PenCom lifts ban on PFAs investment in commercial papers
The National Pension Commission has lifted its ban on Licensed Pension Fund Administrators investing in commercial papers managed by non-bank capital market operators serving as Issuing and Paying Agents.
This follows steps taken by the Securities and Exchange Commission to resolve regulatory concerns regarding these operators’ roles in such transactions, paving the way for increased investment opportunities and enhanced market confidence.
In a circular signed on Tuesday, by the Head of the Investment Supervision Department, PenCom, Abdulqadir M. Dahiru, referred to its earlier directive that mandated an immediate suspension of investments in commercial papers involving non-bank capital market operators as IPAs.
The suspension was originally imposed due to the absence of clear regulatory guidelines for non-bank IPAs’ involvement in commercial paper issuances.
PenCom had expressed concerns that the lack of oversight left such transactions outside established regulatory frameworks, posing potential risks to pension fund investments.
Following the SEC’s development of draft rules and proposed amendments to Rule 8 (Exemptions), which provide a framework for regulating commercial paper issuances by its regulated entities, PenCom has lifted the restriction.
The updated SEC rules aim to integrate non-bank IPAs into the regulatory fold, effectively addressing PenCom’s earlier concerns.
The circular read, “The Commission has noted that the Securities and Exchange Commission (SEC) has developed draft rules and an amendment to rule 8 (Exemptions) to regulate the issuance of Commercial Papers by its regulated entities. Accordingly, the SEC is addressing the Commission’s concern about the role of non-bank IPAs in Commercial Paper transactions by bringing them within regulatory boundaries.
“Consequently, to facilitate capital raising and ensure continued market stability, the Commission has lifted its restriction on LPFAS investing in commercial papers where capital market operators act as IPAs. Nonetheless, LPFAS must ensure that appropriate legal and financial due diligence is undertaken on all Prospectus/Offer Documents of all commercial papers prior to investment as stipulated in Section 2.9 of the Regulation on Investment of Pension Fund Assets.”
PenCom has now officially lifted the suspension on LPFAs investing in commercial papers issued with non-bank capital market operators acting as IPAs.
LPFAs are mandated to perform detailed legal and financial due diligence on all commercial paper prospectuses and offer documents prior to investment.
This is in line with Section 2.9 of PenCom’s Regulation on Investment of Pension Fund Assets, which ensures the protection and soundness of pension fund investments.
PenCom has stressed the importance of maintaining strict due diligence standards, reminding LPFAs that this renewed investment opportunity carries the critical responsibility of protecting pensioners’ funds.
