The Nigerian Securities and Exchange Commission (SEC) has issued a new directive mandating all Capital Market Operators (CMOs) to implement a standardized Enterprise Risk Management (ERM) framework.
This initiative, effective immediately, aims to strengthen risk-based supervision (RBS) and safeguard the capital market ecosystem.
The SEC emphasizes the importance of comprehensive risk management in minimizing systemic risks and protecting the interests of both investors and market participants. By adopting internationally recognized standards like COSO, ISO 31000, and FATF recommendations, CMOs can establish a robust framework tailored to their specific operations.
Key Components of the Required ERM Framework
The SEC outlines several crucial elements that the CMOs’ ERM frameworks must encompass. These include:
A well-defined risk governance structure with clear roles and responsibilities, including a dedicated risk management committee.
Systematic processes for identifying, analyzing, and prioritizing potential risks that could impact the organization’s objectives.
Effective strategies to manage and mitigate identified risks.
Clear risk appetite and tolerance statements.
Continuous monitoring of risk factors and regular reporting to senior management and the board of directors.
Organizational programs aimed at fostering risk awareness among employees.
Compliance Requirements and Reporting
To achieve these goals, the SEC requires all CMOs to submit a Board-approved risk management policy by September 30, 2024, via email (rbs@sec.gov.ng) to obtain a “No Objection” status. Additionally, annual Risk Profile submissions by January 31st of each year are mandatory.
Furthermore, CMOs must remain vigilant and report emerging threats and mitigation measures to the Commission whenever specific situations arise, including:
Introduction of new products, business practices, delivery mechanisms, or technologies.
Identification of new vulnerabilities or Money Laundering/Terrorist Financing/Proliferation Financing (ML/TF/PF) typologies.
Significant changes in institutional factors like beneficial ownership or business strategy.
Expansion into new geographical areas.
Changes in client classification.
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If You Ask Me
This new directive from the SEC Nigeria reflects the Commission’s commitment to fostering a robust and resilient capital market. By implementing effective risk management practices, CMOs can contribute to a more stable and secure investment environment for all stakeholders.
