The Securities and Exchange Commission (SEC) has proposed new rules that prohibit Credit Enhancement Service Providers from declaring or paying dividends until they have fully complied with prudential and operational requirements.
According to the draft rules, no provider will be allowed to distribute dividends until all preliminary and preoperational expenses are written off, adequate provisions for losses have been made, and the entity has met minimum prudential standards as prescribed by the Commission.
The SEC emphasized that the move is designed to safeguard investors and ensure that credit enhancement firms remain financially stable before making distributions.
Credit Enhancement Service Providers, such as InfraCredit, provide guarantees and other instruments to improve the credit quality of debt securities, making them more attractive to pension funds, insurance companies, and other institutional investors.
In addition to the dividend restriction, the Commission also mandated that all providers must establish and maintain a board-approved risk management framework to identify, monitor, and control operational risks.
They are also required to comply with International Financial Reporting Standards (IFRS) or other accounting standards as directed by the Financial Reporting Council of Nigeria in preparing their financial statements.
Commercial banks and insurance companies already licensed by the Central Bank of Nigeria (CBN) or the National Insurance Commission (NAICOM) will be deemed to have satisfied the prudential requirements once they present letters of good standing from their regulators.
However, these letters must be renewed annually within 45 days of the close of their financial year.
The SEC further noted that the new rules, once implemented, would strengthen the operations of credit enhancement providers, enhance transparency, and improve investor confidence in debt instruments supported by such facilities.