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07 September 2018
The National Assembly is considering three bills to repeal and re-enact the key pieces of legislation that regulate the banking sector – namely:
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:
Collectively, the bills provide for:
However, the bills are merely indicative as the relevant stakeholders have neither harmonised nor deliberated upon them.
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:
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:
Other key amendments
Other key amendments of the BOFI Bill include the following:
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:
Notably, the FEMM bills will have to be harmonised prior to being passed into law.
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.
For further information on this topic please contact Kofo Dosekun, Oludare Senbore, Oritsemone Awala-Velly or Temitope Sowunmi at Aluko & Oyebode by telephone (+234 1 462 8360 71) or email (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com). The Aluko & Oyebode website can be accessed at www.aluko-oyebode.com.
(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.
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