The Securities and Exchange Commission (SEC) has directed non-custodian firms holding securities for their actual owners to apply for registration as a nominee with the Commission.
The directive was part of a regulatory framework for nominee function released at the weekend. The rules require persons not registered by the Commission as custodians, carrying on the business of nominees and holding securities for their actual owners to apply to the Commission for registration as a nominee. Such securities include equities, money market, fixed income securities and derivatives among others, with the exception of pension assets.
A nominee is a company formed by a bank or other financial institution for holding securities and other assets and administering them for the actual owners under the terms of a custodial or nominee agreement.
According to the rules, the business of the nominee shall be to take title of property, money or securities in trust for and on behalf of clients as nominee for, or representative of such clients, to hold and deal with such property, money or securities strictly in accordance with any directions given by the respective clients from time to time to the nominee company.
The rule also stipulates that a nominee shall not engage in any business or activity except the business of nominee companies described above.
The rule prescribed that a nominee company shall have minimum of three sponsored individuals, one of whom shall be a compliance officer.
Also, the Managing Director of the company shall at all times be among the sponsored individuals by complying with the requirements for registration of sponsored individuals while a nominee company shall have necessary infrastructure, including vaults for safe custody of title documents and agreements and information technology capability required to effectively discharge its functions.
On code of conduct, the SEC stated that a nominee company shall abide by the code of conduct for capital market operators and their employees as set out in the Commission’s rules and regulations. In addition, any person registered by the Commission as nominee shall not carry out any business except the business of nominee prescribed in these rules; not invest in securities; and have a robust risk management procedure and mechanism for compliance with Anti Money Laundering-Combating Financing of Terrorism (AML/CFT) regulations of its parent company.
According to the rules, the functions of nominee companies to include maintaining accounts of securities of clients, collecting all rights and benefits on behalf of, or accruing to clients in respect of securities held, managing the holding of clients including facilitating sale, purchase, lending and borrowing securities and settlement of investment obligations based on the clients’ mandates as well as ensuring compliance with contractual obligations with clients and custodians