The National Pension Commission (PenCom) has announced the removal of restrictions previously imposed on Licensed Pension Fund Administrators (LPFAs) regarding investments in commercial papers where capital market operators, rather than banks, act as Issuing and Paying Agents (IPAs) in the absence of regulatory guidelines.
This decision was disclosed in a document titled “Investments in Commercial Papers by Licensed Pension Funds” released yesterday. PenCom referenced its earlier circular dated October 23, which mandated LPFAs to suspend investments in such commercial papers due to the lack of rules governing their issuance. The regulatory concern was based on the potential risks posed by non-bank IPAs operating without oversight. However, the Securities and Exchange Commission (SEC) has since drafted new rules and amended Rule 8 (Exemptions) to regulate the issuance of commercial papers by entities it oversees.
PenCom’s statement highlighted, “SEC is addressing the concerns raised regarding the role of non-bank IPAs in Commercial Paper transactions by bringing them under regulatory control.” In response to these developments, PenCom has lifted the restrictions to facilitate capital raising and maintain market stability. However, the commission emphasized that LPFAs must rigorously conduct legal and financial due diligence on all prospectuses or offer documents for commercial papers before proceeding with investments, in compliance with Section 2.9 of the Administrators’ Regulation on Investment of Pension Fund Assets.
This development is expected to encourage more active participation by LPFAs in commercial paper transactions, boosting liquidity in the financial market while ensuring safeguards through enhanced oversight and compliance measures.