SEC Commences Risk Based Supervision Framework for Capital Market Operators

SEC Commences Risk Based Supervision Framework for Capital Market Operators

SEC Commences Risk Based Supervision Framework for Capital Market Operators

The Securities and Exchange Commission has commenced the Risk Based Supervision (RBS) model with the aim of establishing a more robust regulatory framework for the capital market, THISDAY gathered on Monday.

This comes as the commission has also approved a framework for the regulation of systematically Important Financial Institutions (SIFI) in the Nigerian capital, Abuja. The commencement of the RBS model followed the approval by the Minister of Finance, Mrs. Kemi Adeosun.

THISDAY had last week reported the imminent commencement of the RBS framework. While the RBS framework will be for all capital market operators (CMOs), the framework for the SITI is targeted at systemic non-bank financial institutions that are under the regulatory purview of the SEC, whose failure could cause contagion effects and significant disruptions to the wider Nigerian financial system.

It was gathered that in identifying a systematically important operator, SEC would enhance its regulatory supervision through on-site inspections to monitor the compliance level of operators.
On the other hand, SEC had said in recognition of the importance of RBS, and to align its oversight functions with global trends and the guiding principles of the International Organisation of Securities Commission (IOSCO), it has adopted RBS into its supervisory process. This is to ensure that regulatory oversight is more effective, investor protection is advanced and systemic risk is mitigated.

Before now, the commission had operated the class minimum capital requirement for operators. Under the class minimum capital requirement, the commission set minimum capital requirements for all capital market functions without giving much consideration to the assets size and inherent risks.

As part of the adoption process, a RBS framework has been developed to serve as a guide for staff of its inspectorate division and would apply to the prudential supervision of all CMOs. This framework is a dynamic working document that will be reviewed on a regular basis and as the need arises to ensure that it remains relevant in achieving the supervisory objectives of the SEC.
A market operator told THISDAY on Monday that under the RBS, SEC would consider key principles that are fundamental to the process.

“Sound supervisory and predictive judgment in identifying and evaluating risk is considered fundamental to the effective application of this framework. Capital market operators (CMOs) would be conducted on a consolidated basis, including subsidiaries and all related entities of the CMOs,” the operator said.

It was also gathered that the intensity, scope and frequency of supervisory scrutiny will depend on the composite risk rating of a CMO.

Also, the RBS highlights a risk assessment summary which would indicate the risk profile of a CMO and would serve as the basis for allocating regulatory resources for ongoing monitoring and supervisory efforts.

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