How compliant are Nigeria’s financial institutions?

The rising wave of infractions in the nation’s banking and financial services sectors has brought to the fore the challenges of enforcing compliance and regulations in a fast paced industry which remains the major driver of the economy, reports Ibrahim Apekhade Yusuf

Banking and financial services like all other sectors all over the world are governed by laws and ethics which are constantly being refined in tune with the times.

In Nigeria, for instance, the banking, financial, insurance, money/capital/commodities market, pension funds, e-commerce sectors, to mention a few are constantly under scrutiny by the apex regulatory bodies including the Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), the Securities and Exchange Commission (SEC), National Insurance Commission (NAICOM), National Pension Commission (PenCom).

Despite the constant scrutiny by the regulators, the media continue to be awash with reports about infractions being committed by most the banks, a development which has continued to have rippled negative effect on the economy.

According to available information, banks have lost more shareholder funds and capital to fraud and theft in recent times.

Speaking on the menace of fraud in the banking sector, Mathew Adejare, a financial expert averred that banks have lost more to electronic fraud, no thanks to non-compliance and regulation as the case may be.

Adejare who noted that “Some Nigerian banks have the Standard Operation Procedure (SOP) rules guiding their staff, many bank employees understand the rules but find a means to flout them. In Nigerian banks, the growth of workplace deviance is alarming. The best way to address deviant behaviours among bankers in Nigeria, there is a need to validate a deviant behaviour instrument for use in the banking sector.”

Echoing similar sentiments, Rilwan Shittu, a lawyer at Olaniwun Ajayi LP, while citing the biggest problems with Nigeria’s banking system, emphasised that the issue of non-performing loans (NPLs), capital adequacy, and corporate governance are at the heart of the crisis bedeviling the sector.

While noting that a sound financial system is critical to economic growth for any country, and a healthy banking system is a key component of this, Shittu observed that a combination of factors have made the sustainability of the banking sub-sector a nightmare for regulators to grapple with.

According to him, one of the major issues plaguing Nigeria’s banking sector may be the trickiest: corporate governance. “Crucially, poor corporate governance is often identified as a major factor in virtually all instances of financial sector distress, making it more important for banks to be held to the highest standards of corporate governance. Like many things in Nigeria, corruption has found a home in the banking sector, with poor corporate governance systems and unethical leadership at the centre.”

Financial mismanagement or misconduct by the executive management of Nigerian banks, Shittu recalled, “Has hampered their performance and sustainability. Back in 2009, eight executive directors and eight chief executives of Nigerian banks were removed by the CBN due to corporate governance infractions.

“To say that compliance is no longer confined to the financial and insurance industry is stating the obvious. It is however instructive that compliance functions experienced a major period of growth and investment since the 2008 financial crisis. Arising from the different bitter pills of the financial bubble, interestingly, many Nigerian firms have seen an increase in their compliance functions since then.”

CBN bares it fangs

The CBN few weeks ago in a manner of speaking used its sledge hammer on operators of cryptocurrency. The apex bank insisted that Nigeria was not ready for the cryptocurrency market, a development which elicited a chain of reactions from known and unknown quarters.

The reasons for the public outcry according to a few discerning minds may not be unconnected with the issues of compliance and regulation in the nation’s banking and financial services sectors.

CBN sanctions for infractions in banks

The apex bank in 2019 announced a series of new sanctions that will be meted out to Deposit Money Banks (DMBs), Mobile Money Operators (MMO) and Other Financial Institutions (OFIs) for electronic payment infractions.

The series of new sanctions released by the CBN was contained in the latest document obtained on the bank’s website and titled: ‘Regulations on Electronic Payments and Collections for Public and Private Sectors in Nigeria.’

According to the CBN, the newly released regulation is a revision of the guidelines on Electronic Payment of Salaries, Pensions, Suppliers and Taxes in Nigeria (2014), and is intended to guide the end-to-end electronic payment of salaries, pensions and other remittances, suppliers and revenue collections in Nigeria.

The CBN stated that all DMBs, OFIs and Mobile Money Operators must: promote the adoption of end-to-end electronic payments by all stakeholders covered by this regulation; provide payers and beneficiaries with appropriate accounts with DMBs, OFIs or any other approved channel for receiving payments such as mobile money/electronic wallet, subject to the CBN’s approved KYC limits; process electronic payment instructions in accordance with subsisting payments system and clearing system rules; publish customer service/ contact centres details via multiple media channels and maintain customer service contact centres, to promptly attend to all electronic payment enquiries and challenges within stipulated timelines; and report of customer complaints, indicating resolution status; make available any or combination of the following data sets, as may be applicable, along with the mandatory returns to the CBN, on a monthly basis or as may be otherwise specified.

According to the CBN, any DMB, OFI or MMO that fails to discharge the responsibilities as detailed above shall be penalised.

Compliance: Following the implementation of the Guideline on end-to-end electronic payment of salaries, pensions, suppliers and taxes by all public and private sector organisations, the CBN also instructed DMBs to dishonour payment instructions for all forms of salaries, pensions, suppliers and taxes not transmitted on a CBN approved straight-through electronic payment and collection platform issued by organisations with more than 20 employees.

This means payment instructions and associated schedules are no longer to be transmitted to DMBs through unsecured channels, such as paper-based mandates, flash drives, compact discs (CDs), email attachments, etc. by qualifying public and private sector organisations.

The sanctions: Among other sanctions, the CBN disclosed that failure to offer 3rd party e-payment solution to customers not approved by CBN now attracts a penalty of N2 million for DMB and N1 million for OFIs on every repeated occurrence.

CIN mandate for compliance

Nigeria’s changing regulatory landscape is one of the most important challenges for company compliance officers. Only those who are up-to-date can reduce the risks of penalties and reputational damage through risk-reducing behavior within their organisation.

In the Pattison Boleigha-led Compliance Institute, Nigeria and his colleagues in the boards, all poised to take compliance to the next level, have spotted the many challenges Nigerian companies face with navigating, monitoring and evaluating Nigeria’s regulatory landscape.

Two years ago, following its strategic alliance with the Centre for National American Security (CNAS), the growth has reflected in part, the post-financial crisis regulatory reform agenda-including not only resilience and-for banking-resolution requirements, but also a host of retail conducts, wholesale conduct, anti-money laundering, corporate governance, more intrusive supervision and individual accountability.

“Compliance has to evolve from traditional methods of managing compliance towards integrated risk management using automation to leapfrog compliance from gatekeeper to game changer. To meet the demands of a rapidly changing financial services industry, the compliance function has to shift its focus by using data insights to inform decision making and creating value for the business,” he revealed.

He further noted that there has been an increase in the use of robotics process automation and predictive analytics for risk assessment, monitoring and testing, complaints management, surveillance and regulatory reporting.

Compliance can only support and challenge the business effectively if it evolves in response to changes in the business itself and is fit for future financial services.

It is instructive to note that the irrepressible Compliance Institute, Nigeria, has over the years increased its resources and have widened their range of tasks, with a dramatic increase in their monitoring and surveillance activity, whether manual or substantially automated.

In the words of Abimbola Adeseyoju, Chairman, Communications and Partnership, Compliance Institute, Nigeria (CIN), ‘‘Compliance needs to keep up with the pace of change here, in particular to deliver compliance with information, technology security, the control, security and privacy of data, artificial intelligence, cyber security, outsourcing, anti-money laundering regulatory reporting and associated obligations.’’

According to Isioma Gogo-Anazodo, Chairman, Committee Programmes, Education and Examination; Compliance Institute, Nigeria (CIN), “As an institution, we are making strategic investments to ensure a more proactive approach to risk identification and a robust industry-centric outcome, by utilising, and engaging with evolving technology and data analytics. Our up-to-date learning virtual learning and industry-specific webinar series is setting a tone for the future of a compliant Nigerian business climate’’

Speaking on the next steps in transforming compliance in Nigeria and Africa, Isah Ibrahim, Vice President, Compliance Institute, Nigeria (CIN) has said that it has recognised how the business landscape is changing. In line with that, it is has changed its business model.

“To adapt to the new normal, we are identifying ways for compliance to become more strategic and predictive in supporting and challenging the business, whilst pursuing opportunities to add value.’’

This trend is accompanied by the development of new roles. More and more organisations are using Chief Compliance Officers or establishing entire compliance departments within their organisation.

According to Deloitte, 33% of companies they surveyed had a designated Chief Compliance Officer position. Compliance is becoming increasingly important: in times of change and globally organised, increasingly digitised corporate processes, it is important to clearly define compliance responsibilities and processes in order to reduce the risk of legal violations across hierarchical levels.

In order to have a holistic compliance management strategy throughout the organisation, the business needs to connect the corresponding processes, IT systems, and trained employees. Only by incorporating compliance into all of these aspects can a company create the foundation for a compliance culture.

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