SEC, Operators Meet on Risk-Based Supervision Framework

The Securities and Exchange Commission (SEC) will next week meet with capital market operators to deliberate on the newly introduced Risk-Based Supervision (RBS) to the market.

The stakeholders meeting will hold in Lagos on March 13, 14 and 15. According to SEC, the meeting will be attended by the chief executive officers, chief operating officers and chief compliance officers of stockbroking firms, fund/ portfolio managers, issuing houses, trustees, corporate investment advisers and rating agencies.

The apex regulator noted that the meeting is sequel to the migration to RBS framework, and the need to harmonise its quarterly reporting templates with that of the Nigerian Stock Exchange (NSE).

SEC recently approved the commencement of RBS with the aim of establishing a more robust regulatory framework for the Nigerian capital market.

The RBS model is a proactive approach that places a strong emphasis on the early identification and mitigation of emerging risks. It entails continuous identification, assessment and control of risks in an organisation. The effectiveness of the RBS model is dependent on the level of knowledge a supervisor has on the institution.

SEC explained that the overall objective of the RBS is to ensure the safety and soundness of Capital Market Operators (CMOs) by adopting a proactive risk based supervisory process that centers on risk profiling of a CMO and implementing appropriate supervisory methods that are commensurate with risks identified in the business operations of a CMO. This serves to ensure that regulatory resources are optimally allocated according to the risk profile of a CMO.

It said: “The regulatory environment in the Nigerian financial market has traditionally been focused on a supervisory process that is compliance based or what can otherwise be described as a ‘ Rules Based’ supervisory regime. This regulatory approach tends to excessively focus on monitoring and ensuring compliance with laid down rules and regulations.

“In recognition of the obvious limitations of a rules based supervisory regime, a global trend towards a risk based supervisory model that focuses on identifying, monitoring and mitigating risk, signifies a major paradigm shift in the approach to regulating financial markets.”

Sec noted that adopting RBS not only ensures that regulated entities are well positioned to accommodate the risks that they bear, but more importantly absorb risks that may crystallize from adverse events. This ensures that potential spillover effects are isolated with limited externalities on the financial system.