Between Digital Currency And Investors’ Protection

From all indications, the Securities and Exchange Commission (SEC) seems to be living up to investors’ expecta-tions and also pushing the drive for financial sector stability. It has come a long way in deepening financial inclusion projects, non-interest finance plans, campaign on e-dividend, and campaign to get power and telecommunication firms listed on the Stock Exchange. Last week, it warned investors interested in investing in digital currencies,
Although SEC, under its Director-General, Mounir Gwarzo, is interested in unlocking the country’s economic potential and creating wealth for the people, it is more concerned about investors’ protection.

While many agencies and investment companies began a campaign, urging investors to invest in digital currencies, such as Swisscoin, OneCoin, Bitcoin and such other virtual or digital currencies, SEC warned them about the risk of such investment.

In a statement, SEC said: “The attention of the SEC has been drawn to radio advertisements and other modes of solicitations of the public to invest in digital currencies. The public is hereby advised to exercise extreme caution with regard to digital as a vehicle of investments. This warning is in consonance with similar warnings issued by capital market regulators and central banks across the world over the past few years,” it said.

The Commission alerted the public that none of the persons, companies or entities promoting the initiative has been recognised or authorised by it or by other regulatory agencies to receive deposits from the public or to provide any investment or other financial services in or from Nigeria. The public should also be aware that any investment opportunities promoted by these persons, companies or entities are likely to be of a risky nature with a high risk of loss of money, while others may be outright fraudulent schemes.

Continuing, it said given that these instruments and the persons, companies or entities that promote them have neither been authorised, nor any guidelines/regulations developed for them by any of the regulatory authorities in Nigeria, there is no protection available to users or investors in these virtual currencies from financial losses if the virtual currencies fail or the companies promoting them go out of business.

“The public and consumers of financial services are further advised that before making any investment or entering into any financial services transaction they should ascertain that the entity with whom the investment or transaction is being made is authorised by the Commission or other financial services regulatory authority as applicable to provide such services,” it said.

But the Managing Director, Nigeria Deposit Insurance Commission (NDIC), Alhaji Umaru Ibrahim, said the corporation and CBN had set up a committee to look into the trending “digital currency, ‘bitcoin’.

Ibrahim, who spoke at a media forum in Kaduna, with Economic Recession and the Nigerians Banking Sector: Opportunities, Challenges and the way Forward as theme, said the corporation had constituted a committee together with the CBN to have a deep study of this phenomenal bitcoin.

“We will look at its advantages and disadvantages, what it means for the payment system and what it means for safety and security of customers. We will also look at what it means for money laundering, anti-corruption, crime and measurement of money/near money instrument for the economy. But we need a lot of education to do this,” he said.

Ibrahim said ‘bitcoin’ included what is being called block chain technology based products in the market. He said a lot of Nigerians had already started part” it had started to creep in and nobody could stop it. He said in Europe and the United States (US), it had gained currency and some of the leading banks in Europe had also adopted their own versions of bitcoins.

“Some of the central banks have also adopted it and are seriously doing everything possible to bring in the emergence of these invisible products.

“The owners do not need any central bank; they do not need any physical bank. If you are a subscriber, you only know yourselves and they give you a bit of the bitcoin and in some countries you can convert it to cash.

“You can make payments with it because it has been recognised and one of the famous ex-chief executive of Barclays Plc, Antony Jenkins, have joined the groups board of directors,” Ibrahim said.

Overtime, Gwarzo believes that the potentials of the local financial market are enormous and have to be unlocked early to create wealth for the nation but it has to be done rightly and with the right information. The SEC boss is therefore implementing key policy initiatives meant to deepen the Nigeria financial market, secure investors’ confidence and drive investment with new technologies.

Like the Central Bank of Nigeria (CBN), SEC under Gwarzo is aware of the impact of bringing more people into the financial market net and creating seamless dealing platforms that raise confidence level in the market. These policies are not only sustaining investors’ interest, but deepening the financial market.

The e-dividend management system, which was launched last year by the SEC in collaboration with the CBN and the Nigeria Interbank Settlement System (NIBSS) to enable investors have direct access to their dividends are already enjoying some level of compliance from the investing public.

For Gwarzo, the commission’s concern was to bring back retail investors to the nation’s capital market confidence that in the next 10 years, SEC would raise the participation of the retail investors to 45 per cent from less than two per cent presently.

He is also aware of the benefits of attracting cheap funds into the financial market and getting key sectors of the economy including power, telecom, oil and gas listed on the local bourse as such practice would not only create more tax net for the country, but serve as engine room for economic development.

The SEC chief has said the Nigerian capital market has amazing potential to serve as a catalyst for financial inclusion. While most people identify capital markets as important sources of medium-to-long term capital, few realise their amazing potential to serve as catalysts for bringing so many people into the financial services sector in the interest of the economy.

SEC is determined to unlock this potential of the Nigerian capital market. In particular, we are aware of the need to deepen the non-interest capital market space. This is to enable millions of Nigerians and people of faith to invest savings ethically. Investors worldwide are increasingly allocating their resources into Islamic finance products.

The SEC chief also has interest in deepening the non-interest banking segment of the economy. Statistics show that total assets under management in the global Islamic finance industry had surpassed $2 trillion (N394 trillion) by the end of 2014. The global sukuk market continued to witness remarkable growth since after the 2008 global financial crisis with annual issuances growing from $15 billion in 2008 to almost $120 billion in 2014 and Nigeria should key into it.

Last year is widely considered a landmark year for Islamic finance, especially with debut sukuk issuances by countries such as the United Kingdom, Hong Kong, Senegal, South Africa, and Luxemburg. There is no doubt that the sukuk market is emerging on a global scale as a viable alternative source of funding.

In Nigeria, SEC has implemented a number of reforms aimed at deepening the non-interest capital market. The Commission focused on the regulatory framework, reviewing the rules and introducing new ones.

It has issued rules on Islamic Fund Management as well as rules on Sukuk issuance. These two legal frameworks have encouraged Islamic product innovation with the registration of five ethical/shariah compliant funds and the issuance of Nigeria’s first ever sub-national Ijara Sukuk by the Osun State government in 2013 which was oversubscribed. It is also considering modalities for setting up a Sharia Advisory Council as a body of experts to advise SEC and the market on non-interest product and their applications.

SEC is also, closely with the Debt Management Office (DMO) to ensure Nigeria issues her first sovereign sukuk that will provide the needed benchmark for other categories of issuers.

Besides, deposits from non-interest banking could be deployed into infrastructure funding and other developmental projects as Nigeria remains a huge market for non-interest banking given its large population base.

Aside need to deepen Islamic finance market, the SEC is absorbing the cost of e-dividend registration for investors that register on time. The commission has achieved over 4,000 per cent growth in the number of investors that registered to have access to their dividends in recent months.

The e-Dividend management system was meant to enable investors have direct access to their dividends. The Commission has also embarked on various initiatives like e-Dividend, Direct Cash Settlement, National Investors Protection Fund (NIPF) among others to attract retail investors to the market.

CBN keen in protecting investors in Islamic bonds

The CBN is also keen protecting investors’ confidence. The apex bank has set commercial banks’ investment in Islamic bonds issued by state governments to 10 per cent of the total amount on offer.

CBN’s Director, Financial Markets Department, Angela Sere-Ejembi, said the apex bank also fixed a maximum tenor of 10 years for the bonds.

“In view of the need to foster financial system and economic growth and development, as well as complement the efforts of government at various levels, the CBN has approved “Guidelines for Granting Liquid Asset Status to Sukuk Instruments Issued by State Governments”, to enhance the diversification of sources of funding for development at the sub-national levels,” she said.

She said financial deepening is gradually gaining ground in the Nigerian financial landscape with the introduction of new financial products, including non-interest financial instruments, to cater for the diverse financial needs of the populace and government at various levels.

The adoption of Sukuk issuance by state governments in Nigeria, as an alternative means of financing public expenditure, will contribute to the deepening of the financial system. In the same light, it is expected that other levels of government as well as interested supra-national financial organisations may get involved in Sukuk structuring at some time in the future.

She said to ensure the sustainability of this development; the CBN has considered the need to enhance the quality of Sukuk instruments, by issuing these guidelines to provide for eligibility for the grant of liquidity status to Sukuk issued by state governments at its discount window as well as for the purpose of liquidity ratio computation. This will further deepen the market and promote investment and secondary market activities.

The Sukuk issuance, she said, shall be backed by a law enacted by the relevant House of Assembly, specifying that a sinking fund to be fully funded from the consolidated revenue fund account of the state be established.