Is FRC Determined to Ruin Buhari’s FDI, Employment Drive?

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Kunle Aderinokun examines the undercurrents in the long standoff between the Financial Reporting Council of Nigeria and Stanbic IBTC, and questions the objectives of the agency

Regulation has a vital role to play in every industry. Indeed, many investors would affirm that the regulatory environment is the most critical factor that impinges on their decisions to invest, perhaps even more important than the supposed economic buoyancy of any country. The reason is simple: With a mature and balanced regulatory framework in place, a platform is created to enable growth without unnecessary encumbrances in every industry by ensuring that all players deliver optimal value to the economy. Such a framework recognises the importance of ensuring that policies are formulated and implemented in such a way as to safeguard the economy by delicately balancing the needs and aspirations of investors, customers and the government.

In recent time, it would seem as if this fact may have been lost on one of the many regulators in Nigeria’s financial space, the Financial Reporting Council of Nigeria. For one, without a board in place to provide the requisite checks and oversight, the FRC, has long operated as a one-man-regulatory commission with its Executive Secretary serving as policy maker, policy implementer and policy enforcer all at once.

Incidentally, in the last 12 months, the president has undertaken trips to different countries across the world, meeting with investors and selling a story of a new Nigeria with an ethical and transparent government; a government willing to provide a conducive business environment underscored by good ethical conduct and the rule of law.

In the face of these lofty dreams, however, has been an economy much weakened by the drastic fall in oil prices and an inability to save for the rainy day, in the days of prosperity. The chain reaction has been near catastrophic across many industries: Mass retrenchments have been the order of the day. In one particularly harrowing experience, Ecobank sacked 1,040 employees in one fell swoop. Diamond Bank, Skye Bank, Zenith Bank and others have also at different times, laid off employees as institutions grapple with the hard times. In the food and beverage sector, the airline sector and others, the story has practically been the same. In boxing terminology, one could say the economy is “leaning on the ropes”, a situation that requires maturity and managerial dexterity of all and sundry if it is to bounce back to good health.

It is against the back drop of these developments that one is perplexed by the actions of the FRC regarding its issue with Stanbic IBTC. To put matters in perspective, sometime last year, the FRC, acting admittedly in response to a petition by some shareholders of Stanbic IBTC imposed a number of sanctions on the financial institution. One of its bones of contention was that Stanbic IBTC was not justified in making royalty payments to its parent company, Standard Bank for the use of the trademark, “Standard Bank.” It also frowned on the fact that the bank had opted to lease a software, which it developed in-house, from its parent company. The FRC’s summary sanctions included a “fine” of N1billion while it also withdrew the rights of the bank’s principal officers from appending their signatures to its financial statements.

Stanbic IBTC on the other hand, had a different view of these developments. It argued that payment of royalties is a global practice that is not exclusive to Nigeria. Use of a global trade name must always be accompanied by payment for such if expensive and time-consuming litigations are to be avoided. Regarding the software, the bank explained that the bank’s management took a decision within its purview. It also explained that no unapproved transfer of funds had been made to its offshore parent company.

The FRC refused to back down on its “sanctions” and the bank went to court. The court issued an injunction, restraining the FRC from “interfering with or hindering the operations” of the bank, pending final determination of the suit. Obviously, the idea was to ensure that the health of the bank is not endangered and that the bank continues to operate pending the resolution of whatever differences exist between the FRC and the bank.
Interestingly, not long thereafter, FRC very quickly unveiled a new set of rules.

On March 15, 2016, it published on its website, a new undated rule which precludes CEOs and CFOs (the two key officers permitted by law to sign off financial statements) without FRC certification/FRC registration number from attesting to financial statements.

But in order to ensure that companies whose CEOs and CFOs do not yet have FRC certification or whose certifications could be in contention as the current Stanbic IBTC executives are, the Nigerian Stock Exchange and the FRC had jointly agreed some concessions by which other directors could sign of the said financial statements. Curiously, the FRC is now insisting that such concession would only apply to “entities which are not currently in court with the FRC and/or having any of its directors currently holding FRC numbers that have been suspended by the FRC”.
Of course, one does not need to be particularly intelligent to realise that this rule specifically targets Stanbic IBTC and is clearly aimed at frustrating its business.

This is most unfortunate in a country reeling from Nigeria’s current economic predicament: why has regulation nose-dived to the point at which it specifically targets one institution? Since when was going to court to seek an interpretation and reversal of a ruling which you believe has been made against you wrongly and unfairly, become a crime? Should regulation be about egos or about protecting the common good, in this case, the wider economy?

According to media reports, in refusing to heed the court order, which directed that all parties must maintain the status quo pending determination of the suit, the FRC has said it will not comply with any court order until there is a non-appealable decision of a court of competent jurisdiction. In other words, the FRC will continue to disobey all court judgements until the decision gets to the Supreme Court, because it is only the Supreme Court, whose judgements are non-appealable.

It is hardly surprising that in the light of the curious developments, KPMG, the globally renowned multinational auditing firm has clearly stated that it will not append its signature to the company’s financials, because it is afraid of the FRC. This is a damning indictment of Nigeria’s regulatory processes and calls to question our seriousness about investment and attracting foreign capital.

Pray, why has regulation in the financial services sector been reduced to a situation in which an individual makes and implements policy at his whim? Where are the functionaries who should be providing oversight to the FRC? Where is the FRC Governing Board? Given that it is yet to be constituted, where is the Minister for Industry, Trade and Investment? Does he not realise the potential damage to regulatory credibility and by extension the overall economy which the actions of the FRC pose? Where is the Minister of Finance? Where are the capital market regulators? Is it not time to call the FRC to order and allow this issue follow due process of arbitration by the courts?