Explanation: What is Nigeria’s new SEC rule on Sharia advisory services?

By Adedapo Adesanya

The Securities and Exchange Commission (SEC) has revealed new rules on sharia advisory services for non-interest capital market products and services.

According to the SEC, governance of Sharia is crucial, given that compliance with Sharia rules and principles is important in operations/transactions in interest-free capital markets.

“The layout of the rules is in line with local and international best practice. Nigerian financial system regulator such as CBN and NAICOM have issued such guidelines to provide clear and good governance of Sharia in their respective sectors.

“Making the Shariah advisory service a registrable function in the market will contribute to the effective implementation of the proposed consolidation of Shariah governance rules and will also provide an additional source of revenue for the commission,” the agency said. .

The SEC said interest-free capital market activity of late has increased exponentially as the market witnesses the entry of more asset managers, the emergence of i-REITs, the listing of Sovereign Sukuk on the stock exchange, issuance of corporate Sukuk, emergence of the Sharia advisory function, among others.

“These developments, coupled with the market need for Shariah services, affirm the critical need for a framework/guideline to set a minimum standard for persons (corporations or individuals) seeking to provide Shariah advisory services. sharia for interest free capital market activities.

“The guideline is essential for the development of this nascent sector, as it will promote transparency and trust while creating a level playing field for all market players.”

In addition to the above, the commission said that a review exercise of its existing rules on Shari’ah governance undertaken by the Standing Committee on Deepening the Interest-Free Capital Market led to the recommendation that rules be drafted to provide for the registration and regulation of Shariah counseling services. in accordance with international best practices. Therefore, the proposed rules for Sharia advisory services for capital market products and services interest free.

According to the rule, an issuer or fund manager, with the consent of the trustee (if applicable), must appoint a Shariah advisor to provide Shariah advisory services for Shariah products, issues and programs .

A capital market operator seeking to provide Shariah-compliant products and services appoints a registered Shariah advisor for the business and notifies the Commission of such appointment within five (5) working days of the appointment.

The rule states that the SEC can register a Shariah counselor or renew the registration of a registered Shariah counselor provided the applicant meets certain criteria.

This means that only a person eligible to provide Shariah counseling services under these rules must meet the following requirements and this can only be done by a person who meets the following requirement: Possession of at least a bachelor’s degree in Sharia, which includes studies in Usul Fiqh (principles of Islamic jurisprudence) or Fiqh Muamalat (Islamic transactional/commercial law) or someone with extensive knowledge of Usul Fiqh (principles of Islamic jurisprudence) or Fiqh Muamalat (Islamic law transactions/commercial) acquired through the Islamic education system.

Others include the ability to read and write in Arabic and English respectively and having basic business or financial knowledge, especially in Islamic finance and capital market.

On experience, the candidate must have at least two years of relevant experience in Islamic finance; or have at least one year of relevant experience in Islamic finance and have completed at least five relevant courses/workshops in Islamic finance.

The rule also states that the roles and responsibilities of a Shariah advisor must include: advising on all aspects of interest-free capital market products and services, including documentation and structuring;

Issue a Shariah certification, which outlines the basis and rationale for the structure and mechanism, the applicable Shariah principles used, and the relevant Shariah issues relating to the documentation of interest-free capital market products and services; Provide Shariah expertise/advice on all matters, in particular on investment instruments and review compliance reports on the use of Shariah products (if applicable) to ensure that investment activities investment are Sharia compliant.

Other roles and responsibilities are as follows: Provide periodic report to Trustees certifying whether Sukuk product, Islamic funds or any other interest free capital market product has been managed/administered in accordance with Shariah principles and rules; Ensure that applicable Shariah principles and all relevant approved resolutions and decisions are adhered to; Apply ijtihad (where applicable) to ensure that all aspects of non-interest capital market products comply with Shariah principles; and responsibility for the quality, accuracy and correctness of its own decision or advice.

The rule also imposes certain restrictions as a Sharia advisor cannot accept any appointment in more than one registered Islamic fund management company/fund management company offering Islamic products provided that the Sharia advisor can serve in more than one company fund management with the consent of the fund managers, trustees and prior approval of the SEC.

In addition, a Shariah advisor is expected to immediately disclose to the Commission, issuing house, or fund manager any circumstances that may affect their ability to meet any of the requirements of the rule.

Registered Shariah advisors are exempt from appointing compliance officers as required by the Commission’s Rules and Regulations on Appointment of Compliance Officers.

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