SEC mandates full custody requirement for mutual funds
The Securities and Exchange Commission has announced the commencement of the implementation of a 100 per cent custody requirement in the collective investment schemes sector.
According to a statement from the commission, the Director-General, SEC, Mr Lamido Yuguda, said that all clients’ assets managed under discretionary and non-discretionary mandates were to be held under an independent custodial agreement and custodial banks. Collective investment schemes, also known as mutual funds, were previously authorised for public offering by the SEC.
Yuguda said although it was a natural operational requirement of CIS, the SEC was having some new enforcement and insistence on the compliance already in the books but with weak implementation.
He said, “For example, we have the collective business sector where you have the fund managers. We have a dichotomy between public funds, which are funds that are publicly traded, and you can see the unique values on the stock exchange and in newspapers daily. There are also private, which are investment agreements between fund managers and specific investors
“A lot of these funds in the privately-held fund management mandates are in our custody. The investment manager before now did not only have the investment management responsibility for the fund but also kept the securities and cash as whole shares in this investment. The risk is that if the investment manager should go, then the investor loses and that is not acceptable in financial markets around the world.
“I think with the introduction of total custody in that sector, we are likely to see a massive uptake of these kinds of products. We have released some regulations recently in this area for the different types of fund managers, and I think this is an area that is now becoming increasingly attractive to investors and is also receiving the attention of the commission.”