PenCom Review of Investment Regulation to enable RSA holders get higher Returns on Investment
The National Pension Commission (PenCom) has disclosed that it will amend the regulations on investment of pension fund assets to allow Pension Fund Administrators (PFAs) engage in security lending as an investment option in the capital market.
This was disclosed during the week by the Head of Investments Supervision of PenCom, Ibrahim Kangiwa, during a workshop organised by the Nigerian Exchange Limited (NGX), Securities and Exchange Commission and PenCom. The theme of the workshop was “Business Facilitation Act 2023 as a catalyst for deepening securities lending in Nigeria”.
Mr Ibrahim Kangiwa said, “As you know, section 89 of the Pension Reform Act 2014 has provisions regarding restrictions on sale and borrowing of pension assets. This has been a major encumbrance to securities lending. With the passage of the Business Facilitation Act 2023, it has now actually enabled us to proceed with developing guidelines towards securities’ lending.”
“This is something that has actually been on the radar of the commission. We have been looking at it but because of the prior provisions of 2014, we could not actually proceed. Coincidentally, we are looking at the investment regulation that guides the investment activities of the PFAs. We are trying to update it and amend certain aspects of the regulation to broaden the available assets and also deepen it in terms of what is on offer for PFAs.
“We know the current challenge: the business environment. We know the issues with inflation and currency, so, we are trying to diversify the investment space, and it is a very good time to also include securities lending.”
Kangiwa said, “What we are doing is we have actually had an engagement with the NGX and other stakeholders to better understand and dimension how it is going to fit into the broad spectrum of the investment activities of the PFAs and also ensure we put in our own internal risk management measures within the regulation.
“The nature of the scheme is contributory and the contributor bears the risk. Once you are investing you are taking risks but those risks have to be understood. They need to understand what they are doing and put in the required mitigant.
“The plan is currently ongoing, we are doing our own in-house due diligence with the regulation, once that is done, we are going to expose the regulation to relevant key stakeholders for comments in our usual way which is consultative and once that is done, we will issue the regulation and it will become effective.”
PensionNigeria notes that Securities lending involves the owner of shares or bonds transferring them temporarily to a borrower. In return, the borrower transfers other shares, bonds or cash to the lender as collateral and pays a borrowing fee. The borrower also must agree to return the security to the lender on demand or at the end of the loan term.
In Nigeria, when a borrower expresses an intention to borrow an asset, they need collateral to back the transaction. The collateral for securities lending, if you are dropping cash as collateral, is 120 per cent of the asset that you are borrowing, and for equities as collateral, the borrower pays 130 per cent. If the borrower is using government securities like FGN Bond, OMO, and Treasury bills, the collateral is 125 per cent.
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