The Senate of the Federal Republic of Nigeria on July 22, 2020, in a bid to regulate and enhance the operations of banks and other financial institutions in Nigeria, passed a bill to repeal and reenact the Banks and Other Financial Institutions Act (BOFIA) Cap B3 Laws of the Federal Republic of Nigeria, 2004.
The objectives of the bill are: regulating the businesses of the banking sector and other financial institutions in Nigeria by prohibiting them from acting as such except under license, updating the laws governing banks and other financial institutions, enforcing and regulating the activities of financial technology (FinTech) companies in Nigeria, among others.
November 13, 2020, marks a major shift for banks and other financial institutions as the Banks and Other Financial Institutions Act (BOFIA) Cap B3 Laws of the Federation of Nigeria 2004 (Amendment) Bill, 2020 was signed into law by President Mohammed Buhari. This is considered long overdue considering the technological and social changes that have taken place in the last 29 years when the last BOFIA was enacted.
It is to this end that this article will highlight the key provisions in the recently enacted Banks and Other Financial Institutions Act, 2020.
Note: For the purpose of this article, “the new Act” means Banks and Other Financial Institutions Act, 2020; the ‘old Act” means The Banks and Other Financial Institutions Act (BOFIA) Cap B3 Laws of the Federation of Nigeria 2004, “the Bank” means Central Bank of Nigeria and “the Governor” means the Governor of the Central Bank of Nigeria.
Penalties: The penalties imposed on defaulters of the provisions of the new Act are now in tandem with inflation and the value of the domestic currency as they have been improved upwards.
For example, any bank that fails to comply with the conditions of its license is liable to a penalty of not less than N20,000,000 ( Twenty Million Naira) and an additional penalty of N500,000 (Five Hundred Thousand) for each day of noncompliance. See Section 5(3) of the Act as opposed to N50,000 (fifty thousand naira) for each day of non-compliance as was the practice under the old Act.
Provision for Force Majeure: The year 2020 was filled with unexpected happenings in the world, and by extension, Nigeria. The COVID-19 Pandemic being the highlight of these happenings- stalling economic, social, political and even religious activities. The pandemic showed the world that things can be done in different ways and even more effectively. In Nigeria, the EndSars Protest also stalled and paralysed economic activities.
In a bid to protect the banking industry from liabilities that may arise from force majeure events, the new Act in its Section 45(1) provides thus “no bank, specialized bank or other financial institution will incur any liability to any of its customers by reason only of failure on the part of the bank, specialized bank or other financial institution to open for business during a strike, an epidemic or pandemic”
Reduction in the Time Frame to Publish Financial Statements: Under the old Act, a bank or other financial institution must, not later than 4 (four) months, forwards its financial statement (which must have been prepared according to the relevant accounting standard) to the Central Bank of Nigeria for approval. It is noteworthy that the time frame has been reduced to 3 (three) months in the new Act Section 26(1) of the new Act.
Also, the n w Act provides that every bank or other financial institution shall thereafter, but not later than 7 (seven) days after approval for publication by the Bank cause to be published in not less than 2 (two) national daily newspapers printed and circulating in Nigeria. Section 26 (2) (a) of the new Act. The requirement under the old Act used to be 1(one) national daily newspaper.
Opening and Closing of Branches: Section 6(1) of the new Act provides that ”no bank shall open or close any branch office, cash centre or representative office anywhere within or outside Nigeria except with the prior written consent of the Bank”.
It should be noted that the foregoing underlined parts are not provided for in the old Act. In the same vein, the old Act proceeds to say that “any bank intending to close any of its branches or subsidiaries outside Nigeria shall give notice in writing to the Governor of its intention, at least six months before the date of the intended closure or within such closure as the Governor may, in any particular case, allow” See Section 6(2) of the new Act.
The penalty for refusing to follow the Bank’s guidelines on opening and closing of branches has been extended from not exceeding N2,000,000 (Two Million Naira) to a penalty of not less than N5,000,000 (Five Million Naira) in the new Act.
Special Tribunal for the Enforcement and Recovery of Eligible Loans: The new Act has made provision for the establishment of the Special Tribunal for Recovering and Enforcing Eligible Loans hereinafter referred to as “the Tribunal.”
The powers, compositions, constitutions, etc. of the Tribunal are detailed in Sections 102-129 of the new Act. The jurisdiction of the Tribunal extends throughout the Federation and the President of the Tribunal shall, for administrative purpose, divide the Federation into appropriate divisions.
The Tribunal shall have and exercise jurisdiction on any cause and matter ‘pertaining to enforcement and recovery of eligible loans by financial services banks, specialized banks and other financial institutions, connected with or pertaining to the enforcement of security or guarantee, or attachment of any asset under an eligible loan made by any bank, specialized bank or other financial institution in Nigeria, to its customers” See Section 115 (1) and (2) of the new Act.
The establishment of the Tribunal is, in our opinion, a good initiative of the new Act as it will encourage structured lending in the private sector; leading to a balanced and sustainable economy.
Cyber Security: With the emergence of new technologies and the corresponding increase in cyber-crimes, it becomes important for cybersecurity to be duly incorporated in the new Act.
The Bank may now make regulations and issue guidelines accordingly to banks, specialized bank and other financial institutions to address cybersecurity issues while delivering financial or banking services and all banks are mandated by the new act to comply with these regulations and guidelines. See Section 68 of the new Act. CBN’S Discretion on Minimum Capital Ratio:
The provision for “minimum capital ratio” under the old Act which required the Bank to prescribe higher or lower capital ratio has its discretion has been widened in the new Act. Section 13 of the new Act has enlarged the powers of the Bank to “prescribe a higher or lower capital adequacy ratio with respect to any category of banks.”
Also, the penalties spelt out for refusing to obey the specified capital adequacy ratio old Act has been extended in Section 13(6) of the new Act to include the power of the Bank to impose such additional holding actions, prohibitions and conditions as it may deem fit for failure to comply with the specified capital adequacy ratio.
Jurisdiction of the Federal High Court: The new Act donates express jurisdiction to the Federal High Court to try any offence and impose any penalty under the Act. See Section 52 of the new Act.
Display of Information: Section 22 of the new Act provides that “every bank shall display at its offices and on its website.” It should be noted that the foregoing is not provided for in the old Act. The information that must be displayed by banks has now been widened to include foreign exchange rates, certified true copy of its Certificate of Incorporation and abridged version of the last approved audited accounts.
The inclusion of the website is, in our opinion, a very good initiative. In line with the COVID-19 protocols, efforts must be made to reduce physical presence in banks. The display of accurate information and documents will also ensure transparency and efficiency.
Appointment of Examiners by the Governor: The new Act gives the Governor power to appoint examiners who shall confidentially examine the books and affairs of each bank, other financial institutions and specialized banks periodically. They can also, in addition to their duties, attend (as observers), management and board meeting of banks, other financial institutions and specialized banks to which they are assigned.
In conclusion, the Banks and Other Financial Institutions Act, 2020 is laudable and must be commended. Described by President Muhammed Buhari as “a monumental piece of legislation expected to enhance the soundness and resilience of the financial system”, the BOFIA will surely expand the banking horizons in the country and all hands are on deck to ensure that this is the case.
Hermon Solutions is from Hermon Legal Practitioners, Anthony Lagos
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