, portal, intermediary portal,
application, or other similar module that facilitates interaction between issuers Fundraisers and
the investing public;
Crowdfunding Intermediary: An intermediary organized and registered as a
corporation to facilitate transactions involving the offer or sale of
securities or investments through an online electronic platform;
Digital Commodities Investment
Platform: An electronic digital platform
that connects investors to specific agricultural or commodities projects for
the purpose of sponsoring such projects in exchange for a return;
Funding Round: The round of funding period for within
which a specific project, business, or venture is hosted
on a crowdfunding platform to raise funds from a large number of people in
exchange for shares, debt securities or other investment instruments approved
by the Commission;
High Net Worth Investor: Shall have the same meaning as provided in the
SEC Rules;
Investment-based crowdfunding: The process of raising funds from a
large number of people the public through an online
platform in exchange for shares, debt securities or other investment
instruments approved by the Commission;
Investment Instruments: Ordinary shares, plain vanilla bonds or
debentures, and simple investment contracts approved by the Commission for
issuance through a crowdfunding portal from time to time". Instruments
approved by the Commission for issuance through a crowdfunding portal from time
to time including shares, plain vanilla bonds or debentures, and simple
contracts;
Investor: refers to any person or entity that seeks to make, are making,
or have made an investment in an investment vehicle with the expectation of
achieving returns; means investors is as defined in the
Act.
Issuer Fundraiser: refers to the originator, maker or
obligor, or creator of the security or investment
instrument to be issued pursuant to these Rules which shall
be registered with the intermediary;
KYC: Know
Your Customer;
Material Adverse Change: Means
any event, development or circumstance that has had or could reasonably be
expected to have an unfavourable effect. It also includes changes in the
condition (financial or otherwise), operations, business, performance,
properties or assets of the Fundraiser Borrower and
its Subsidiaries, taken as a whole such that it would impede them from
delivering on their intended activity or commitment.
Minimum Threshold: The minimum percentage of the target amount which must be raised
by an Fundraiser issuer in a funding round
in order to be eligible for the disbursement of the proceeds;
MSME: Micro, small and medium enterprises shall be as prescribed by the
Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) in relation
to total asset or and annual turnover or
number of employees;
Non-Permissible Investment Instrument: Means any investment instrument other than plain
vanilla bonds/debentures, ordinary shares, and simple investment contracts and
other instruments as may be approved by the Commission from time to time an
Instruments defined under investment instrument;
Operator: A Crowdfunding Intermediary registered by the Commission;
Qualified Institutional Investor: Shall be as defined in the SEC Rules;
Plain vanilla bonds/debentures: Non-complex debt instruments with fixed rates
and a defined maturity that involves an investor (lender) purchasing a bond at
its face value, receiving periodic interest payments from the bond issuer Fundraiser (borrower)
and receiving the full principal upon maturity;
Predecessor: An entity which has been followed or replaced by
another entity whether through a merger, acquisition, or other form of
corporate action;
Public Company by Default: A private company whose members exceed 50 as defined prescribed
by the Companies and Allied Matters Act (CAMA) at the end of a funding
round;
Restricted Dealer: A dealer registered by the Commission to only carry
out crowdfunding activities as specified under these Rules;
Retail Investor: Any investor other than a High Net worth, Sophisticated Investor or
Qualified Institutional Investor;
Simple Investment Contract: A contract or scheme for the placing of capital or
laying out of money in a way intended to secure income or profit from
its employment and includes participation in any profit-sharing agreement by
virtue of which:
- The
investors provide the capital;
- The
promoters manage, control and/or operate the enterprise; and
- The
investors share in the earnings and profits;
Sophisticated Investor: Shall have the meaning assigned to it in
the SEC Rules and Regulations; for the purpose of this Rule, mean
any person with 3 years' experience of actively investing in the capital market
and understands the relationship between risk and return;
Target Plan: Means the proposed use of the funds to be raised on the portal
specifying full details of the project to be funded and documentary evidence of
all forms of insurance, and contract with relevant third parties including
off-takers and land owners (as applicable).
Trust Account: is as defined shall
have the meaning assigned to it in the Act.
- Applicability
These is Rules shall apply only to only Investment-Based
Crowdfunding.
- Eligibility
Only the
following entities shall be eligible to raise funds through a Crowdfunding
Portal operated by a registered Crowdfunding Intermediary, in exchange for the
issuance of investment instruments;
OnlyAll MSMEs incorporated as a company in Nigeria with a
minimum of two-years operating track record;
- MSMEs
incorporated as a company in Nigeria with less than two years operating
track record but which has a
core
investor or strong technical partner that possesses a minimum
of 2 years’ operating track record or has a core investor; shall
be eligible to raise funds through a Crowdfunding Portal registered by the
Commission, in exchange for the issuance of shares, debentures, or such other
investment instrument as the Commission may determine from time to time.
- Exemptions
from Certain Provisions of the Act
- A
n issuer Fundraiser may
offer or sell securities or other investment instruments
under these Rules without the need for prior registration of the securities
or investment instruments pursuant to the Act,
provided that:
- The
issuer Fundraiser is
an entity incorporated in Nigeria, and accredited and/or accepted by a
Crowdfunding Portal Intermediary to utilize
its portal platform;
- The
aggregate amount of
securities or investment instruments
that can be offered and sold by the issuer Fundraiser within
a 12-month period shall comply with the following limits:
- The
maximum amount which may be raised by a Medium enterprise shall not exceed
N100Million;
- The
maximum amount which may be raised by a Small enterprise shall not exceed
N70Million;
- The
maximum amount which may be raised by a Micro enterprise shall not exceed
N50Million
- The
limits set forth above shall not apply to
MSMEs operating as digital commodities
investment platforms, or such other MSMEs as may be designated by the
Commission from time to time, provided that such additional
requirements as may be specified in these rules are complied with.
- The
aggregate amount of
securities or investments instruments
sold to any investor across all issuers Fundraisers in
investment-based crowdfunding during the 12-month period shall not exceed
the following limits:
- Retail
investors may not invest more than 10% of their net annual
income in a calendar year.
- Sophisticated,
High Net worth and Qualified Institutional Investors are not subject to
the limits set forth above.
- The
issuance of
securities or other investment instruments
shall be conducted through a Crowdfunding Portal operated by a
registered Crowdfunding Intermediary, operating a registered
Crowdfunding Portal.
Only
plain vanilla bonds/debentures, ordinary shares and other investment
instruments as may be determined by the Commission shall be issued
pursuant to this exemption.
- For
the purpose of calculating the aggregate amount of
securities and investment
instruments offered and sold by an issuer Fundraiser under
this Rule, and determining whether an issuer Fundraiser has
previously sold securities or investment instruments
within a 12-month period, the term issuer Fundraiser as
used in this Rule, shall include all entities controlled by or under
common control with the issuer Fundraiser and
any predecessors of the issuer Fundraiser.

Part 2 - Crowdfunding Portal Requirements
- General
Provisions
- Every
portal that facilitates, operates, provides or maintains interactions
between fundraisers and the investing public (crowd) in Nigeria for the
purpose of any investment-based crowdfunding shall be operated only by an
entity registered as a Crowdfunding Intermediary
Every platform
that facilitates, operates, provides, or maintains interaction between issuers
and the investing public (crowd) in Nigeria through a portal, for the purpose
of any investment-based crowdfunding shall be registered with the Commission as
a Crowdfunding IntermediaryPortal;
- An
person entity is
considered to be facilitating, operating, providing or
maintaining a Crowdfunding Portal in Nigeria if:
- the Crowdfunding
Portal
platform is operated, provided or maintained
in Nigeria; or
- the Crowdfunding
Portal
platform is located outside Nigeria but actively targets Nigerian Investors in
Nigeria; or
- the
component parts of the platform when taken together are physically located
in Nigeria even if any of its component parts, in isolation, is located
outside Nigeria;
- A
Crowdfunding Portal that is located outside Nigeria will be considered as
actively targeting investors in Nigeria
investors if
the operator, or the operator's representative, promotes directly or
indirectly the Crowdfunding Portal platform in
Nigeria;
A Crowdfunding
Portal may be registered and operated only by an operator registered with the
Commission as a Crowdfunding Intermediary;
Only entities
registered with the Commission as an Exchange, Dealer, Broker, Broker/Dealer or
Alternative Trading Facility as prescribed under the Act and the SEC Rules and
Regulations may be registered as a Crowdfunding Intermediary;
A Dealer Only
CMOs registered by the Commission as Crowdfunding Intermediaries for the
purpose of crowdfunding will be considered a "Restricted
Dealer" and can only carry out activities covered under
this Rule;
- The
requirement for registration as a
restricted dealer Crowdfunding Intermediary is
as listed in Schedule 1 of these Rules;
- These
provisions do not apply to:
- a
technology service provider who merely provides the infrastructure,
software or the system to an operator;
- an
operator of a communication infrastructure that merely enables orders to
be routed to an approved stock market;
- an
operator of a financial portal that aggregates content and provides links
to financial sites of service and information provider.
- Registration
Requirements
- An
application for registration of a Crowdfunding Intermediary
Portal shall
be made to the Commission in the prescribed form and in the manner specified
by the Commission and shall be accompanied with:
- copy
of the certificate of incorporation certified by the
company
secretary Corporate Affairs Commission (CAC);
- Memorandum
and Articles of Association and amendments (if any) certified by the
Corporate Affairs Commission;
- CAC
Form(s) showing Statement of Share Capital, Return of Allotment, and
Particulars of Directors;
- Latest
copy of the audited accounts or a copy of the statement
of affairs signed by its auditors and management accounts that are not
more than thirty (30) days old as at time of filing with the Commission;
- A
profile of the Company which shall include amongst other information; a
brief history of the company, organizational and shareholding structure,
principal officers as well as details of past and current activities;
- The
name(s) and address(es) of the company's subsidiaries/associated
companies/ related entities, type of business and percentage holding;
- Evidence
of payment of shares allotted to the shareholders;
- Operational
manual of the company;
- Business
plan;
Bank
statement of accounts operated by the Company for the last 6 months;
2
copies of e Existing
or proposed by-laws or rules, and such other document governing the
conduct of subscribers on the platform;
- Sworn
undertaking to promptly furnish the Commission with copies of any
amendments to its by-laws, rules, or codes;
- Information
relating
to market facilities on Crowdfunding IT System to be adopted;
- Detailed
information about the crowdfunding system to be adopted including
technical details associated with the portal's online presence;
- Proposed
brand name of the Crowdfunding Portal including evidence of trademark
registration of the brand name
of the Crowdfunding Intermediary if the brand
name is different from the incorporated name (where applicable)
- Details
of
Evidence of
registration of all domain names of any website through which
the Crowdfunding Portal will be operated, social media handles and any
other online identifiers including evidence of registration (where
applicable)
Information as
to its organization including structure and profile of Management as well as
rules and procedures;
- detailed
information about the promoters and principal officers of the Crowdfunding
Portal Intermediary;
- Sworn
undertaking to keep such records and render such returns as may be
specified by the Commission from time to time;
- An
application for registration of at least three (3) principal officers of
the Crowdfunding Intermediary
ies as sponsored
individuals Portal on the prescribed Form;
- A
person to be so appointed shall include the chief executive of the Crowdfunding Intermediary,
and any
person who is primarily responsible for the operations and financial
management, by whatever name called of the Crowdfunding
Portal;
Complete
postal addresses of previous employers, bankers and nominated referees of
sponsored individuals;
A
detailed curriculum vitae of the sponsored individuals and Directors with
a chronology of activities from Secondary School to date; all gaps in
employment and educational history should be explained;
Copies
of credentials and relevant certificates; originals will be required for
sighting by the SEC;
Police
clearance report for each Sponsored Individual.;
Copy
of a valid means of Identification of the Directors and the Sponsored
Individuals of the Company;
- minimum
paid-up capital requirement of N100 million;
- Current
Fidelity Insurance Bond valued at a minimum of 20% of the paid-up capital
as stipulated by the Commission's Rules and Regulations;
- a
written
annual declaration by the operator's chief
executive of the Crowdfunding Intermediary, and which
shall be filed annually, confirming that the Crowdfunding
Intermediary has, in relation to the Crowdfunding Portal:
- sufficient
and capable personnel to carry out operations;
- adequate
security measures, systems capacity, business continuity plan and
procedures, risk management, data integrity and confidentiality, record
keeping and audit trail, for daily operations and to meet emergencies;
and
- sufficient
IT and technical support arrangements.
- Any
other information required by the Commission from time to time for the
protection of investors.
(b) The
cash assets ratio shall be a minimum of 30% liquid assets and 70% fixed and
other assets. A restricted dealer shall comply with the
registration requirements of a Dealer as prescribed in the SEC Rules and
Regulation.
- Criteria
for Registration
- The
Commission may register a Crowdfunding Intermediary
Portal if
the Commission is satisfied that:
- the
operator Crowdfunding
Intermediary will be able to operate an orderly, fair and
transparent market system in relation to the securities
or investment instruments that are traded offered through
its electronic platform;
- the
Crowdfunding
Intermediary's operator's board, chief executive, and any person officer
of the Crowdfunding Intermediary who is primarily responsible for
the operations or financial management of the Crowdfunding Portal, are fit
and proper persons who have not:
- been
convicted, whether within or outside Nigeria, of an offence involving
fraud or other dishonesty
or violence or the conviction
of which involved a finding that he acted fraudulently or dishonestly;
- been
convicted of an offence under the Act or any other law relating to the
capital market;
- been
blacklisted by a professional body which he belongs to;
- been
subjected to any disciplinary process or action by the Commission or
other Self-Regulatory Organization in the Nigerian capital market;
- contravened
any provision made by or under any written law, whether within or outside
Nigeria appearing to the Commission to be enacted for protecting members
of the public;
- against
financial loss due to dishonesty, incompetence or malpractice by persons
concerned in the provision of financial services or the management of
companies; or
- against
financial loss due to the conduct of discharged or un-discharged
bankrupts;
- engaged
in any unlawful business practice;
- engaged
in or has been associated with any other business practices or otherwise
conducted himself in such a way as to cast doubt on his competence and
soundness of judgment; or
- engaged
in or has been associated with any conduct that cast doubt on his ability
to act in the best interest of investors, having regard to his reputation,
character, financial integrity and reliability;
- the Crowdfunding
Intermediary
operator will be able to manage any risk
associated with its business and operation;
- the Crowdfunding
Intermediary
operator will be able to take
appropriate action against a person in breach of any rules,
policies, terms and other standards of the portal including
directing the person in breach to take any necessary remedial measure;
- the
rules of the Crowdfunding Intermediary
Crowdfunding
Portalmake satisfactory provisions:
- for
the protection of investors and public interest;
- to
ensure proper functioning of the market;
- to
promote fairness and transparency;
- to
manage any conflict of interest that may arise;
- to
promote fair treatment of all users;
- to
ensure proper regulation and supervision of its users, or any person
utilizing or accessing its platform, including suspension and expulsion of
such persons after consultation with the Commission;
- to
provide an avenue of appeal against the decision of the operator; and;
- the Crowdfunding
Intermediary
operator has sufficient financial, human
and other resources for the operation of the Crowdfunding Portal, as
prescribed by the Commission from time to time.
- Revocation
of Registration
- Without
prejudice to the provisions of the SEC Rules and Regulations, the
Commission may revoke the registration of a Crowdfunding
Portal Intermediary where:
- the
Crowdfunding Intermediary fails to meet the requirements
under any relevant provisions of these rules;
- the
operator Crowdfunding
Intermediary fails or ceases to operate or maintain the
Crowdfunding Portal for a consecutive period of 6 months;
- there
is a failure to pay fees as prescribed by the Commission.
The Commission
may cancel or suspend the registration of a Crowdfunding Intermediary where the
intermediary contravenes any of the provisions of the Act, the rules and
regulations, the code of conduct for capital market operators, is guilty of
fraud, repeated defaults, has been convicted of an offence involving moral
turpitude. or fails to do any of the following:
furnish
any information relating to its activities as required by the Commission
or furnishes information which is false and misleading in any material
particular;
submit
periodic returns or reports as required by the Commission;
co-operate
in any enquiry or inspection conducted by the Commission;
update
its systems and procedures as recommended by the Commission;
resolve
the complaints of clients or to give a satisfactory reply to the
Commission in this regard.
- Change
of Structure or Cessation of Business Operations
- The
operator Crowdfunding
Intermediary shall not change the its
ownership structure or discontinue the business or
operations of a Crowdfunding Portal without the prior
approval of the Commission.
- When
notifying the Commission of a proposed discontinuation of the business or
operations of a Crowdfunding portal, the Crowdfunding Intermediary shall
submit a
contingency plan
for the reasonable conclusion of any of its regarding any of its ongoing
operations or processes for the consideration of the Commission;
- Without
prejudice to any provisions in this Rule, the Commission may issue a
directive or impose any term or condition for the purposes of ensuring the
orderly cessation of the business or operations of a Crowdfunding Portal.
- Action
by the Commission in the event of Cessation or Suspension
Without
prejudice to the powers of the Commission pursuant to the Act, where the
Commission suspends, cancels or revokes the registration of a Crowdfunding
Intermediary, or where a Crowdfunding Intermediary seeks to voluntarily cease
operations, the Commission shall issue directives regarding one or more of the
following as may be applicable:
- Ongoing
issuances on the platform;
- Funds
held with custodians on behalf of
issuers Fundraisers;
iii.
Repayment to its of investors;
- Interim
management of the operations of the intermediary;
- Such
other matter as the Commission considers necessary in the interest of
investors.
Part 3 - Obligations of the Crowdfunding
Intermediary
- General
Obligations
Every
Crowdfunding Intermediary Portal shall
- disclose
and display prominently on its portal,
any relevant information
relating to the portal platform and its use
including:
- disclosures
of the Fundraisers
issuers in
respect of;
- Details
of ownership, management and overall controls structure in place at the
time of the offering;
- Details
of
internal control
measures that will guard against losses or certifications possessed by
the underlying business, if any; and
- Any
other information
relating to
issuers Fundraisers hosted on
the portal as required by these regulations;
- investor
education materials and appropriate risk disclosures;
- information
on how the
platform portal facilitates the
investor's investment including providing communication channels to permit
discussions about offerings hosted on the portal its
platform;
- a
general risk warning on participating in funding through the portal
platform;
- information
about complaints handling or dispute resolution and its procedures;
- the
fees, charges and other expenses that it may impose on
an issuer a
Fundraiser or investor.
- An
attestation by the crowdfunding intermediary that it has verified the
legitimacy of the Fundraiser's
issuer's business;
- An
attestation by the crowdfunding intermediary that the operations of the Fundraiser's
issuer's business
are in agreement with the disclosed objectives and will continue to be so;
Information on
processes and contingency arrangement approved by the Commission, in the event
that the Crowdfunding Intermediary ceases to continue operation of the portal
- carry
out investor education programmes;
- ensure
the disclosure document lodged with the portal by each
issuer Fundraiser is
verified for accuracy and made accessible to investors through the
platform;
- inform
investors of any material adverse change to
an issuer's a
Fundraiser's proposal as set out under this rule;
- Ensure
Issuers Fundraisers comply
with the responsibilities and obligations prescribed by this rule.
- Due
Diligence
- A Crowd Funding Intermediary
Portal shall
carry out due diligence on prospective Fundraisers issuers intending
to use its portal latform;
- the
Crowdfunding Intermediary should
have a reasonable basis for believing ensure
that a Fundraiser seeking to offer and sell investment instruments through
the portal complies with the requirements in this regulation;
- The
scope of the due diligence by a
Crowdfunding Portal Crowdfunding
Intermediary shall include taking reasonable steps to:
- conduct
background checks on the Fundraiser
issuer to
ensure that the fit and properness of the issuer's board
of directors, officers and controlling shareholder(s) of the
Fundraiser issuer are fit and proper and shall in
particular, verify that the board, chief executive, and any officer
of the Fundraiser Issuer who is
primarily responsible for its operations or financial management have not;
- been
convicted, whether within or outside Nigeria, of an offence involving
fraud or other dishonesty
or
violence or
the conviction of which involved a finding that he acted fraudulently or
dishonestly;
- been
convicted of an offence under the Act or any other law relating to the
capital market;
- been
blacklisted by a professional body which he belongs to;
- contravened
any provision made by or under any written law, whether within or
outside Nigeria
appearing to the Commission to be
enacted for protecting members of the public;
- against
financial loss due to dishonesty, incompetence or malpractice by persons
concerned in the provision of financial services or the management of
companies; or
- against
financial loss due to the conduct of discharged or un-discharged
bankrupts;
- engaged
in any unlawful business practice;
- engaged
in or has been associated with any other business practices or otherwise
conducted himself in such a way as to cast doubt on his competence and
soundness of judgment; or
- engaged
in or has been associated with any conduct that cast doubt on his ability
to act in the best interest of investors, having regard to his
reputation, character, financial integrity and reliability;
- verify
the accuracy and viability of the business proposition of
the
issuer Fundraiser, the solvency of the
Fundraiser issuer and if the business forecast is based
on sound assumptions; and
- comply
with all relevant KYC, and AML/CFT regulations as stipulated by the
Commission.
- Monitoring
and Reporting
A
Crowdfunding Intermediary Portal shall:
- monitor
the conduct of
issuers Fundraisers on
its portal and take action against misconduct of
the issuer Fundraiser;
- monitor
issuers Fundraisers to
ensure that the fundraising limits imposed on the issuer Fundraiser are
not breached;
monitor
investors to ensure that the investment limits imposed on the investors
are not breached and ascertain the classification of prospective investors
into relevant investor categories;
- comply
with all reporting obligation as may be specified by this rule and all rules
and regulations relating to market operators;
- in
addition to quarterly and annual CMO returns, file the following reports
with the Commission, through
stipulated such channels
as may be stipulated from time to time:
- Monthly
reports specifying the following;
- Total
number of
issuers Fundraisers who raised
funds through the portal during the reporting period;
- Total
number of investors who invested through the portal
latform during
the reporting period;
- Number
and Types of securities or investment contracts issued during the
reporting period;
- Total
amount raised on the portal
latform during
the reporting period;
- Such
other information as may be required by the Commission.
- Quarterly
reports, specifying the following;
- Information
on
Issuers Fundraisers who raised funds
during the reporting period;
- Total
amount raised on the portal
latform during
the reporting period;
- Observed
breaches or risk incidents during the reporting period and steps taken to
address same;
- Complaints
received and steps taken to resolve same during the reporting period from
investors;
- Such
other information as may be required by the Commission;
- Data
Protection and Privacy
A
Crowdfunding Intermediary Portal shall:
- establish
appropriate safeguards for ensuring the integrity of the information
received and published;
- ensure
security and confidentiality of information collected from investors;
- ensure
that the security of the portal is incorporated into the
naming development
and hosting of the website of the Crowdfunding Portal in a manner which
enables the general public identify its safety prior to creating an
account on the platform;
- comply
with the provisions of the Nigerian Data Protection Regulation and other
applicable laws;
- Maintain
reliable and secure operating systems;
- identify
the sources of operational risks and adopt adequate procedures and
controls to avoid operational disruptions;
- develop
and implement a written identity theft prevention program;
- install
and ensure the operation of suitable back-up facilities;
- be
adequately insured against portal failure or closure;
- keep
a copy of all relevant documents for a period of at least 7 years after
the date on which the document comes into the possession of the portal;
- within
5 working days of receipt of a request for information from
an investor, provide a copy of, or an extract from, a document that is
relevant to the investor.
- Operation
of Trust Account
- Every
Crowdfunding
Portal Intermediary shall
appoint a custodian registered by the Commission, who shall establish and
maintain a separate trust account for each funding round on its platform portal.
- The
Crowdfunding Intermediary shall only direct the custodian to release the
funds to the Fundraiser
Issuer after
the following conditions are met:
(i) the
targeted amount sought to be raised or the minimum threshold has been met;
(ii) there is
no material adverse change relating to the offer during the offer period; and
(iii) all
applicable requirements for the registration of securities have been met
- Funds
invested will be maintained by the Custodian in an interest yielding trust
account and will only be released to the
issuer Fundraiser
after specified conditions provided in these rules and regulations have
been met.
- The
Custodian
A
crowdfunding intermediary shall
take all reasonable steps and establish measures to ensure that the
custodian performs all its responsibilities as required by these Rules
- Issue, Publication and
acknowledgment of Warning Statements
- The
Crowdfunding
Portal Intermediary shall ensure
that a warning statement is prominently displayed:
- to
all visitors to the site on the home page of the portal; and
- to
every investor, on the subscription landing page for each
issuer Fundraiser;
and
- on
all application forms for investing through the portal.
- The
Warning Statement should among other things, warn and advise investors
that;
- Investing
through an online portal is risky and
Issuers Fundraisers raising
funds through the portal include new or rapidly growing ventures;
- Investment
in the businesses hosted on the portal is very speculative and carries
high risks;
- Investors
may lose their entire investment, in the ordinary
course of business, and must be in a position to bear this
risk
without undue hardship;
- Past
results are not indicative of future performance
- It
is important to ask
questions, read all information given carefully, and seek independent
financial advice before committing themselves;
- The
investment limits of investors are being monitored by the Crowdfunding
Intermediary;
- The
Crowdfunding
Portal Intermediary shall ensure
every investor affirms to a risk acknowledgement form by which the
investor confirms:
- their
understanding that the proposed investment is a risky investment;
- the
investor may be overpaying for the securities or investment contracts
issued;
- their
understanding that there may be additional classes of shares with rights
that are superior to the class of shares being issued through
crowdfunding;
- they
are able to economically absorb the complete loss of the investment they
intend to make;
- the
proposed investment amount falls within the prescribed investment
limit for the
his/her investor category;
- the
investor will be subject to a lock-in period of at least one year and may
be subject to a further restriction on the transfer of the securities;
- the
investor may never be able to sell the securities or investment
instruments,
- the
investor will be provided with no disclosure or less disclosure than
publicly traded companies,
- the
investor will not have the benefit of protections associated with an
investment made under a prospectus;
- the
investor will not be entitled to claim from the National investor protection
fund;
- the
portal will not be responsible if the investor loses all or some of the
money invested.
(d) At or
before the time the investor enters into an agreement to invest, the issuer Fundraiser must
obtain a signed risk acknowledgement from the investor by which the investor
confirms that hee falls within the investment limits and
acknowledges the risks associated with the investment including the following:
- that
the Investor is in compliance with his total annual investment limit.;
- that
the investor has seen and read the warning statement about crowd funding
(as provided in these Rules);
- the
investor understands that investment based crowd funding is risky and that
the investor may never be able to sell the securities;
- the
investor may be provided with less disclosure than public companies
provide;
- the
investor may lose his entire investment and confirms that he can bear that
loss without suffering undue hardship.
; and
(e) The
confirmation must be obtained in writing in a separate document or, if it is
obtained by electronic means, through a process which ensures it is obtained signed
electronically in a legally binding form, and obtained separately from the
agreement to use the service.
(f) The
document must be retained by the issuer Fundraiser for
at least 57 years' after distribution.
- Compliance
- Policies
and procedures.A
Crowdfunding
portal Crowdfunding Intermediary must implement
written policies and procedures relating to its the operations of
its portal which are reasonably designed to achieve compliance
with the provisions of the Act and the rules and regulations thereunder.
- Inspections
and examinations.A
Crowdfunding
portal Crowdfunding Intermediary shall permit the
examination and inspection of all of its business and business operations
that relate to its activities, such as its premises, systems, platforms portal,
and records by representatives of the Commission.
- Record
Keeping
- A
Crowdfunding
portal Intermediary shall make
and preserve the following records in an accessible place:
- All
records relating to an investor who registers on the portal, purchases or
attempts to purchase securities or investments through
the its Crowdfunding
portal;
- All
records relating to
issuers Fundraisers who
offer and sell or attempt to offer and sell securities or investments
through the its funding portal and the
control persons of such issuers Fundraisers;
- Records
of all communications that occur on or through its
platforms portal;
- All
records related to persons that use communication channels provided by
a
Crowdfunding portal Crowdfunding Intermediary to
promote a issuer's Fundraiser's securities or
investments or communicate with potential investors;
- Records
of all maintenance and internal change logs carried out on the portal;
- All
notices records provided
by such Crowdfunding portal Crowdfunding Intermediary to issuers Fundraisers and
investors through the crowdfunding portal's its platform portal or
otherwise, including, but not limited to:
- notices
addressing hours of
funding portal operations (if any),
funding portal malfunctions,
- changes
to
funding portal procedures,
- maintenance
of hardware and software,
- instructions
pertaining to access to the Crowdfunding portal; and
- denials
of, or limitations on, access to the Crowdfunding portal;
- All
written agreements (or copies thereof) entered into by such
Crowdfunding
portal Crowdfunding Intermediary relating to its
business as such;
- All
daily, monthly and quarterly summaries of transactions effected through
the Crowdfunding Portal, including:
Issuers Fundraisers for which the target offering amount has been
reached and funds distributed;
- Transaction
volume, expressed in number of transactions, number of securities involved
in a transaction and total amounts raised by, and distributed to,
issuers Fundraisers;
- A
log reflecting the progress of each
issuer Fundraiser who
offers or sells securities through the funding portal toward meeting the
target offering amount.
- Organizational
documents: A
funding portal Crowdfunding
Intermediary shall make and preserve during the operation
of the funding its Crowdfunding portal and of
any successor Crowdfunding portal, all organizational
documents relating to the Crowdfunding portal, including but not
limited to, pre-incorporation agreements, Memorandum and Articles of
Association, minute books.
- Format: The
records required to be maintained and preserved pursuant to paragraph (b)
of this Rule must be produced, reproduced, and maintained in a
non-alterable format which ensures the integrity of the content.
- Third
parties:The records required to be made and preserved pursuant
to this section may be prepared or maintained by a third party on behalf
of a Crowdfunding intermediary provided that:
- An
agreement with a third party shall not relieve a
funding portal Crowdfunding
Intermediary from the responsibility to prepare and maintain
records as specified in this rule.
- A
Crowdfunding
portal Intermediary must file
with the Commission a written undertaking in a form acceptable to the
Commission and signed by a duly authorized person of the third party,
stating in effect that;
- such
records are the property of the
Crowdfunding portal Crowdfunding
Intermediary; and will be surrendered upon request by the funding
portal Crowdfunding Intermediary.
- The
undertaking shall include the following:
With respect
to any books and records maintained or preserved on behalf of [name of Crowdfunding
portal Crowdfunding Intermediary, the undersigned hereby
acknowledges that the books and records are the property of [name of Crowdfunding
portal Crowdfunding Intermediary, and hereby undertakes to
permit examination of such books and records at any time, or from time to time,
during business hours by representatives of the Securities and Exchange
Commission and to furnish to the Commission, and its representatives, a true,
correct, complete and current copy of any, all, or any part of, such books and
records.
- Examination
of Records: All records held by a Crowdfunding Intermediary
and/or
Issuer are subject at any time, or from time to time, to
reasonable periodic, special, or other examination by the representatives
of the Commission as the Commission may deem necessary or appropriate in
the public interest or for the protection of investors. Every Intermediary
and/or Issuer Fundraiser shall furnish to the
Commission true, correct, complete and current copies of such records of
the Intermediary and/or Issuer Fundraiser that
are requested by the representatives of the Commission.
- Preservation
of Records: The records required to be kept under this part
shall be preserved for a period of at least 7 years and kept at the
principal place of business of the Platform Operator. If the principal
place of business is outside Nigeria, then upon request of the Commission,
the operator shall provide such records as requested at a place in Nigeria
within seventy-two (72) hours after receipt of the request.
- Submission
of Yearly Reports: The
operator of a Crowdfunding Portal Crowdfunding Intermediary shall, not
later than 30 days after the end of each year, submit a report on
all crowdfunding transactions on its crowdfunding platform. The operator Crowdfunding
Intermediary shall file with the Commission and post on the
crowdfunding portal;
- a
report on an annual basis along with
Issuer Fundraiser disclosures
- other
Issuer Fundraiser submissions
certified by the principal executive officer of the Issuer Fundraiser to
be true and complete in all material respects; and
- a
description of the financial condition of the
Issuer Fundraiser as
described under "Issuer Fundraiser Requirements".
- Use
of Manipulative, Deceptive or Other contrivances
No Crowdfunding
Intermediary operator or associated person of an
operator of a crowdfunding portal Crowdfunding
Intermediary shall effect any transaction in, or induce the purchase
or sale of, any security or investment instrument by means of, or by aiding or
abetting, any manipulative, deceptive or other fraudulent device or
contrivance.
- Restriction
on Cross Ownership
A Crowdfunding
Intermediary shall not allow an issuer Fundraiser access
to the to raise funds on its Portal if
the Portal Crowdfunding Intermediary or any of its
officers, directors, significant shareholders or associated persons
beneficially own or control more than 5% of the securities of that issuer Fundraiser.
PROVIDED THAT
where the directors, significant shareholders or associated persons of the
Crowdfunding Intermediary beneficially own or control more than 5% of the
securities of a Fundraiser seeking to raise funds through its portal,
the prior approval from of the Commission shall be sought obtained before
the Fundraiser is provided granted access to
the portal.
Part 4 - Participants for Crowdfunding
- Fundraiser
Issuers
An
eligible issuer shall maintain the accurate list and details of investors,
post issuance, including investors from countries other than Nigeria. Such
details to include full names, address, email and the number of units and
monetary value of shares, debenture or any other instruments issued.
An
issuer A
Fundraiser shall offer its investment instruments through a Crowdfunding
Portal operated by a registered Crowdfunding Intermediary;
All
Issuers All
Fundraisers shall be required to file a standardized offering document
with the Crowdfunding Intermediary providing amongst others:
- key
information on the
issuer Fundraiser, including name,
legal status, physical address, place of incorporation and website;
- the
use of the proceeds;
- the
nature of its existing or proposed business, its business plan, the
offering amount to be raised and the duration of the offer;
- proposed
details of applicable return on investment, coupon rate or profit sharing
structure as well as information on historical performance if any;
- a
certification signed by the Fundraiser stating that:
- the
offering document does not contain a misrepresentation; and
- Investors
have rights of action and withdrawal in the case of a misrepresentation
- financial
information relating to the
issuer Fundraiser including;
- Unaudited
interim reports and accounts
- Comprehensive
schedule of the
issuer's Fundraiser's current debt
profile by type, purpose, tenor and maturity dates;
- bank
reference on the
issuer Fundraiser;
- evidence
that the issue does not exceed the limit of the
Issuer's Fundraiser's
borrowing powers or authorized issued share
capital;
particulars details of any bank
overdrafts, loans, mortgages, charges, hire purchase commitments or
guarantees or other material contingent liabilities of the Fundraiser
and any of its subsidiaries;
particulars details of the
nature and extent of the interest direct or indirect, if any, of every
director in any assets;
- A
statement by the directors that in their opinion the working capital
available is sufficient, or if not, how it proposes to provide the
additional working capital required;
- details
of any share options or such incentives to any person, including without
limitation, directors, employees, and other officers of the
issuer Fundraiser;
and
- other
information as the Commission may require from time to time.
- Two
years Audited financial statements (if any) or Audited Statement of
Affairs;
- A
clear outline of investors rights and ownership of investment instruments;
- details
of all crowdfunding campaigns embarked on
- An
eligible Fundraiser shall maintain an accurate list and details of all
investors post issuance, which shall include the full names, address,
email and the number of units and monetary value of investment instruments
and which shall specify investors from countries other than Nigeria.
The
issuer shall clearly outline in the offering document, investors rights
and ownership of securities or investment instruments
An
issuer shall offer its securities or investments through a registered
Crowdfunding Portal
All
Issuers shall be required to file a standardized offering document with
the Crowdfunding Intermediary providing amongst others:
key
information on the issuer, including name, legal status, physical
address, place of incorporation and website;
the
use of the proceeds;
the
nature of its existing or proposed business, its business plan, the
offering amount to be raised and the duration of the offer;
proposed
details of applicable return on investment, coupon rate or profit sharing
structure as well as information on historical performance if any;
a
certification signed by the issuer stating that:
the
offering document does not contain a misrepresentation; and
Investors
have rights of action and withdrawal in the case of a misrepresentation
financial
information relating to the issuer including;
Unaudited
interim reports and accounts
Comprehensive
schedule of the issuer's current debt profile by type, purpose, tenor and
maturity dates;
bank
reference on the issuer;
evidence
that the issue does not exceed the limit of the Issuer borrowing powers
or authorized share capital;
particulars
of any bank overdrafts, loans, mortgages, charges, hire purchase
commitments or guarantees or other material contingent liabilities of the
issuer and any of its subsidiaries;
particulars
of the nature and extent of the interest direct or indirect, if any, of
every director in any assets;
A
statement by the directors that in their opinion the working capital
available is sufficient, or if not, how it is proposed to provide the
additional working capital required;
details
of any share options or such incentives to any person, including without
limitation, directors, employees, and other officers of the issuer; and
other
information as the Commission may require from time to time.
Two
years Two years audited financial statements (if any) or Audited Statement
of Affairs;
details
of all crowdfunding campaigns embarked on,
A
crowdfunding offering shall not remain open for more than 60 days.
Where
an issuer is un unable to meet the prescribed minimum threshold for the
target offering amount within 60 days, the offer must be withdrawn and the
issuer may only commence a new crowdfunding offering not earlier than 90
days after the said withdrawal.
- A
n issuer Fundraiser shall
make an the offering document available to
the investor through the portal before the investor enters into an
agreement to purchase the securities or investment
instrument.
- A
n issuer Fundraiser offering
securities or investment instruments shall provide an investor with a
contractual right to withdraw from an offer or agreement
to purchase the securities or investment instrument by delivering a notice
to the funding portal within up to 48
hours after before the close of the offer
- The
offering document shall not be posted on any other website apart
from those of the Crowdfunding Portal, provided
however that the Fundraiser may post a notice on its website
regarding the offering which directs users to the details on the
Crowdfunding Portal.
- The
issuer,
through the Crowdfunding Intermediary shall deliver a
copy of the offering materials to the Commission at the time they are
posted on the its
- Disclosure
shall be provided about any entity or person other than the
issuer Fundraiser promoting
the offering.
- Investors
- Investors
may be allowed to invest in companies hosted on the Crowdfunding Portal
subject to the investment limit specified by the Commission from time to
time.
- Investors
will be given a cooling off period from the time of investment
until 48 hours
from the date of to the close
of the offer within which they may withdraw their investment.
- If
there is a material adverse change prior to the closing date of
the offer, affecting the project or the
issuer Fundraiser,
investors may rescind the investment within 7 days from the date the
material adverse change became public; where the proceeds have not
been transferred to the Issuer Fundraiser.
- Where
an investor cancels the offer or agreement to purchase securities or investment
instruments, all funds which may have been debited from or blocked in the
account of the investor shall be refunded or released within 48 hours of
the request to cancel.
- Obligations
of a Crowdfunding
Portal
The
Crowdfunding Intermediary Portal shall;
- Comply
with all rules, regulations, code of conduct, and laws governing capital
market operators in Nigeria;
- be
knowledgeable about the general structure, features and risks of
securities
or investment instruments presented on its platform portal;
- conduct
due diligence on
issuers Fundraisers and
their business plans in order to ensure that the issuers Fundraisers have
genuine business ideas;
- have
the obligation, following a notification to the Commission, to restrict
access of a Fundraiser to its portal, if it has reason to believe that the
Fundraiser or any of its officers has been convicted of fraud or otherwise
raises reasonable suspicions of fraudulent activity;
- verify
the financial condition of the
issuers Fundraisers and
disclose relevant information on the portal;
- prescribe
the minimum threshold for all offers on its portal
platform which
shall not be less than 50%;
- maintain
a list of investors registered on
the its portal
- maintain
a list of investors that invested in each issuance and amounts invested;
- take
measures to reduce the risk of fraud including, but not limited to;
- having
a reasonable basis for believing that a
n issuer Fundraiser is
complying with the securities laws; and
- obtaining
background and securities enforcement regulatory history checks on
the
issuer Fundraiser;
- review
the information presented by the
issuer Fundraiser on
its website to ensure that the information adequately sets out the
following:
- general
features and structure of the investment,
issuer Fundraiser-specific risks,
- parties
involved and any inherent conflicts of interest, and
- intended
use of funds.
- facilitate
a moderated interactive forum on the portal for investors and Fundraisers
which provides investors with the opportunity to comment on offers and
Fundraisers subject to the following-
the Crowdfunding Intermediary shall:
- monitor
postings to confirm that the Fundraiser is not making any statement or
providing information that is inconsistent with the offering document,
the rules of conduct of the portal, or these rules;
- remove
any material that may contain a statement or information that is false,
deceptive, misleading or that may constitute a misrepresentation or
untrue statement of a material fact;
- ensure
that Fundraisers respond to questions publicly;
- not
participate in any communications through the communication channels,
apart from establishing guidelines for communication and removing
abusive or potentially fraudulent communication.
Part 5 - Requirements with respect to
transactions
General
Provisions Receipt of an application by the
Crowdfunding Intermediary
- Upon
receipt of an application from an eligible
issuer Fundraiser,
a crowdfunding platform Crowdfunding Intermediary shall, prior
to approving the hosting of the offer on its portal, provide
information to the Commission specifying;
- Promoters;
- Directors;
- Shareholders,
specifying highlighting
holders of 5% and above (directly or indirectly) of the Fundraisers' shares;
- Area
of business; and
- Such
other information as the Crowdfunding Portal deems relevant or as may be
required by the Commission.
2.
Procedure by the Commission Upon Receiving an application
- The
Commission may, within 2 working days of receipt of information from a
Crowdfunding Intermediary, if it considers it necessary and in the
interest of the capital market, require a Crowdfunding Intermediary to provide
additional information or prohibit an offering
on business of an eligible issuer prior to
approval by the crowdfunding intermediary.
Within
5 working days of receipt of all requested information the Commission
shall direct the crowdfunding portal to prohibit of approve the offering
with or without conditions and specify the terms.
- Prior
to directing the Crowdfunding
Portal Intermediary
to prohibit an offering, it shall:
(a)state the reasons;
(b) direct the Crowdfunding Portal Intermediary to give
the eligible Issuer Fundraiser an opportunity to be heard;
(c) make a decision and communicate the decision, as the case may be,
recommending the appropriate measures that the eligible Fundraiser may take in
order to comply.
The Offering
- A
crowdfunding offering approved by a Crowdfunding Intermediary shall
not remain
open be open for no more than 60 days, provided that the
period may be extended for a further period of not more than 30 days upon
such conditions as may be specified by the portal;
- The
Crowdfunding Intermediary shall adopt an IT System which limits the
acceptable amount to the target amount and reject additional
subscriptions once the target amount is reached.
- Where
a Fundraiser is unable to meet the prescribed minimum threshold
for the target offering amount within the approved period, the offer
shall be withdrawn and the Fundraiser may only commence a new
crowdfunding offering:
- not
earlier than 30 days after the said withdrawal; and
- upon
demonstrating to the Crowdfunding Intermediary that all relevant
financial and other relevant information have been updated.
- In
case of any material adverse change relating to a
n issuer Fundraiser during
the course of an offering, the investors must be notified of such
change within a period of 24 hours after becoming aware.
- For
an offer to be successfully completed, the minimum threshold or target
amount indicated in the offering document which must be sufficient to
accomplish the business objectives of the Fundraiser must have
been subscribed
for to
- Funds
raised would only be released to the Fundraiser if the target
amount or the minimum threshold of funds to be raised is met.
- Where
the funding target is reached, the Crowdfunding Intermediary shall direct
the custodian to make funds available to the Fundraiser within
24 hours of the end of the offer, provided that where
the Fundraiser is a public company or a public company by
default, the Crowdfunding Intermediary shall require evidence of
registration of the securities with the Commission prior to directing the
custodian to transfer the funds to the Fundraiser (where
applicable);
- Where
the amount raised meets the minimum amount but falls short of the target
amount, the Crowdfunding Intermediary shall direct the custodian to make
the funds available to the Fundraiser upon provision of a
revised plan for the proposed use of funds to the investors and the
Crowdfunding Intermediary within one week of the end of the offer.
Provided that the underlying project(s) to the proposed use of funds can
be downscaled and executed independently without negatively impacting
operations of the Fundraiser.
- Where
the minimum threshold is not reached at the end of an offer, the
Crowdfunding
Portal Intermediary
shall effect a refund to all investors within 48 hours;
- Investors
shall have the right to withdraw any offer or agreement to purchase the
investments instruments up to 48 hours before the closing date stated in
the Fundraiser's offering materials. After the closing date, an
investor is only able to cancel in the event of a material adverse change
to the offering where the proceeds have not been transferred to
the Fundraiser.
- The
ability to cancel shall be permissible by means of an automated system on
the Crowdfunding portal or by notice to the Crowdfunding intermediary and
the Fundraiser;
- Where
the target amount is reached prior to the expiration of a 90-day period
from the date of the opening of an offer, and a withdrawal occurs which
reduces the target amount, the Crowdfunding Intermediary may permit a
re-opening of the offer only for the balance sum and for a period not exceeding
the unexpended period of 90 days.
The
investors will be given the option to withdraw their investment if they
choose to do so within 7 days after the said notification.
Funds
invested will be maintained by the Custodian in a trust interest
yielding account and will only be released to the issuer after specified
conditions provided in these rules and regulations are met.
A funding
project shall remain live on a Crowd funding portal for not more than (60
days); provided that the period may be extended for a further period of not
more than 30 days upon such conditions as may be specified by the portal;
Investors
shall have the right to withdraw any offer or agreement to purchase the
securities or investments instruments 48 hours after before the closing date
stated in the issuer's offering materials. Thereafter After the closing date,
an investor is only able to cancel in the event of a material change to the
offering.
The ability to
cancel shall be permissible by means of an automated system on the Crowdfunding
portal or by notice to the Crowdfunding portal and the issuer;
Where the
funding target is reached, the Crowdfunding portal shall make funds available
to the Issuer within 24 hours of the cooling off period provided that where the
Issuer is a public company or a public company by default, the portal shall
require evidence of registration of the securities with the Commission prior to
transferring the funds to the Issuer (where applicable);
For an offer
to be successfully completed, the minimum amount indicated in the offering
document which must be sufficient to accomplish the business objectives of the
issuer must have been subscribed for.
Where the
amount raised meets the minimum amount but falls short of the target amount,
the issuer shall provide a revised plan for the proposed use of funds to the
investors and the portal. Provided that the underlying project(s) to the
proposed use of funds can be downscaled and executed independently without
negatively impacting operations of the issuer.
Lock-in period:
Investors shall not
transfer their securities or investment instrument for a
period of one year after allotment except if a transfer is:
- to
the
issuer Fundraiser of the securities or
investment instrument;
- to a
qualified
an institutional investor/High Net-worth Individual(s); or
- part
of an offer for sale registered with the Commission;
The Rules of
the Commission on trading in securities of unlisted companies as well as the
law on the restriction on transferability of the shares of a private company
shall apply after the lock-in period;
Tag-along rights
Admission of
an equity offer to a Crowdfunding portal shall be subject to
the existence and confirmation of tag-along rights for retail investors.
The issuer's Fundraiser's articles of association
shall provide for the right of retail investors to withdraw from the company or
to sell the stake, in the event that controlling shareholders transfer control
of the company to third parties within three years from the conclusion of the
offer.
Admission of a
debt offering to a Crowdfunding Portal shall be subject to the existence of an
early redemption (put) option for all investors. The offering document and/or
any other agreement governing the investment, shall provide for the right of
investors to request for an early redemption of their investment, in the event
that the controlling shareholders transfer control of the company to third
parties within three years from the conclusion of the offer.
A crowdfunding
portal intermediary shall take all reasonable steps and establish measures by
which it is able to verify that the proceeds raised from its platform are
utilized for the stated purpose to ensure that the custodian performs all its
responsibilities as required by these Rules.
Part 6 - Obligations Of The Issuer Fundraiser
- A
n
issuer Fundraiser proposing to be hosted on a
Crowdfunding Portal shall submit the relevant information to the
Crowdfunding Intermediary Portal including
the following:
- information
that explains the key characteristics of the company;
- information
on the expertise of
the its Management
- information
that explains the purpose of the offer
listing and
the targeted offering amount;
- Audited
financial statements or audited statement of affairs of
the company
Every eligible issuer Fundraiser seeking
to raise funds through a Crowdfunding portal shall issue an offering document;
The offering document
must be short, easy to read, standardized for comparability and digital
friendly by utilising HyperText links to give easy access to detailed
information.
General Disclosure Requirements
- The
offering document shall disclose the following;
- warnings
to investors
- the
name and address of the
issuer Fundraiser, directors
and officers;
- holders
of more than 5% of the
issuer's Fundraiser's securities;
- description
of the business of the
issuer Fundraiser;
- principal and
peculiar risks facing the business of the
issuer Fundraiser;
- copies
of resolutions of the board of the company
- a
narrative discussion of the financial condition of the
issuer Fundraiser.
The discussion should address, to the extent material;
- the
issuer's Fundraiser's historical
results of operations;
- its
liquidity and capital resources;
- how
the proceeds from the offering will affect the
issuer's Fundraiser's liquidity;
and
- whether
these funds or any other additional funds are necessary to the viability
of the
issuer's Fundraiser's
- use
of proceeds;
- target
offering amount (and a deadline to reach the target offering amount);
- number
and price of the securities or investment instruments being offered and
the associated obligations;
- capital
structure and ownership of the
issuer Fundraiser;
- risk
factors;
- information
about an investor's right to cancel his/her investment;
- related
party transactions
- exit
options for investors (which shall be in accordance with the
provisions of these rules, the rules and regulations of the Commission,
and applicable companies law).
Risk Disclosure
(a) The
offering document shall state all risks associated with the investment without
mitigants. This should include:
- Liquidity
of the securities;
- the
absence of a secondary market;
- restrictions
on the ability of an investor to cancel the investment;
- the
risk of not getting expected performance on the securities purchased;
- risk
of not being able to influence management of the
issuer Fundraiser,
including minority shareholding disadvantages for corporate action, and
the collective action problem;
- dilution
risk; and
inability
to obtain a there
is no guarantee of return on the investment.
Ongoing disclosure requirements
- Every
Issuer Fundraiser with
a successful Funding Round on a Crowdfunding Portal shall comply with the
following continuous disclosure requirements:
- prompt
notification to the
portal Crowdfunding
Intermediary and to the in investors in the
event of changes and prescribed documentation as contained in this
regulation;
- deliver
annual audited financial statements to the Crowdfunding
Portal Intermediary and
make them available to each investor on its website;
- the
financial statements must be accompanied by a notice of the
issuer Fundraiser disclosing
in reasonable detail the actual use of the gross proceeds of the offer;
- make
available on its website, the Crowdfunding Portal and by email to
each of its investors,
within 24 hours of their occurrence a
notice of each of the following events within 24 hours of their
occurrence:
- a
discontinuation of the
issuer's Fundraiser's business,
- a
change in the
issuer's Fundraiser's industry business,
or
- a
change of control of the
issuer Fundraiser.
Issuers Fundraisers under this regime are required to provide ongoing
disclosure on the issues specified above until the earliest of the
following dates:
- the
issuer Fundraiser becomes
a reporting issuer Fundraiser (listed on a
recognized exchange),
- the
issuer Fundraiser has
completed a winding up or dissolution,
- the Fundraiser has
redeemed its debt securities
Access to offering and ongoing disclosure documents
All ongoing
disclosure documents must be provided to investors through the website
of the Crowdfunding portal, the website of the Issuer Fundraiser and
such other reasonable means as may be determined by the Commission from time to
time;
- Marketing
and Communication
- a
Crowdfunding Intermediary is not prohibited from advertising the existence
of its platform provided that such advertisement is restricted to general
information about the platform and its business model, and does not
include any information on specific offers.
- Crowdfunding
Intermediaries should ensure that all marketing communications to
investors by
Issuers Fundraisers are clearly identifiable as such.
- The
Crowdfunding Intermediary shall approve all marketing materials and ensure
that marketing materials by
Issuers Fundraisers comply with the general rules of the
Commission on advertisements.
Part 7 - Restrictions
Prohibited Activities
- The
Crowdfunding Intermediary is prohibited from:
- providing
any financial assistance to investors for the purpose of investing in an
offer hosted on its
platform portal; or for which
it has provided a service; and
- compensating
any finder or introducer for providing the Crowdfunding Intermediary with
information about potential investors.
- Crowdfunding
Portals Intermediaries and
or their managers and officers of their portals are
prohibited from soliciting investments or making recommendations;
- No
Crowdfunding
portal Intermediary shall act
as intermediary intermediate or facilitator
of facilitate secondary trades between buyers and
sellers for securities or investment instruments issued
pursuant to these rules.
- A
Crowdfunding Intermediary is prohibited from utilizing any, website,
social media platforms, or third-party platforms other than the registered
website of the Crowdfunding Portal for the purpose of facilitating a
crowdfunding offering.
Issuer Fundraisers Prohibitions/Restrictions
- A
n issuer Fundraiser shall
not directly or indirectly pay a commission, finders' fee, referral fees
or similar payment to any person in connection with an offering other than
to the Crowdfunding Portal Intermediary.
- This
restriction does not apply to payments to persons as compensation for
their services to a
n issuer a Fundraiser in
preparing materials in connection with the offering such as accounting or
legal fees.
A
Crowdfunding Portal, its respective directors and executive officers shall
not lend or finance or arrange lending or finance for an investor to
purchase investment instruments under a crowdfunding offer.
- The
issuer Fundraiser shall
not offer "non-permissible investment instruments"
- A
n issuer Fundraiser shall
not host an offer concurrently on multiple Crowdfunding Portals;
Non-permitted Issuers Fundraisers
The following
entities are prohibited from raising funds through a Crowdfunding Portal:
- complex
structures;
- public
listed companies and their subsidiaries;
- companies
with no specific business plan or a blind pool;
- companies
that propose to use the funds raised to provide loans or invest in other
entities;
- such
other entity as may be specified by the Commission.
Part 8 - Additional Requirements For Digital Commodities
Investment Platforms
- Without
prejudice to the generality of the foregoing, a crowdfunding intermediary
may operate a
digital commodities investment platform
subject to compliance with the following additional requirements:
- Eligibility:
in addition to the eligibility requirements specified in these rules, the
Crowdfunding Intermediary shall not be registered as a fund manager with
the Commission;
- Portal
Requirements: The Crowdfunding Intermediary shall not facilitate on its
platform any other crowdfunding business other than sourcing funds for
investments in agriculture or other commodities;
- The
platform operated by the Crowdfunding Intermediary for investments in
agricultural or commodities projects shall not be utilised for any other
funding or marketing purpose;
- A
crowdfunding intermediary registered to operate a
Digital Commodities
Investments Platform shall not host a different crowdfunding portal where funds
would be sourced for non- agricultural or commodities projects
- Registration
Requirements: The cash assets ratio requirement for a Crowdfunding
Intermediary operating a
Digital Commodities Investment
Platform shall, without prejudice to the other registration requirements
specified in these rules, be a minimum of 60% liquid assets and 40% fixed
and other assets;
- Project
Hosting: The Crowdfunding Intermediary shall be eligible to host
commodities investment projects on its
Digital Commodities
Investments Platform subject to compliance with the following:
- Ensure
that proper due diligence is carried out on all projects and project
executors or beneficiaries;
- Provide
investors with the following information which shall be displayed
prominently to investors prior to making an investment;
- a
Target Plan as defined in these rules;
- location
of the proposed project (s) which shall specify the city, town and local
government area of the relevant state where the project will be located;
- A
disclosure document which complies with the requirements of Rule 38 as
applicable and in addition specifies:
- total
size of land, quantity of livestock or other measurable feature and total
amount required to fund the hectare with appropriate breakdowns;
- the
kind of title held to the project site specifying whether host owned,
executor owned or leased;
- information
on the commitments reached with the project executors/beneficiaries;
- general
information regarding the commodity which shall include the specie (s)
to be cultivated,
life cycle/time to harvest, risk
factors which shall include common pests/diseases
and other risks associated with cultivation or rearing,
storage facilities, average returns on cost of production and
secured off-takers; where applicable
- information
on the custodian of the funds to be raised;
- detailed
information on expected profits from the project and the percentages to
be allocated to the executors/beneficiaries, crowdfunding intermediary
and investors;
- a
link to the Terms and conditions of sponsorship for each project;
- Additional
Obligations: The Crowdfunding Intermediary shall:
- Ensure
that adequate records on project owners/executors including
identification, project location, membership of relevant association,
guarantors and other relevant details are maintained and disclosed;
- comply
with the requirements for appointment of a custodian under these rules
provided that where
the Crowdfunding Intermediary is also the host of the commodities
investment project on its platform, the Custodian shall only release
funds to the intermediary, where the target amount has been raised and
in such amounts per time as may be required for each stage of the
production plan specified in the disclosure document to investors;
- file
appropriate returns to the Commission as indicated in these rules,
including information on compliance with the additional requirements
specific to its operations;
- where
insurance is listed as a feature of an agriculture or other
in commodities project, the Crowdfunding Intermediary shall ensure that the insurance coverage is specific to each
agricultural or commodities project and shall disclose the following:
- Name
of the insurance company
- Amount
of insurance coverage
- Other
details of the insurance coverage
- Copy
of the insurance policy
- Inspections
- The
operator of the
DCIP shall provide investors or their
appointed agents with adequate access to inspect sponsored projects
within the project cycle;
- Inspections
shall be organised at least once in each quarter of the life cycle of the
project;
- Investors
shall be given notice of at least 7 days of a proposed joint site visit
with other
sponsors investors,
- Requests
for individual site visits by investors or their appointed representatives
shall be honoured within 7 days of such requests subject, to the cost
being borne by the investors;
- Funding
Limit: The maximum amount which may be raised on a
Digital Commodities
Investment Platform within a 12-month period shall not exceed
N1,000,000,000.00 (One Billion Naira) provided that the Commission may, on
application and proper verification, grant approval to exceed the
specified amount.
A digital
commodities investment platform shall:
Be
permitted to provide crowdfunding portal services as prescribed in these
Rules / Source funds from the crowd on its platform only for the purpose
of its commodities investments;
The
Commodities investments
If
in operation prior to the commencement of these rules, apply for the
Commission's "No Objection" to continue to operate as a digital
commodities investment platform
Not
be registered as fund manager
Only
host commodities investment projects on crowdfunding platforms other than
a platform which it controls whether directly or indirectly
Submit
a target plan to its host Crowdfunding portal for verification and
inspection
Ensure
that due diligence is carried out on projects and project owners
Ensure
that adequate records on project owners including identification, project
location, membership of relevant association, guarantors and other
relevant details are maintained
Provide
an investor or his appointed agent with adequate access to inspect
projects to which they have provided sponsorship any time within the
project cycle.
Be
permitted to raise the sum of N1,000,000,000 (One Billion Naira) per year.
Provided that
the Commission may give approval to raise a sum in excess of N1,000,000,000 in
a year.
PART 9 - Miscellaneous
Procedure by the Commission Upon Receiving an application
- An
Organization or Association may approach the Commission, for the purpose
of supervising registered Crowdfunding Intermediaries, to register an
independent Industry Association as a Self-Regulatory Organization or
Trade Association.
An
application for registration or recognition as the industry association
for Crowdfunding Intermediaries shall be made in such form and accompanied
by such documents as the Commission may prescribe from time to time,
provided however that there can be no life trustees for the association;
Upon
receipt and consideration of an application for registration as an
industry association for Crowdfunding Intermediaries, the Commission shall
issue a notice in two daily newspapers and on the website of the
Commission, requesting objections, if any, to the registration of the body
and the grounds on which such objections are made;
The
Industry Association shall be subject to all rules, regulations and
guidelines applicable to Self-Regulatory Organisations or Trade
Associations as may be applicable.
The
Commission may, if it considers it necessary and in the interest of the
capital market, require an eligible issuera Crowdfunding Intermediary to
provide certain additional information on the business of an eligible
issuer prior to approval by the ing a crowdfunding intermediary offering.
Upon
receipt and review of all the information submitted, the Commission may
shall within 5 working days of receipt of the information, direct the
crowdfunding portal to prohibit or approve the offering with or without
conditions and specify the terms.
Prior
to directing the Crowdfunding Portal to prohibit an offering, it shall:
(a)state
the reasons;
(b)
direct the Crowdfunding Portal to give the eligible issuer an opportunity to be
heard;
(c) make a
decision and communicate the decision, as the case may be, recommending the
appropriate measures that the eligible issuer may take in order to comply.
Part 10- Penalty
- Any
crowdfunding
portal or crowdfunding intermediary that fails to comply with
these rules shall be liable to a fine of not less than N100,000.00
(One Million Hundred Thousand Naira
Only) and the sum of N5,00.00 ten (Five Thousand
Naira Only) for every day the violation continues and shall in
addition be liable for any loss of investor funds arising due to the Crowdfunding
Intermediary's failure to comply with its obligations under these rules.
PART 11- Transitional Provision
- Every
person/entity operating a crowdfunding portal/digital commodities
investment platform prior to the commencement of these rules shall
restructure its operations in compliance with these rules and apply for
registration no later than 90 days from the effective date of these rules.
Schedule 1
Requirements for Registration as Restricted Dealer
Forms Required for Registration Forms
- Duly
Executed Form SEC 3 - For the Company
- Form
SEC 2 and 2D - Sponsored Individuals/Compliance Officer
- Form
SEC 2 and 2D - Directors of the Company
Registration Fees
- Evidence
of Payment of Filing/Application
Fee - N50,000 (Fifty Thousand Naira);
- Evidence
of Payment of Processing
Fee - N200,000 (Two Hundred Thousand Naira);
- Evidence
of Payment of Registration
Fee - N500,000 (Five Hundred Thousand Naira);
- Evidence
of Payment of Sponsored
Individual Fee - N50,000 (Fifty Thousand Naira) for
each sponsored individual.
Minimum Paid-Up Capital and Fidelity Insurance Bond
Evidence
of Required Minimum Paid up Capital - N100,000,000 (One Hundred Million
Naira) for operating a crowd funding portal
Current
Fidelity Insurance Bond valued at a minimum of 20% of the paid-up capital as
stipulated by the Commission's Rules and Regulations.
Sponsored Individuals and Directors
A
minimum of three sponsored individuals, one of whom shall be a compliance
officer;
The
Managing Director of the Company shall be registered as a sponsored individual;
Complete
postal addresses of previous employers, bankers and nominated referees of
sponsored individuals;
A
detailed curriculum vitae of the sponsored individuals and Directors with
a chronology of activities from Secondary School to date; all gaps in
employment and educational history should be explained.
Copies
of credentials and relevant certificates; originals will be required for
sighting by the SEC;
Police
clearance report for each Sponsored Individual.;
Copy
of a valid means of Identification of the Directors and the Sponsored
Individuals of the Company.
Applicant Company
A
profile of the Company shall include amongst other information; a brief
history of the company, organizational and shareholding structure,
principal officers as well as details of past and current activities;
The
name(s) and address(es) of the company's subsidiaries/associated
companies/ related entities, type of business and percentage holding;
Evidence
of payment of shares allotted to the shareholders;
Operational
manual of the company;
Business
plan;
Bank
statement of accounts operated by the Company for the last 6 months.
Corporate Documents
A copy of the
following, duly certified by the CAC;
Certificate
of Incorporation;
Memorandum
and Articles of Association - this shall include the power to perform the
specified function;
CAC
Form(s) showing Statement of Share Capital, Return of Allotment, and
Particulars of Directors;
Latest
audited accounts or audited statement of affairs of the company;
The
cash assets ratio shall be a minimum of 30% liquid assets and 70% fixed
and other assets.
Schedule 2
Transaction Fees
- The
total fees payable to parties to a crowdfunding issue shall not exceed 5%
of the total funds raised.
- Fees
payable by the Crowdfunding Intermediary to the Commission shall be 5% of
the annual turnover of the Crowdfunding Intermediary.
Justification:
In a bid to foster economic development and deepen the
market, a proposed rule has been developed to provide a regulatory framework
permitting private companies with the required structure and mechanism in place
to raise capital from the public through Crowdfunding.
Proposed Amendment To Rule 45 (1)
& (2): Registrable Functions
Full Text of Existing Rule:
(1) The
following are capital market operators:
- issuing
houses/merchant bankers;
- underwriters;
- broker/dealers;
- sub-brokers;
- receiving
bankers;
- registrars;
- trustees;
- investment
advisers (corporate and individuals);
- fund/portfolio
managers;
- rating
agencies;
- market
makers
- custodian
- nominee
- any
other function the Commission may determine from time to time.
(2) Only
corporate bodies are qualified to file applications for the following
functions:
- Broker/Dealer;
- Underwriter;
- Issuing
House;
- Registrar
- Trustee;
- Fund/Portfolio
Manager;
- Rating
Agency
- Market
Makers
- Receiving
Bankers
Provided that
where an existing entity intends to perform the functions of a registrar, it
shall incorporate a separate body for that purpose.
Proposed Amendment to Rule 45 (1):
Creation of new items "n" and "o" under Rule 45 to
read as follows:
(1) The
following are Capital Market Operators:
- Issuing
Houses/Merchant Bankers;
- Underwriters;
- Broker/Dealers;
- Sub-brokers;
- Receiving
Bankers;
- Registrars;
g.Trustees;
- Investment
Advisers (corporate and individuals);
- Fund/Portfolio
Managers;
- Rating
agencies;
- Market
Makers
- Custodians
- Nominees
- Crowdfunding
Intermediaries
- Central
Counterparty Clearing Members
- Any
other function the Commission may determine from time to time.
Proposed Amendment to Rule 45 (2):
Creation of new items "j", "k" and "l" under Rule 45
to read as follows:
(2) Only corporate
bodies are qualified to file applications for the following functions:
- Broker/Dealer;
- Underwriter;
- Issuing
House;
- Registrar
- Trustee;
- Fund/Portfolio
Manager;
- Rating
Agency
- Market
Maker
- Receiving
Banker
- Nominee
- Crowdfunding
Intermediary
- Central
Counterparty Clearing Member
Provided that
where an existing entity intends to perform the functions of a registrar, it
shall incorporate a separate body for that purpose.
Justification:
To provide for the new registrable functions and the
laid down registration and regulation requirements.
Proposed Amendment To Rule 67- Sub- Broker
(Re-Exposure)
Full Text of the Existing Rule
Registration requirements
Corporate Sub-Broker
An application
for registration as sub-broker shall be filed on Form SEC 2C as
contained in
schedule III to these rules and regulations and accompanied by-
- Form
SEC 2 and 2D to be filed by the sponsored individual; (to be completed in
duplicates) Form SEC 2 and 2D - Directors of the company (To be completed
in duplicates);
- A
copy of the certificate of incorporation certified by the Corporate
Affairs Commission (CAC). Where a copy not certified is filed, the
applicant shall present the original copy for sighting by an authorized
officer of the Commission;
- a
copy of the memorandum and articles of association certified by the
Corporate Affairs Commission which among others shall include powers to
act as a sub-broker;
- copy
of Return on allotment and particulars of Directors (Forms CO2 and CO7)
certified by the Corporate Affairs Commission;
- copy
of latest audited accounts or audited statement of affairs for companies
in operation for less than one year;
- profile
of the company covering among others brief history of the company, organizational
structure, shareholding structure, principal officers, etc;
- Fidelity
bond representing 20% of paid-up capital;
- sworn
undertaking to keep proper records;
- a
copy of the agreement signed between the sponsoring broker/dealer firm and
sub-broker;
- evidence
of minimum paid-up capital of N10 million;
- letter
of recommendation and undertaking signed by the sponsoring Broker/Dealer
on behalf of the Sub-Broker
- Evidence
of compliance with rule 20(4);
- operational
manual and organizational chart;
- Any
other information or document that may be required by the Commission from
time to time.
Proposed Amendment- (Creation of new sub-section 3)
Registration requirements
- Corporate
Sub-Broker
An application
for registration as sub-broker shall be filed on Form SEC 2C as
contained in
schedule III to these rules and regulations and accompanied by-
- Form
SEC 2 and 2D to be filed by the sponsored individual; (to be completed in
duplicates) Form SEC 2 and 2D - Directors of the company (To be completed
in duplicates);
- A
copy of the certificate of incorporation certified by the Corporate
Affairs Commission (CAC). Where a copy not certified is filed, the
applicant shall present the original copy for sighting by an authorized
officer of the Commission;
- a
copy of the memorandum and articles of association certified by the
Corporate Affairs Commission which among others shall include powers to
act as a sub-broker;
- copy
of Return on allotment and particulars of Directors (Forms CO2 and CO7)
certified by the Corporate Affairs Commission;
- copy
of latest audited accounts or audited statement of affairs for companies
in operation for less than one year;
- profile
of the company covering among others brief history of the company,
organizational structure, shareholding structure, principal officers, etc;
- Fidelity
bond representing 20% of paid-up capital;
- sworn
undertaking to keep proper records;
- a
copy of the agreement signed between the sponsoring broker/dealer firm and
sub-broker;
- evidence
of minimum paid-up capital of N10 million;
- letter
of recommendation and undertaking signed by the sponsoring Broker/Dealer
on behalf of the Sub-Broker
- Evidence
of compliance with rule 20(4);
- operational
manual and organizational chart;
- Any
other information or document that may be required by the Commission from
time to time.
(2) Individual
Sub-Broker
- a)
An Application for registration as an individual sub-broker shall be filed
on Form SEC 2 as provided in Schedule III of these rules and regulations
and shall be accompanied by the following:
- Certified
copy of certificate of registration of business name (where applicable);
- Evidence
of minimum net worth of N500,000;
- Sworn
undertaking to comply with the provisions of the Act and the rules and
regulations as may be required from time to time by the Commission;
- Evidence
of compliance with Rule 20(4);
- Sworn
undertaking to keep proper records and render returns.
- b)
Rule 83(3) and (4) shall, with all necessary modifications, apply in case
of denial or suspension of registration of a sub-broker.
Proposed Amendment: Creation of a new sub-section (3)
as follows-
(3) Sub-Broker/Sub-Broker Serving Multiple
Brokers Through a Digital Platform
An
application for registration as Sub-Broker/Sub-Broker Serving Multiple Brokers
through a Digital Platform shall comply with the following: -
Payment
- Evidence
of Payment of Filing/Application Fee - N50,000 (Fifty Thousand Naira);
- Evidence
of Payment of Processing Fee - N200,000 (Two Hundred Thousand Naira);
- Evidence
of Payment of Registration Fee - N200,000 (Two Hundred Thousand Naira);
- Evidence
of Payment of Sponsored Individual Fee - N50,000 (Fifty Thousand Naira)
for each sponsored individual;
Forms
- Duly
Executed Form SEC 2C - For the Company
- Form
SEC 2 and 2D - Sponsored Individuals/Compliance Officer (To be completed
in duplicates); (Note that every applicant is to have at least three
sponsored individuals, one of whom should be a Compliance Officer who
shall be responsible for monitoring compliance with the ISA 2007, Rules
and Regulations, notifications, guidelines, instructions etc. issued by
the Commission or the Federal Government)
- Form
SEC 2 and 2D - Directors of the Company (To be completed in duplicates)
Minimum Paid-Up Capital and Fidelity Insurance Bond
- Evidence
of Required Minimum Paid up Capital - N10,000,000 (Ten Million Naira)
(i.e. Bank balances, Fixed asset or Investment in quoted Securities);
- Current
Fidelity Insurance Bond covering at least 20% of the minimum paid-up
capital as stipulated by the Commission's Rules and Regulations;
Sponsored Individuals and Directors
- Minimum
of three sponsored Individuals;
- Managing
Director of the Company to be among the sponsored individuals;
- Full
postal addresses of immediate previous employers, bankers (with Current
Account number) and nominated referees of sponsored individuals;
- Evidence
of compliance with Rule 20 (4) of the Commission's Rules and Regulations;
- Detailed
curriculum vitae of sponsored individuals and Directors which should
include details of activities arranged from Secondary School to date with
dates; (all gaps in employment and educational history should be
explained);
- Copies
of credentials of sponsored individuals to be made available for sighting
by the SEC;
- Evidence
from the Sponsored Individuals of having the minimum post-graduation
experience to perform the function as stipulated by the Commission`s Rules
and Regulations;
- Police
clearance report for each Sponsored Individual. Each Sponsored Individual
is to report at the SEC head office in Abuja or the Lagos zonal office
with two recent passport photographs to commence the process;
- Copy
of means Identification of the Directors and the Sponsored Individuals of
the Company (current International Passport, National Identity Card,
current driver's licence issued by Federal Road Safety (FRSC), Inland
Revenue Tax Clearance Certificate or recent utility payment documents
voters card and BVN);
Applicant Company
- Profile
of the Company to include among others, brief history of the company,
organizational and shareholding structure, principal officers as well as
details of past and current activities;
- The
name(s) and address (es) of the company's subsidiaries/associated
companies, type of business and percentage holding;
- Evidence
of p ayment of shares allotted to the shareholders;
- A
copy of the agreement signed between the sponsoring broker/dealer firm and
sub-broker;
- Sworn
statement of guarantee from the sponsoring Broker/Dealer;
- Securities
owned by such broker or dealer or in which the broker or dealer has an
interest shall be listed in a separate schedule and valued at the current
market price;
- Operational
manual or organizational chart of the company
- Business
plan;
- Bank
statement of accounts operated by the Company for the last 6 months;
Corporate Documents
- A
copy each of the following, duly certified by the CAC;
- Certificate
of Incorporation;
- Memorandum
and Articles of Association - this should include the power to perform the
specified function;
- CAC
Form(s) showing Statement of Share Capital, Return of Allotment, and
Particulars of Directors;
Note: the
original copy of the certificate is to be presented for sighting by an
authorized officer of the SEC;
- Latest
audited accounts or audited statement of affairs of the company. Note that
the cash assets ratio shall be 60% liquid assets and 40% fixed and other
assets;
- Sworn
undertaking to keep proper records and render returns;
- Sworn
undertaking to abide by SEC Rules and Regulations and Investments and
Securities Act No.29 of 2007 by a director or the company secretary (to be
notarized);
- The
Commission may require such other documents as it considers necessary for
registration;
- An
application for registration will only be considered as having been filed
when all document (s)/information have been completed;
- Every
applicant Company/Firm will be inspected in the course of processing an
application for registration;
- A
fair knowledge of the Rules and Regulations of the Commission and
Investments & Securities Act No 29 of 2007 and the Capital Market is
an essential prerequisite for registration.
Sub-Broker Serving Multiple Brokers Through a Digital
Platform
This is a
sub-broker who utilizes a digital platform to serve clients and interact with
the sponsoring broker. This sub-broker has an agreement with multiple brokers.
In addition to
existing requirements in Rule 67, Sub-broker shall submit the following:
- Copy
of "multiple principal agreement" with every sponsoring broker.
- Description
of the Technology on which it's infrastructure is built:
- Structure
- Capability/limitation
- back-up
& recovery process
- Certification
that the Infrastructure is sufficient to perform the required function by an IT Service Provider registered by NITDA
or other recognized Agency, and endorsed by a representative of the
Association of Securities Exchanges
- Evidence
of documented policies and procedures for managing technology risks.
- Electronic
Communication channel, through which all communications with clients would
be made.
- Method
of establishing the suitability of potential clients to utilize its
infrastructure for transactions.
- Notice
to potential client of the features, risks, responsibilities, obligations
and liabilities associated with the use of its infrastructure.
- Before
execution of an order, proof that the Client is fully aware of and
understands the risks associated with service being offered.
- Confirmation
that it would not delegate its functions to another sub-broker without the
written permission of the Commission
- Adequate
KYC requirements
- Binding
Legal Agreement with Potential clients taking into consideration the
following amongst others:
- the
respective rights and liabilities of the parties
- Provisions
relating to the security (physical and IT security) of the infrastructure
(user identity, passwords, authentication codes, etc.), to avoid
unauthorized system access;
- Limits
that are expressed as a notional amount for each Customer above which the
orders cannot be placed
- Warranties,
indemnities, charges and Customer/product specific conventions;
- Conditions
(such as for entering orders, error trade policies, etc.) and restrictions
such as the right to suspend the service, to reject or cancel orders, etc.
- A
requirement to have knowledge of trading rules and applicable laws and
regulations; and
- A
requirement that the Customer of his/her personnel who manage the process
are authorized, qualified and competent.
Justification:
These additional requirements further assess the
fitness and propriety of the modified function by providing fuller information
on how it works, available disclosures, protection of clients and consent of
parties. It also addresses sufficiency of its KYC and on-boarding method,
availability of complete information to enable clients make informed decisions
& the extent of liability of the operator.
Proposed Amendment To Rule 70 - Records
Of Transactions With Clients (Re-Exposure)
Full Text of the Existing Rule
A sub-broker
shall maintain proper and adequate records of transactions for and on behalf of
each client. Such records shall include among others:
- Duly
executed mandate form;
- Deposit
receipt for purchase of shares;
- Script
receipt for certificate deposit;
- Client's
statement from any recognized and registered depository.
Proposed Amendments-Creation of additional sub-clauses
as follows:
- Proof
of execution of trade on behalf of a client;
- Money
Transfer receipt confirmation;
- All
communications with the client through the dedicated communication
channel;
- All
transactions carried out on its platform;
- All
parties related to every transaction carried out on its platform
Justification:
Five additional clauses were added to ensure aspects
of record keeping that pertain to digital platforms and multiple sponsors
(brokers) are taken into consideration and included.
Proposed Amendment: Creation Of A
New Rule 76- Risk Management (Re-Exposure)
Rule 76 - Risk Management
All
sub-brokers using digital platforms shall:
- have
policies, procedures and controls in place to monitor and test their
algorithms on a regular basis to ensure that they are performing as
intended
- put
in place and implement internal policies and procedures to address
technology risks, which may arise as they interact with their clients,
transmit, store and process information electronically
- have
adequate cyber-security mechanisms against cyber-attacks.
- comply
with the SEC's Technology Risk Guidelines as may be determined from time
to time
- establish
an Anti-Money laundering and countering the financing of terrorism
mechanism, similar to those of other Capital Market Operators,
- put
in place adequate operational and technical control systems to manage
appropriate risks
- periodically
conduct capacity stress tests to determine the performance of its systems
under a variety of simulated conditions;
- seek
on a periodic basis the assessment of independent reviewers with regard to
the adequacy of its infrastructure and security;
- ensure
that all Electronic Communication (ECN) are digitally signed, encrypted,
and non-tamperable
- be
responsible for keeping a backup of all the ECN in a soft and
non-tamperable form
Justification:
This is a new addition intended to provide appropriate
risk measures to mitigate common technology risks and ensure the integrity of
the automated processes used by the Sub-broker and their optimal performance.

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