Considering that the agitation for the review of the CBN Act 2004 to strengthen its regulatory powers has now assumed a crescendo in public discourse, the current efforts of the Senate Committee on Banking, Insurance and Other Financial Institutions is better late than never.
The existing CBN Act, promulgated in 1991 as Decree No. 24 (amended in 2007) was enacted to establish the legal framework for the CBN to ensure monetary and price stability; issue legal tender currency in Nigeria; maintain external reserves to safeguard the international value of the legal tender currency; promote a sound financial system in Nigeria; and act as Banker and provide economic and financial advice to the Federal Government.
While the enactment of the Banks and Other Financial Institutions Act 1991 was largely to regulate the banking sub-sector of the financial services industry.
The decision was indeed a landmark development which gave the Central Bank of Nigeria (CBN) an instrument of autonomy to effectively discharge its core mandate.
The law and its subsequent amendments however, could not meet the challenges posed by emerging developments in the financial sector and also by the rapid reform programmes of the Federal Government.
The financial system for instance, continued to witness developments such as the transfer of supervision of specialized banks, such as primary mortgage institutions (PMI), community banks and development financial institutions (DFIs) and other non-bank financial institutions to the CBN.
These development as expected expanded the regulatory and supervisory responsibility of the Bank called to question the legal framework within which the Bank operated as its activities seemed beyond the scope envisaged by the Decree No. 24 of 1991(as amended in 1997, 1999, and 2000).
In this regard, the Bank proposed a number of measures for strengthening both the CBN and BOFI Acts. The Bills embodying the proposals were extensively deliberated upon by the government and following their approval were forwarded to the National Assembly (NASS) as executive bills.
The intention was that both Bills would be considered together by the NASS but unfortunately, due to inexplicable reasons, only the CBN Bill was promulgated into law.
The Central Bank of Nigeria (CBN) at the behest of the Committee recognized that whilst the extant BOFI Act 1991 (and amended in 1997, 1999 and 2002) provided appropriate foundation for the growth and development so far witnessed in Nigerian banking sector over the last three decades, the significant financial, socio-economic and technological transformations that have been witnessed therefore necessitates a review of the legal framework to ensure that it remains fit-for-purpose.
It is thus commendable of the current 9th NASS Committee on Banking, Insurance and Other Financial Institutions to have called for a public hearing on Wednesday, July 15, 2020, to enhance its deliberation on the Bill seeking to repeal the existing Act 2004 and re-enact the Banks and Other Financial Institution Act 2020.
The Bill which is sponsored by Senators Uba Sani and Betty Apiafi and had passed through 1st and 2nd reading on the floor of the Senate following which it was passed to the Committee on Banking, Insurance and Other Financial Institutions for further legislative action. The attendant public hearing attracted quite a diverse group of critical stakeholders within the financial services sector, including other relevant public interest groups.
Since the inception of the Bank’s operations, it has been embarking on a number of reforms aimed at strengthening the banking sector and complementing economic reform programmes embarked on by successive governments. Therefore, a comprehensive review of the existing legal framework is required to strengthen monetary policy formulation, implementation, and effective transmission as well as enhance the Bank’s supervisory capacity.
Also, the global war on economic crime and the increasing wave of money laundering in particular, underscored the need for a proactive and effective anti-money laundering regime. Thus, refocusing the CBN itself and strengthening its regulatory capacity for effective service delivery became imperative for the adoption of universal banking in Nigeria as it is worldwide.
The Central Bank of Nigeria in support of the efforts by the NASS also alluded to its widespread innovative channels for delivering financial services, noting among others that, the emergence of new types of regulated institutions, advancements in supervisory techniques and methodologies coupled with some contemporary development necessitate the need to upscale the legal framework for banking regulation and supervision in Nigeria.
However, as commendable as NASS efforts are, it is imperative of the distinguished members to broaden their scope in re-enacting the regulatory powers of the Bank, leveraging on other central banking operations globally. The NASS in this effort must also take into consideration the practical experience, capability and competence the Bank had garnered over time in managing, regulating and supervising the banks and other financial institutions, which also include specialized banks, such as the non-interest banking model and other financial institutions in the country.
Most germane I must say is the review of the framework for managing failing institutions in tune with international best practice to properly delineate roles for the agency tasked with managing failing banks and other financial institutions, and those with responsibility for resolving banks and other financial institutions, whose license have been revoked. Critical in this respect, is that while the Central Bank of Nigeria does the former as provided in the BOFIA, the Nigeria Deposit Insurance Corporation (NDIC) is tasked with the latter under the NDIC Act.
The international best practice is having the banking legislation empower the financial services industry regulator to regulate banks, promote their soundness and stability; superintend issuance and revocation of operating licence without recourse to any other institution, while the deposit insurers are charged with bank resolution activities after the revocation of operating licence. This issue had been a matter of contention between the CBN and NDIC, and it is was time it is put to permanent rest.
The Nigeria Deposit Insurance Corporation had in the past years approached the NASS urging it to be granted the power to license and revoke operating licenses of failed banks. It is thus obnoxious of a creation of the Bank to seek to usurp the power it has no competence to use. It is therefore pertinent as this deliberation is ongoing for the NASS not be swayed or allow itself to be manipulated into committing a monumental error that may turn Nigeria and the Central Bank of Nigeria into a laughing stock in the committee of nations.
The NASS should also take a step further in its effort to modernize the Nigeria banking legislation by considering the following to enable them emerge with an enduring Act. This, in my opinion include: to saddle the CBN with remedial power and resolution to revoke license of any failing bank in line with international standard; Enhancement of failing bank recovery and resolution tool kit to give more options for managing failing institutions and systemic crisis without recourse to public treasury; Creation of a Credit Tribunal to strengthen credit recovery processes and enforcement of collateral rights; Strengthening the framework for reporting for insider transactions as part of measures to boost credit administration processes in banks and; Enhancements to regulatory measures for single obligor limits, transfer of significant holdings, etc.
Others are; Strengthening of the sanctions regime to make it more deterrent; reviewing the provisions to recognize the unique business models of new entrants into the financial services sector (e.g. non-interest banks and payment system service providers); Effective management of dormant accounts to ensure efficient administration for ultimate benefit of the owners of the funds or their beneficiaries.
The distinguished men of the Red Chamber in their patriotic fervor in addition to the above, should not wrap up their exercise without considering strengthening the requirements for payments, settlement and clearing activities to address unfolding developments, as well as the standards for regulations and supervision of systemically important banks given the risk that their activities pose to the financial system.
Joy Nguri writes from Numan, Adamawa State.