When news filtered in that the SEC had not audited its financial statement in nearly five years, many wondered what could have prompted such oversight.
The Nigerian Capital Market is again in the news for the wrong reason. This time round, the bad news is not coming from the side of operators, but from the regulator and custodian of the Code of Corporate Governance who is expected to know the dos and the donts of the market.
But when the news filtered in that the Securities and Exchange Commission (SEC) had not audited its financial statement in nearly five years, many wondered what could have prompted such oversight. Was it a deliberate plot to cover some fraudulent dealings by its management or a mere attempt to play the leviathan? Whatever the case, the truth is that SEC’s misdemeanour has become a test case of regulatory rascality and a palpable breach of due process that would certainly leave a soar taste in the mouth of the global business community dealing in Nigeria’s capital market. As expected such breaches can only happen in Nigeria.
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Already prices of quoted stocks are in free fall in most sectors and there is a sturdy belief that the economy will be losing millions in foreign investments until after the general elections next year following lowering investor confidence.
Event at that, many believe this may not only affect the price of stocks but will also dampen the confidence of both local and foreign investors who believe the Securities and Exchange Commission (SEC) has set a bad precedence by breaching its own rules.
The last audited annual reports and accounts of the Commission was for the year ended December 31, 2013, even as the current reported breach has halted a tradition that had seen it publish its annual reports yearly for more than a decade.
The Commission and NSE had in 2011, adopted a policy of sanctioning companies that fail to submit their yearly financial results. The capital market regulators also said that they will go after directors of companies that abuse their offices or took advantage of their positions to undermine corporate performance of quoted firms.
This was after an interim report by the Central Bank of Nigeria (CBN) appointed new board for a quoted bank indicted the sacked directors of the bank of corporate governance failures, resulting in near collapse of the bank and the apex bank’s intervention.
The regulators’ tough posturing also came after the Supreme Court ordered three former managing directors of three defunct quoted banks – Okey Nwosu, Finbank Plc; Erastus Akingbola, Intercontinental Bank, and Francis Atuche, Bank PHB – to stand trial for alleged fraud after being accused of stealing sums totalling N90 billion.
Last year, the Commission re-launched a major amendment to Nigeria’s Code of Corporate Governance for public companies, seeking to empower SEC to sanction companies that fail to comply with its directives.
The new amendment was expected to remove the persuasive provision that entitles companies to be put on notice, so they could seek redress. The amendment will completely remove clause 1.3(d), which states that, “whenever SEC determines that a company or entity required to comply with or observe the principles or provisions of this code is in breach, the SEC shall notify the company or entity concerned, specifying the areas of non-compliance or non-observance and the specific action or actions needed to remedy the non-compliance or non-observance.”
According to the Commission, the provision is redundant in view of the mandatory nature of the code. Companies are mandated to comply with its provision failing which they will be sanctioned without first requiring them to remedy the non-compliance or non-observance.
Under the code, publicly quoted companies are required to include in their annual reports and accounts, a compliance report on codes of corporate governance.
Although both SEC and NSE enforce stringent disclosure and transparency rules that include submission of quarterly and annual reports within stipulated timelines, with penalties for violation including monetary fine, suspension of trading, “naming and shaming” and in extreme cases, delisting of such violators, the Commission had lived in violation of its own run for over four years. NSE, on the other hand, maintained publication of its annual report and holding of Annual General Meeting (AGM).
Asked why SEC has been unable to prepare and publish annual reports and accounts and whether the failure to publish annual reports for years will not undermine the moral authority of the agency, Acting Director General (DG) of SEC, Mary Uduk, at the second post-Capital Market Committee (CMC) meeting with the media said the Commission’s financial statements have been well prepared and audited but have not been signed.
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“There is no way we as regulators would want to do all that work on corporate governance and punish people who violate the code of corporate governance and still be the first to violate that code. I want to say it here very clearly that all the accounts of SEC have been well prepared and audited. But we have not placed it on our website for a reason and the reason is that they have not yet been signed,” Uduk said.
The question then is, who is responsible for the signing of the financial statements of SEC and other regulatory bodies in the market? The answer is simply the boards of these market authorities. According to Investment and Securities Act (ISA), the board of SEC is responsible for the financial management of the Commission. ISA stipulates that the Commission shall have cause to keep proper books of records and accounts “which shall be audited by auditors appointed by the board of the Commission.”
ISA requires SEC to, not later than three months after the end of each year, submit to the Minister and the National Assembly, a report on the activities and administration of the commission during the immediate preceding year and shall include in such reports, audited accounts of the commission and the report of the auditor on the accounts.
Regretably however, since the dissolution of the board in 2015, the Commission has been without a board, a development that has been aided by the Federal Government’s delays in taking critical market-related decisions.
First, Mounir Gwarzo, who was alleged to have paid himself severance benefits of N104.8 million and N10.4 million in excess of car grant while still in service has been suspended and his trial which has been pushed back and forth has yet to yield results on whether he is to be reinstated or sacked. His replacement was Dr. Abdul Zubair who barely lasted for five months before he was sacked by the Minister of Finance, Kemi Adeosun, and replaced him with another Acting DG, Mary Uduk, in what she described as the reassignment of portfolios in the capital market regulatory body.
Stakeholders who spoke to Daily Sun in separate telephone interviews attributed the situation to the weak economic system of the country and dissonant leadership at SEC, adding that the Commission’s failure to publish its financial statements was sending the wrong signals to the international business community, which might not bode well for Nigeria.
Chief Executive Officer, APT Securities Limited, Kurfi Garba, noted that regulatory bodies in Nigeria are yet to get their priorities right in terms of policies as well as regulations.
“For an economy to grow, financial institutions have to be authorised alongside a board. Why should SEC be emphasising on the accounts awaiting signature? It is simply because this information lacks relevance because if they are relevant, they ought to have been released on time as and when due. This is where the National Assembly comes in because why will they continue to approve their budget year in year out without asking for their financials? Does that make sense? No it doesn’t; they just approve their budget because of what they are getting in their pockets,” Garba argued.
According to him, “this is also the same thing happening in the banking industry. If you ask CBN when last it published its results, I do not know, but these companies have to comply because the regulators have an advantage over the operators. Regulators are willing to fine you and when they fine, whatever you pay is part of their income. Ordinarily, there is no code that says when they charge you, it will go to their income, rather, it happens in this country.
“Whoever defaults should get a fine but the fee should go to the Federal Government’s account or a particular account for the development of that market. We are not getting it right at all as we have a very bad culture, which is very punitive and not good for the market.”
Also speaking, President, Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, pointed out that the frequent changes at the helm of affairs at SEC as well as absence of a board do not augur well for the market.
“Despite all, there has to be a DG at SEC, not acting DGs, as this does not augur well for the market as well as our international investors who might have confidence in the Nigerian market. The government that has to share a part in the blame should have taken necessary steps to announce Gwarzo’s removal and appoint a substantive DG among the Commission’s workforce and if there are no qualified personnel to run the affairs of SEC, there are 180 million Nigerians who have skills and qualifications to do the job required, which is making Nigeria’s capital market a world-class market,” he said.
For his part, National President, Constant Shareholders Association of Nigeria (CSAN), Mallam Shehu Mikail, said, “when the economic system of a country is poor, then development and growth of that country is stunted and when this happens, both local and foreign investors will lose confidence and take their profits out. If the Acting DG has said its accounts have not been signed, it is because the necessary body is absent.
“In real sense, this is sending a very bad signal to foreign investors as it is merely looking like we don’t have what it takes to handle internal or external affairs and this is what is hindering prospective investors who really want to invest in the market.”