SEC orders capital market operators to implement ERM framework

The Securities and Exchange Commission has directed all capital market operators to establish and implement an enterprise risk management framework that conforms to globally accepted standards and best practices.

The Securities and Exchange Commission announced this in a statement published on its official website.

The SEC specified that the required standards include those established by the Committee of Sponsoring Organisations (COSO) of the Treadway Commission, the International Organisation for Standardisation (ISO), and the recommendations of the Financial Action Task Force (FATF).

It added that this initiative aimed to bolster risk management practices within the capital market, minimize systemic impacts, and safeguard stakeholders’ interests.

“All capital market operators are hereby directed to implement an enterprise risk management framework that conforms to international standards such as the Committee of Sponsoring Organisations of the Treadway Commission, the International Organisation for Standardisation (ISO 31000), Financial Action Task Force Recommendations and any other internationally recognised risk management standards.

“Adoption of comprehensive risk management practices is imperative for minimising systemic impact and safeguarding the interests of all stakeholders,” it explained.

According to the commission, the new ERM framework requires CMOs to consider their operational structure, business activities, client demographics, products, services, and delivery mechanisms.

To ensure accountability and oversight, the SEC directed CMOs to define their risk appetite, tolerance statements, and consistent reporting to senior management and the board of directors.

It added that organisations must implement risk-awareness programmes to cultivate a culture of risk management throughout their operations.

“This directive is aimed at strengthening the implementation of risk-based supervision, including anti-money laundering and counter-terrorism financing measures in the capital market.

“Consequently, all CMOs are required to submit a Board-approved risk management policy (selectable and searchable PDF format) on or before September 30, 2024, via email at [email protected] to obtain a ‘No Objection,” it stated.

The SEC emphasized that this directive is part of a broader effort to strengthen risk-based supervision in the capital market, encompassing measures to prevent money laundering, terrorist financing, and proliferation financing.

The Commission also mandates CMOs to submit an annual risk profile report by January 31st of each year.

“Every CMO is required to submit their annual risk profile no later than January 31. In addition, emerging threats and measures put in place to mitigate them must be assessed and reported to the Commission for review,” it declared.