The Banks and Other Financial Institutions Act (BOFIA) like all other statutes is a regulatory framework of laws, specifically intended for banks and financial institutions in Nigeria. Prior to now, the Banks and Other Financial Institutions Act 2004 ( as amended) governed the regime of banking and financial transactions in Nigeria. However on the 13th of November 2020, President Muhammadu Buhari assented to the Banking and Other Financial Institutions Act 2020.
The new BOFIA 2020 repeals the BOFIA 2004 (as amended). This new Act is deemed to be an embodiment of resilience of the banking and financial sector for sustainable growth and development. In the light of this, the new Act has made very substantial amendment of the hitherto existing law. A review of this amendment is the focus of this article.
INNOVATIVE PROVISIONS OF THE BANKS AND OTHER FINANCIAL INSTITUTIONS ACT 2020
The Banks and Other Financial Institutions Act 2020 comes with a substantial amendment after an earlier amendment in 2004, (16) years ago to the now repealed BOFIA Cap B3 Law of the Federation of Nigeria 2004. The new BOFIA is intended to bridge hitherto existing gaps that arose over the years. Some of its innovative provisions include:
On the issuance of licence, Section 3(3) of the new Act provides that the Central Bank of Nigeria may upon payment of the prescribed sum by the proposed bank issue a licence or refuse to issue a licence. In cases of refusal to so issue a licence, the Central Bank is required to give reasons within 60 days. This is an improvement on the repealed Act, which gave the CBN Governor wide discretionary powers in issuing a licence and refusal to issue same without giving any reasons/ conditions for such refusal. This implies that his exercise of discretionary powers in this regards has been curtailed.
Section 3(4)(ii) further provides that upon granting an application for a bank license, additional information is hereby required to be given in writing to the applicant indicating the scope of banking business in which the applicant can engage in and geographical area within which the applicant bank shall operate.
Also the Act has included a new sub Section 6 and 7 to Section 3. This provision outlaws any bank or its subsidiary that has no physical presence in the country of incorporation and has not been licensed to operate as an affiliate of any financial service group. This is specifically contained in S.3(6) . However S.3(7) stipulate a penalty for breach of subsection 5 which requires that all applications for provisional banking license should be forwarded to the CBN Governor and all licenses to be issued shall be with prior approval of the Minister of Finance. A defaulter is liable to a fine of #5, 000 000 in addition to #100,000 daily as the breach continues.
On failure of a bank to adhere to the stipulated condition of licence, the new Act in S. 5(3) renders defaulters liable to the tune of not less than 1,000,000 and a fine of #100, 000 each day the default extends. This is a notable increment from a fine not exceeding #50,000 daily hitherto contained in the repealed Act.
Furthermore, S.5(5) reviews the penalty for failure to comply with additional conditions imposed in relation to a licence from a fine of N500,000 and where the offence continues, an additional fine of N5,000 for each day during which the offence continues under the old Act to a fine not less than N500,000 and an additional fine of N100,000 for each day during which the offence continues under the new Act.
Section 5(6) renders any director, manager or officer who fails to take reasonable steps to secure compliance with any condition of the bank’s operating licence liable on conviction to a term of imprisonment not exceeding five years or a fine of #15, 000,000 or both.
The innovative provisions of this new Act extend to covering the issues of revocation of banking licence. This is addressed in S. 12 which now contains 9 subsections as against one section contained in the now repealed BOFIA. These subsections deal extensively with the appointment of the Nigerian Deposit Insurance Corporation (NDIC) as a liquidator of the affected bank which operational license has been revoked. It further addresses the immediate payment by the Central Bank of private deposit liabilities of the bank prior to the commencement or completion of the liquidation of the bank by NDIC and the creation of exclusive jurisdiction of the Federal High Court to entertain actions contesting the revocation of licence. It as well provides for the time frame within which the action contesting the revocation by the NDIC shall be heard, determined and the duration of an appeal against the Federal High Court.
This new Act places a bar on persons from carrying on specialised banking or business of other financial institutions in the country other than insurance, pension fund management, collective investment schemes and capital market. Except those incorporated in Nigeria and holding a valid license granted under the Act. This is contained in S.58(1) &(2)
CENTRAL BANK’S REGULATORY AUTHORITY UNDER THE NEW ACT
One of the major highlights of the new Banks and Other Financial Institutions Act 2020 is the express provision for the regulatory powers and role of the Central Bank of Nigeria as the “apex regulatory agency” for all financial institutions in Nigeria.
Section 6 of BOFIA 2020 hereby provides that no bank or it subsidiaries may open or close any branch office, cash centre or representative office any where within or outside Nigeria expect with prior approval in writing. The inclusion of cash centre or representative office is a new inclusion not contained in the repealed Act. S.6(1) further provides for the notification of the Governor of an intention to close any branch or subsidiary outside Nigeria six months to the date of the intended closure or within such short period as the Governor may in any particular case allow. Noteworthy is that the fine imposed for default of this section has been reviewed from amount not exceeding #2,000,000 to an amount exceeding (in excess of) #2,000,000.
On transfer of significant shareholdings in a bank, the Act has made it mandatory to seek the consent of the Governor prior to entering such agreement or arrangement for transfer of significant shareholdings in the bank. This is with specific reference to S.7(1)(a)
Section 13 of this Act deals extensively with Minimum Capital Ratio. On this note, it acknowledges the power of the CBN to prescribe higher or lower capital adequacy ratio on a consolidated basis. The CBN is further empowered to impose such additional holding actions, prohibitions and conditions as it may deem fit for failure to comply with the specified capital adequacy ratio.
Another major highlight of the new Act is it commitment towards reducing the incidence of non performing loans. The Act specifically provides that a bank shall not without the approval of the CBN, grant any advance, loan, or credit facility in excess of N3,000,000 or such amount as maybe prescribed by the CBN, without any security. This is contained in Section 20(1)(c).
Similarly, it has now been provided that the aggregate value of the equity participation of the bank in all enterprises both domestic and foreign shall not at any time exceed 40 percent of its shareholders’ fund unimpaired by losses or such other percentage as the CBN may prescribe from time to time. The repealed Act had previously pegged the value of equity at 20 percent. Section 21(1)(d).
Under the new Act, Section 23(1), a non-interest or profit and loss sharing bank shall indicate conspicuously in all its offices that they charge no interest.
Quite distinct from the provision in the repealed Act which requires every bank to submit to the CBN a statement on its assets and liabilities as well as analysis of advances and other assets within 28 days after the last day of each month,Section 25(1) of the new Act demand the information not less than 10 days after the last day of each month or such other intervals as the CBN may specify.
Under Section 27(1) and (2), a bank shall not later than three months after the end of its financial year, forward to the CBN for approval to publish its financial statement which shall be prepared in accordance with the relevant accounting standard.
The Act similarly provides in S.27(2), that not later than 14 days after approval by the CBN, cause to be published in at least two national daily newspapers (unlike 1 daily specified under the repealed Act), exhibit in a conspicuous position in each of its offices and branches, and forward to the CBN copies of the bank’s balance sheet and profit and loss account duly signed and containing the full and correct names of the directors of the bank.
More impressively, the new Act paves way for Financial Technology Companies; in this light, it provides in S.69(2) that no person shall carry out any FinTech Business in Nigeria except it if it is a company duly incorporated in Nigeria and hold a valid license issued under the Act and finally S.69(3) provides for the application of grant of license for FinTech businesses.
The passage of the new BOFIA 2020 has been described as long overdue as it has removed the outdated provisions and amended same to suit the modern reality in the banking and financial sector. It has addressed a couple of grey areas such as financial technology companies, the process and manner of obtaining bank licenses, non performing loans and a review of fines for defaults as a deterrence for breach of the various statutory provisions. Amongst others it has clearly spelt out the regulatory role of the CBN. This Indeed marks the commencement of a new regulatory regime for banks and other financial institutions.