PenCom lifts ban on PFAs investment in commercial papers

• Published On: 03 December 2024 at 20:23

The National Pension Commission has lifted the ban on Licensed Pension Fund Administrators investing in commercial papers managed by non-bank capital market operators acting as issuing and paying agents.

This follows the Securities and Exchange Commission's steps to address regulatory concerns about these operators' roles in such transactions, paving the way for increased investment opportunities and market confidence.

PenCom's Head of the Investment Supervision Department, Abdulqadir M. Dahiru, issued a circular on Tuesday referencing an earlier directive that mandated an immediate suspension of investments in commercial papers involving non-bank capital market operators known as IPAs.

The suspension was initially imposed due to a lack of clear regulatory guidelines for non-bank IPA participation in commercial paper issuances.

PenCom expressed concern that the lack of oversight allowed such transactions to occur outside of 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 prohibition.

The updated SEC rules seek to incorporate non-bank IPAs into the regulatory framework, effectively addressing PenCom's previous concerns.

The circular stated, "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." As a result, the SEC is addressing the Commission's concern about the role of non-bank IPAs in Commercial Paper transactions by bringing them within regulatory parameters.

"As a result, to facilitate capital raising and maintain market stability, the Commission has lifted its restriction on LPFAS investing in commercial papers in which capital market operators act as IPAs." Nonetheless, LPFAS must conduct appropriate legal and financial due diligence on all Prospectus/Offer Documents of all commercial papers prior to investment, as specified in Section 2.9 of the Regulation on the Investment of Pension Fund Assets."

PenCom has now officially lifted the ban on LPFAs investing in commercial paper issued by non-bank capital market operators acting as IPAs.

Before investing, LPFAs must conduct extensive legal and financial due diligence on all commercial paper prospectuses and offer documents.

This is consistent with Section 2.9 of PenCom's Regulation on Investment of Pension Fund Assets, which ensures the safety and soundness of pension fund investments.

PenCom has emphasised the importance of adhering to strict due diligence standards, reminding LPFAs that this renewed investment opportunity bears the critical responsibility of protecting pensioners' funds.