National Pension Commission Directs Suspension of Investments in Commercial Papers

By DAYO ADESULU

PenCom Issues Circular to Licensed Pension Fund Administrators and Custodian Funds

The National Pension Commission (PenCom) has issued a directive to all Licensed Pension Fund Administrators (LPFAs) and Custodian Funds to immediately suspend further investments in commercial papers where capital market operators and non-banks are engaged as Issuing and Placing Agents (IPAs). This order is outlined in a circular with reference number PENCOM/TECH/ISD/2024/402, dated October 23, 2024, and signed by A.M. Saleem, Head of the Surveillance Department at PenCom.

Rationale Behind the Directive

The circular highlights PenCom’s concerns regarding the increased investments by LPFAs in commercial papers issued by limited liability companies. It notes that these companies have been utilizing capital market operators as IPAs for the management of their commercial paper issuances.

However, PenCom has identified a significant gap in regulatory oversight, stating that the Securities and Exchange Commission (SEC), the primary regulator of the capital market, currently lacks established rules and regulations governing the issuance of commercial papers. This regulatory void has prompted PenCom to take precautionary measures to mitigate potential risks to pension fund investments.

Key Points from the Circular

• Immediate Suspension: All LPFAs are directed to suspend any further investments in commercial papers involving non-bank capital market operators as IPAs.
• Pending Guidelines: The suspension will remain in effect until the SEC issues comprehensive guidelines or regulations governing the issuance of commercial papers.
• Compliance Requirement: PenCom has advised LPFAs and custodians to take all necessary measures to ensure compliance with the directive.

Implications for the Pension Sector

This directive underscores PenCom’s commitment to safeguarding pension fund assets and ensuring that investments are made in a regulated and secure environment. By halting investments in commercial papers without adequate regulatory oversight, PenCom aims to protect the interests of pension fund contributors and maintain the integrity of the pension system in Nigeria.

Conclusion

As the pension sector navigates this suspension, stakeholders are encouraged to remain vigilant and proactive in ensuring compliance with PenCom’s directive. The future establishment of guidelines by the SEC will be crucial in providing clarity and regulatory support for commercial paper investments in the pension fund.