Kofo Dosekun; Oludare Senbore; Oritsemone Awala-Velly; Temitope Sowunmi

 

Introduction

The National Assembly is considering three bills to repeal and re-enact the key pieces of legislation that regulate the banking sector – namely:

  • the Banks and Other Financial Institutions (BOFI) Act; and
  • the Foreign Exchange (Monitoring and Miscellaneous Provisions) (FEMM) Act.

The BOFI Bill is being considered by the House of Representatives, while the two bills amending the FEMM Act are being considered by the two legislative houses:

  • the Foreign Exchange (Monitoring and Miscellaneous Provisions) (Repeal and Re-Enactment) Bill 2016 is pending before the House of Representatives; and
  • the Foreign Exchange (Control and Monitoring) Bill 2015 is pending before the Senate.

Collectively, the bills provide for:

  • an increase in the Central Bank of Nigeria's (CBN's) autonomy and discretionary powers;
  • an expansion of the banking regulation regime to accommodate electronic transactions; and
  • increased penalties for infractions, including the imposition of personal liability on bank officers and directors.

However, the bills are merely indicative as the relevant stakeholders have neither harmonised nor deliberated upon them.

BOFI Bill

The BOFI Bill seeks to repeal and re-enact the BOFI Act. This is in line with calls from key stakeholders to amend the act to reflect the present dynamics of the banking sector. 

Some of the key amendments introduced by the BOFI Bill are as follows.

Increased autonomy and discretionary powers of CBN

An increase in the CBN's autonomy and discretionary powers is the central theme running through the BOFI Bill. This is apparent from the first section of the bill, which takes away the minister of finance's general supervisory powers and bestows them on the CBN. In addition, the CBN governor will have the power to freeze bank accounts (for a maximum of three months) where transactions undertaken in relation to the account are believed to be connected to a criminal offence.

The BOFI Bill also authorises the CBN governor to unilaterally increase the monetary penalties for contraventions of the bill. Notably, the power to freeze bank accounts currently requires a court order.

Restructuring of banks

Where a bank intends to undergo a restructuring or reorganisation, it will have to apply to the CBN to order separate meetings of the banks involved. The CBN may give directions as to how such meetings should be held. The definition of 'restructuring' under the BOFI Bill includes:

  • a change in control;
  • the transfer of a significant shareholding (ie, 5% of share capital);
  • the disposal of all or part of the business;
  • a merger;
  • a reconstruction; and
  • the employment of a management agent to which the business will be transferred.

The BOFI Bill states that where there is an inconsistency between the bill and the Investment and Securities Act regarding the restructuring of a bank, the bill will prevail. This has raised concerns, as the bill's provisions are not as expansive as those of the Investment and Securities Act (with regard to merger control) and there appears to be a significant conflict between the two pieces of legislation.

Investment in SMEs

Banks are mandated to invest no less than 20% of their shareholders' funds unimpaired by losses or an increased percentage as the CBN may determine in order to acquire or hold shares in agricultural, industrial or venture capital (set up to promote the development of indigenous technology in Nigeria) businesses. This is a departure from the previous position, where banks were allowed but not obliged to invest in such businesses. The threshold was no more than 10% of shareholders' funds unimpaired by losses and 40% of the bank's paid-up share capital.

The bill provides that except in relation to the above enterprises, a bank cannot hold any equity interest that it acquires in a company while managing its equity issue for more than six months. This provision will apply to merchant banks when they act as issuing houses in respect of a securities issue.

Increased penalties and personal liability of directors and officers

The BOFI Bill significantly increases the penalties and fines payable for default. For example, the penalty for transacting banking business without a licence will be increased from N2 million to N20 million.(1) In addition, bank directors and officers will be personally liable for wrongs committed by the bank. Another example is that in addition to the liability of a bank for failure to comply with the conditions of its banking licence, any director, manager or officer of the bank who does not take reasonable steps to ensure compliance with the licence conditions will be guilty of an offence and liable on conviction to a fine of N1 million.

Introduction of crisis management committee

The BOFI Bill allows the governor of the CBN to form a crisis management committee where two or more of the following conditions occur:

  • critically distressed banks control 30% of the total assets of all licensed banks;
  • 15% or more of the deposit liabilities of all licensed banks are threatened; or
  • 35% or more of the total loans and advances of all licensed banks become non-performing.

Other key amendments

Other key amendments of the BOFI Bill include the following:

  • The CBN will have to give reasons for denying to grant a banking licence to an applicant.
  • The CBN's consent must be sought before a cash centre (a location used only for receiving and collecting cash deposits from customers by a receiving cashier) may be opened in Nigeria.
  • The timing for filing a statement of assets and liabilities will be changed from 21 days from the last day of the preceding month to 10 days from the last day of the preceding month.

FEMM bills

The FEMM bills each seek to repeal and re-enact the FEMM Act, which was passed in 1995. Some of the key amendments under both bills include:

  • an increase in the CBN's autonomy (eg, the CBN will no longer be required to provide a report on the repatriation of capital or cash transfers of more than $10,000 to the minister of finance);
  • the recognition of electronic settlement of transactions in the foreign exchange market; and
  • an increase in the prescribed time for banks to file a certificate of capital importation returns(2)with the CBN from 48 to 72 hours.

Notably, the FEMM bills will have to be harmonised prior to being passed into law.

Comment

If passed by the executive in their current form, the bills are likely to have a major impact on and far-reaching implications for the Nigerian financial market. As such, there is a need for stakeholder consultations. To date, there has been no indication as to whether the bills will be passed within the tenure of this administration or before the national elections, which are scheduled to be held between February and March 2019.

Originally published in the International Law Office (ILO) Newsletter (7 September 2018).

 

Endnotes

(1) Approximately $5,555 to $55,555.

(2) A certificate of capital importation returns is a document issued by banks that confirms an inflow of foreign capital in the form of either cash (a loan or equity) or goods and guarantees access to the official foreign exchange market.