BOFIA Amendment: Licensing, supervision of banks divide CBN, NDIC

BOFIA Amendment: Licensing, supervision of banks divide CBN, NDIC

From licensing, supervision to liquidation of banks, the two top regulators have presented divergent views on how their work should be segmented and executed. The CBN Governor, Godwin Emefiele and NDIC Managing Director, Umaru Ibrahim took the positions they wanted reflected in the new BOFIA 2020 to the Senate Committee on Banking, Insurance and Other Financial Institutions public hearing  held  last week in Abuja for consideration.

The Committee held a public hearing on its Bill for an Act to repeal the Banks and Other Financial Institutions Act 2004 and re-enact the Banks and Other Financial Institutions Act 2020.

The Bill, sponsored by Senators Uba Sani and Betty Apiafi had earlier passed through first and second 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 public hearing attracted a diverse group of critical stakeholders within the financial services sector, in addition to other relevant public interest groups.

The CBN in her lead presentation recognised that whilst the extant BOFI Act 1991 (and amended in 1997, 1999 and 2002) provided appropriate foundation for the growth and development witnessed in Nigerian banking sector over the last three decades, significant financial, socio-economic and technological transformations that are being witnessed necessitate review of the legal framework to ensure that it remains fit-for-purpose.

The bank alluded to widespread innovation in channels for delivering financial services, emergence of new types of regulated institutions, advancements in supervisory techniques and methodologies as some of the contemporary developments that necessitate the need to upscale the legal framework for banking regulation and supervision in Nigeria.

The CBN commended the Senate Committee for the amendments already incorporated into the Bill to address some of the observed areas. It however, recommended additional areas for the Committee’s consideration, learning from its practical experiences garnered over time in the course of regulating and supervising banks, specialized banks and other financial institutions in Nigeria:

Review of framework for managing failing institutions in line with international standards 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. In other words, the Central Bank of Nigeria does the former as provided in the BOFIA while NDIC is saddled with the later under the NDIC Act.

The global best practice is to have 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 insurer is in charge of bank resolution activities after the revocation of operating licence.

But the NDIC boss, Ibrahim, said there are variances in the Bills that may be perceived as overlapping mandates between the NDIC and the CBN should be clarified in order to avoid any ambiguity in the laws governing their operations and should be reflected in the BOFIA 2020.

This, he said was specifically critical in the area of the resolution of failing banks where the NDIC should be recognised as the primary actor in the resolution process while the CBN intervenes in the event of systemic crisis.

He also expressed the need for the Corporation to be involved in the process of licensing banks in collaboration with the CBN in order to ensure the necessary fit and proper checks and to establish clearer assessment of the status of financial institutions before licensing.

He also noted that the bill seems to suggest the option of the appointment of other entities in the liquidation of failed banks adding that the Bill should be amended to reflect the NDIC as the sole liquidator of failed banks based on the Corporation’s core mandate of Bank Liquidation.

He said, the clear delineation of roles between the NDIC and CBN would strengthen the legal framework and contribute towards effective and efficient collaboration in the supervision and regulation of the Banking Sector.




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