Regulatory summary of 2018 - banking and finance

The Banking and Finance sector in Nigeria is regulated primarily by the Banks and Other Financial Institutions Act (BOFIA) in conjunction with the Central Bank of Nigeria Act which vests powers in the Central Bank of Nigeria (the “CBN”) as the apex regulator. So, the CBN makes regulations for the control of all financial institutions, as it is charged with the responsibility to maintain financial system stability and to regulate the financial services sector. The primary legislations are supported by the secondary laws such as the Companies and Allied Matters Act (CAMA), which regulates the affairs of all companies doing business in Nigeria; the Nigerian Deposit Insurance Corporation Act (NDICA), which regulates the insurance of deposits in licensed banks and protects the interest of depositors in the event a financial institution becomes distressed; the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, which regulates transactions in the autonomous foreign exchange market; and the Financial Reporting Council of Nigeria Act, which promotes the highest standards among professionals involved in the financial reporting process. Over the years, the CBN has introduced a narrower banking model restricting banks to core banking activities and excluding them from engaging in non-banking activities. Current regulatory areas The FIRS released new Transfer Pricing (“TP”) Regulations with an e Licensing and Regulation of Payment Service Banks in Nigeria In the last quarter of 2018, the CBN issued the Exposure Draft on the Guidelines for Licensing and Regulation of Payment Service Banks in Nigeria in recognition of the need for financial inclusion i.e access to financial services for all. The CBN in collaboration with stakeholders launched the National Financial Inclusion Strategy (NFIS) with a view to reducing financial exclusion to 20% by 2020. The Payment Service Banks (PSBs) will provide financial services to small businesses, low income households and other financially excluded persons who ordinarily do not have access to financial services through high volume low value transactions in a secure technology driven environment. Largely, the PSBs will leverage on mobile and digital channels to accept deposits, carry out payments and remittance, issue debit cards in their name, operate electronic wallet, invest in federal government and CBN securities among others. Extension of the Regulatory Framework for the Use of Unstructured Supplementary Service Data (USSD) in the Nigerian Financial System The CBN in the course of the year also extended the implementation date for the Regulatory Framework for the Use of Unstructured Supplementary Service Data (USSD) in the Nigerian Financial System to 1st October 2018. The regulation, which is directed at all Deposit Money Banks (DMBs), Mobile Money Operators (MMOs), Payment Solution Service Providers (PSSPs) and other Service Providers establishes the rules and considerations for assuaging threats when implementing USSD for financial service offerings in Nigeria. Revised Standards on Nigeria Uniform Bank Account Number (NUBAN) Scheme for Banks and Other Financial Institutions The CBN issued the Exposure Draft for the Revised Standards on Nigeria Uniform Bank Account Number (NUBAN) Scheme for Banks and Other Financial Institutions in Nigeria to accommodate Other Financial Institutions (OFIs). This is in recognition of the success of the NUBAN Scheme across DMBs and the increasing role of the OFIs in the electronic payments system. According to the CBN, the revised standard will facilitate the efficient processing of electronic funds transfers and cheque clearing operations by Banks and Other Financial Institutions. Cybersecurity The CBN also issued a letter to all banks and Payment Service Providers (PSPs) on the Issuance of Risk-Based Cyber-Security Framework and Guidelines for Deposit Money Banks and Payment Service Providers in view of the need for the DMBs and PSPs to protect and strengthen their cyber security against sophisticated cyber threats. These cyber security threats such as phishing attacks, ransomware, have increased alarmingly due to the use of information technology to expedite transactions. It sets out the minimum cybersecurity to be used by the DMBs and the PSPs to include a cybersecurity strategy/framework, cybersecurity risk management system, cyber resilience assessment, creation of a cybersecurity profile, metrics, monitoring & reporting processes. This is all to protect confidentiality and prevent financial loss or reputational damage. Corporate governance and Internal Control In 2018, the CBN issued a number of Corporate Governance Codes (the “Codes”), these include: • Code of Corporate Governance for Finance Companies: aims to promote efficiency and transparency in the financial services business to ultimately build public confidence and attract investments. • Code of Corporate Governance for Microfinance Banks: upholds ethical standards, outlines the standard corporate governance criteria for licensed Microfinance Banks (MFBs) and enhances public confidence in the MFBs. • Code of Corporate Governance for Bureaux De Change: complements existing guidelines that regulates the Bureaux de Change and addresses issues or factors that affect the operations of the ecosystem. • Code of Corporate Governance for Development Finance Institutions: ensures that the Development Finance Institutions (DFIs) exercise safe practices and business prudence in the provision of financial support services to critical sectors of the economy. • Code of Corporate Governance for Primary Mortgage Banks: upholds ethical standards, outlines the standard corporate governance criteria for licensed Primary Mortgage Banks (PMBs) and enhances public confidence in the PMBs. • Code of Corporate Governance for Mortgage Refinance Company: applies to all licensed Mortgage Refinance Company (MRC) and is a guide on the governance structure of an MRC. These Codes provide for the governance structure and cover issues such as board and management, shareholders, rights of other stakeholders, disclosure and transparency, risk management, ethics, professionalism and conflict of interest, compliance and sanctions. Although the Codes were issued on 24th October 2018, they however will not come into effect until 1st April 2019. The CBN’s view is that these corporate governance standards once implemented will help ensure good governance and ethical practices. Anti Money laundering The CBN Anti-Money Laundering and Combating the Financing of Terrorism (Administrative Sanctions) Regulations (the “Regulation”) is the collaboration effort of the CBN and the Office of the Attorney General of the Federation for an administrative sanctions regime for financial institutions under the supervision of the CBN. The Regulation outlines forty eight (48) actions required for anti-money laundering and combating the financing of terrorism (AML/CFT) for banks and other financial institutions and as well as the administrative sanctions for default. The Regulation is sequel to the requirements of the Financial Action Task Force (FATF) Recommendation 35 on effective, proportionate and dissuasive sanctions for noncompliance with AML/ CFT and the recommendation of the Inter-Governmental Action Group against Money Laundering in West Africa (GIABA) 2007 Mutual Evaluation for the review of Nigeria’s anti-money laundering and combating financing o