THE Federal Republic of Nigeria has officially gazetted Nigeria’s new Banks and Other Financial Institutions Act (BOFIA) 2020.
The gazetted document dated November 17 2020 with supplement Act number 5, titled Banks and Other Financial Institutions Act, 2020, is available on the CBN’s website.
According to the Act, “any foreign bank or other entity which does not have physical presence in its country of incorporation, or which is not licensed in its country of incorporation and which is not affiliated to any financial services group that is subject to effective consolidated supervision, shall not be permitted to operate in Nigeria, and no Nigerian bank shall establish or continue any relationship with such bank or other entity.”
Any bank that contravenes the above “is liable to a penalty of not less than N20,000,000 and additional penalty of N500,000 for each day the contravention continues,” it stated.
In response to the significant developments in the financial sector, President Muhammed Buhari on November 12, 2020, signed the Banks and Other Financial Institutions Act 2020 (“2020 BOFIA”) into Law. This Act repeals the Bank and other Financial Institutions Act 1991, and now regulates the businesses of banks and other financial institutions in Nigeria.
Some legal experts in dissecting the Act said one of the key provisions of BOFIA 2020 is to make bank officials personally liable for contraventions of the terms of a banking licence. Joachim MacEbong, senior analyst at SBM Intelligence, thinks this “should improve compliance and reduce recklessness.”
By forcing bank management to have ‘skin in the game’, the new regulations hope to avoid events like the toxic asset crisis of 2009, to which Nigerian banks were seen by some as having contributed.
The new BOFIA even gives the CBN authority over the opening or shutting down of bank branches”, says MacEbong. “On top of that, the immunity given to the CBN in the BOFIA Act also limits the redress banks can seek if they feel they have a case concerning any action taken by the regulator.
According to Nigeria’s President Muhammadu Buhari, BOFIA aims to strengthen the banking and financial services sector and enhance the soundness and resilience of Nigeria’s financial system.
Other key revisions introduced in the 2020 BOFIA are seen in Section 3(1)-(5). Similar to the 1991 BOFIA, the 2020 BOFIA requires any person that wishes to carry on banking and related businesses in Nigeria to obtain a licence from the CBN. The CBN continues to have the right to refuse to grant such licence without reason.
A new restriction is, however, introduced by Section 3(5) of 2020 BOFIA. It specifically states that foreign banks or other entities- (i) without a physical presence in their country of incorporation; or (ii) that are not licensed in their country; or (iii) are not affiliated to any supervised financial group – shall not be permitted to operate in Nigeria or establish a relationship with Nigerian banks.
This, according to experts, would help to restrict the arbitrary and unregulated provision of digital financial services by foreign entities through online platforms.
Section 7(1)(ii) In the 2020 BOFIA, states that the consent of the CBN is to be obtained for any agreement involving the transfer of significant shareholding in a bank or other financial institution. This was not clearly indicated in the old BOFIA but in practice, it is typically a licencing requirement.
Also, in Section 57(2), the 2020 BOFIA clearly defines “other financial institutions” to include entities that carry on financial businesses electronically, virtually, or digitally. Such entities are to incorporate a company in Nigeria and obtain a licence from the CBN before carrying out financial businesses in Nigeria. Thus, the operations of digital financial service providers/FinTechs in Nigeria are now governed by the 2020 BOFIA and regulated by the CBN
Source: Tribuneonline
