Few years ago, if you needed to make financial investments, you had two options; do it yourself or work with investment advisers. However, the advent of robo-advisors has brought about the third option.
WHAT ARE ROBO ADVISORS?
Also known as digital investment advisors, they are financial advising platforms that provide financial advice and or manages investments with little or no human intervention. They accomplish this by gathering information on the investor such as: investor’s objectives, their timeframe, risk tolerance, investment time frame, inputs and investment amounts, life goals, e.t.c and in turn use these information to suggest diversified investment portfolios through computer algorithms.
As client’s target risk level and financial goals are likely to evolve overtime, the investments are in some cases monitored and adjusted to meet up with such changes.
When it comes to robo advisors in Nigeria, a good example is the crypto robo – advisor ComiBlock.
WHAT LAW REGULATES ROBO ADVISORS IN NIGERIA?
The law which regulates investment advisory services in Nigeria is the Securities and Exchange Commission (SEC) Rules and Regulations 2013, specifically rules 96 and 97 which bothers on “Corporate and Individual Advisors” in Nigeria. While the agency in charge of regulation and supervision of investments and securities in Nigeria is the Securities and Exchange Commission.
While the above rules govern investment advisory services by corporate and individual advisors in Nigeria, the Commission on 30th August, 2021 provided new rules and amendments to the existing SEC Rules 2013. The amendment provides new rules with respect to robo-advisory services, trade repositories, and amendments to Rule 97 of the SEC rules.
HIGLIGHTS OF SOME KEY PROVISIONS UNDER THE NEW RULES
If you are considering offering digital investment advisory services (robo-advisory), here are some key provisions you should take note of;
1. Rule 1 of the amended rules divides robo advisory services into two classes;
a. “Digital Advisory Services” entails providing investment advice using automated, algorithm-based tools which are client-facing, with little or no human adviser interaction in the advisory process;
b. “Fully Automated Robo advisor” means Robo advisor with no human adviser intervention in the entire advisory process
2. Under the new rules, Digital (Robo) advisers possess the same legal status as corporate and individual advisers and as such must be registered with the Securities and Exchange Commission to conduct business in Nigeria.
3. Where a Robo advisor outsources the development and maintenance of their client- facing tools to a third party provider, the third party provider is not required to be registered by the Commission. A Robo advisor is however obligated to subject the third party provider to appropriate due diligence processes in order to curtail the risks associated with the outsourcing arrangement.
4. Where a Robo advisor provides portfolio/fund management services to the client and the client decides on an alternative investment decision contrary to the recommendation of the Robo advisor, the Robo advisor shall rely on the client’s order and obtain a written decision/mandate from the client, highlighting in writing that the client is aware of their responsibility of the investment outcome and suitability of his/her investment decision.
5. A Robo advisor who wishes to perform the function of portfolio management must be registered as a Fund/Portfolio Manager with the SEC.
6. Robo advisors are required to provide sufficient information to their clients to enable them make informed investments decisions. Hence disclosures shall be presented in English Language and in an understandable manner.
HOW TO REGISTER AS A DIGITAL INVESTMENT ADVISORY SERVICE OR ROBO ADVISOR IN NIGERIA
To register as a digital investment adviser or robo-advisor, the registration requirements governing corporate and individual investment advisers shall apply.
For a corporate investment advisers are required to have at least three sponsored individuals, one of whom should be a compliance officer who shall be responsible for monitoring compliance with relevant laws and regulations such as; the Investments and Securities Act 2007, SEC Rules and Regulations and all other notices issued by the SEC or the Federal Government.
The minimum share capital requirement for corporate digital investment advisers or corporate robo- advisors is 5,000,000 (five million naira).
Registration requirements for corporate investment advisers
1. Company must be registered with the Corporate Affairs Commission and obtain; Certificate of incorporation, Memorandum and Articles of association and status report.
2. An application for registration as corporate investment adviser shall be filed on Form S.E.C. 3 and shall be accompanied by—
(a) Two (2) sets of completed Form S.E.C. 2 to be filed by the sponsored individuals;
(b) a copy of certificate of incorporation certified by the Corporate Affairs Commission. Where a copy not certified is filed, the applicant shall present the original for sighting by an authorized officer of the Commission;
(c) a copy of Memorandum and Articles of Association certified by the Corporate Affairs Commission which shall among others include power to act as investment adviser;
(d) a copy of CAC Form containing particulars of the directors certified by the Corporate Affairs Commission.;
(e) copy of latest audited accounts or audited statement of affairs for companies in operation for less than one (1) year;
(f) fidelity bond representing 20% of paid-up capital;
(g) sworn undertaking to keep proper records and render returns;
(h) evidence of minimum paid-up capital of N5 million.
(i) profile of the company which should include company’s brief history, organizational and shareholding structure, principal officers as well as details of past and current activities.
(j) Name and address(es) of the company’s subsidiaries/associated companies, types of business and percentage holding
(k) Operational manual or organizational chart of the company
(l) Business plan
(m) Bank’s statement of account operated by the company for the last 6 months.
Registration requirements for sponsored individuals and directors of Corporate Investment Advisers
(a)Minimum of three sponsored Individuals, one of whom shall be a compliance officer
(b) Managing Director of the Company to be among the sponsored individuals;
(c) Full postal addresses of immediate previous employers, bankers (with Current Account number) and nominated referees of sponsored individuals;
(d) Detailed curriculum vitae of sponsored individuals and Directors which should include details of activities arranged from Secondary School to date with dates; (all gap in employment and educational history should be explained);
(e) Copies of credentials of sponsored individuals including secondary school and NYSC (National Youth Service Corp) discharge certificates; originals will be required for sighting by the SEC;
(f) Evidence from the Sponsored Individuals of having the minimum of four years post-graduation experience to perform the corporate investment advisory as stipulated by the Commission’s rules and regulations;
(g) Schedule of duties of the Sponsored Individuals and copies of their employment letters;
(h) Police clearance report for each Sponsored Individual. Each sponsored individual is to report at the SEC head office in Abuja or the Lagos zonal office with two recent passport photographs to commence the process;
(i) Copy of means Identification of the Directors and the Sponsored Individuals of the company (International Passport, tax or utility payment documents);
Registration requirements for Individual Investment Adviser
An application for registration as an individual investment adviser shall be filed on Form S.E.C. 2 as provided in schedule III of these rules and regulations and shall be accompanied by the following:
(a) certified copy of certificate of registration of business name (where applicable);
(b) sworn undertaking to comply with the provisions of the Act and these rules and regulations as may be required from time to time by the Commission;
(c) Evidence of minimum net worth of N500,000.
Payment requirements
To obtain be licensed by the SEC as either an individual or corporate investment advisor, as at the time of sharing this post, below are the payment requirements;
- Filing/Application Fee – N50,000 (Fifty Thousand Naira);
- Processing Fee – N200,000 (Two Hundred Thousand Naira);
- Registration Fee – N300,000 (Three Hundred Thousand Naira);
- Payment of Sponsored Individual Fee – N50,000 (Fifty Thousand Naira) for each sponsored individual;
The amount provided above does not include professional fees required should you retain professional services to process and obtain the license on your behalf.
CONCLUSION
Although technology is no doubt fast paced when it comes to its influence on our daily lives including the area of finance, regulators in Nigeria will no doubt continue to measure up to it. It is therefore important that entrepreneurs and business organizations seeking to diversify or enter into emerging fintech sectors seek adequate information on the emerging laws regulating such sectors to avoid starting out on the wrong side of the law.
We hope you found this information useful? For further enquiries in this regards, please reach out to us HERE and we would be delighted to speak with you.
Image credit; medium.com
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