BOFIA: Will New Sanctions Restore Sanity to Banking System?

James Emejo assesses the potential implications of the proposed amendments to the Banks and Other Financial Institutions Act (BOFIA), particularly the financial penalties on individuals rather than the institutions only

Disturbed by the increasing level of non-performing loans (NPLs) in the banking industry, occasioned by lax corporate governance, including rising incidences of insider abuse, there had been growing agitation for the amendment of the Banks and Other Financial Institutions Act, BOFIA, to address perceived loopholes, which bank officials exploit to perpetrate unwholesome practices. 

The banking sector crisis, which had to the now famous banking sector consolidation, was largely as a result of lack of compliance to banking regulations that weakened some of the financial institutions, leading to mergers and acquisitions.  

But, in a determined resolve to rid the industry of identified excesses, and forestall future systemic challenges, as well as erosion of public confidence in the industry, the National Assembly finally took a bold step to amend the BOFIA, which is the operational manual for banks and other financial institutions. The proposed amendment is introducing more stringent penalties on top management staff, who violate sections of the Act. 

It specifically targeted individuals, including chief executive officers, managers and directors of banks, rather than the institutions.

The Chairman, House of Representatives Committee on Banking and Currency, Hon. Jones Chukwudi Onyereri, had during a two-day public hearing on an Act to repeal and re-enact the BOFI Act, 2004, reeled out sweeping sanctions on individuals, because past penalties on institutions had only encouraged the violation of the Act, given that nobody was often held liable. 

According to him, the bill therefore, seeks to amend the BOFIA to, among other things, regulate banking and other financial institutions by prohibiting the carrying on of banking businesses in Nigeria except under a licence and by a company incorporated in the country.

“The bill seeks to further increase the penalties for any contravention of any provisions of the bill; to streamline the operations of banks and other financial institutions in Nigeria to conform to best practices as obtainable in other climes.”


Proposed Amendments

Specifically, “Section 2 (2) of the bill imposes a penalty of not less than N50 million and imprisonment of a term of not less than 10 years or both against any person that transacts a banking business without a banking licence. 

This is particularly aimed at curbing the activities of “Shell Bank”, which operates in jurisdictions without a licence.

Also, Section 5 (3) of the bill “imposes a fine of not less than N20 million against any bank that fails to comply with the conditions of its licence.

Although the extant law provided for a fine of N20,000.00, Section 5(4) provides for a fine of not less than N20 million against any director, manager or officer of any bank that fails to take reasonable steps to ensure compliance. With any of the conditions of the licence.”

“Section 16 (2) imposes a fine of N20 million against any manager or officer of any bank who fails to disclose any personal interest in any loan or credit advance.

“Section 16 (11) imposes a fine of N50 million against any director that fails to disclose any interest in any property whether directly or indirectly owed that conflicts with his duties or interests as a director of a bank. 

“Section 18 (8) provides for a fine of N50 million and five years imprisonment or both fine and imprisonment upon conviction of any bank officer that grants facilities exceeding 20 per cent of the bank’s paid-up capital to persons/organisations without authority of the board.”

“Section 22 (2) provides for a fine of N10 million against any director, manager or officer of a bank, who fails to take reasonable steps to ensure that the bank keeps proper books of accounts with respect to all transactions of the bank and imposes a fine of N20 million on any director, manager or officer of a bank that willfully caused a default by the bank in respect of the provisions of this section.

“Section 25 (6) imposes a fine of N2 million for every day a bank fails to publish on two daily newspapers, its detailed financial statements. 

“Section 27 provides for the appointment, power and return of auditors and further imposes a fine of N50 million against any auditor approved under this section that contravenes the provision of this section and a term of imprisonment not exceeding five years on the partners if the auditor is a firm. 

“Section 28 (5) imposes a fine of not less than N20 million on a bank that fails to provide the required books, documents or information required by a CBN appointed examiner and an additional fine of N2 million for everyday the offence continues. 

“Section 44 makes provisions for the disqualification and exclusion of any individuals from management of banks and further provides that chief executive officers and chairman of a bank appointed by board of directors under such terms and conditions approved at the annual general meeting (AGM) shall not serve as a CEO or a chairman for a cumulative period of more than 10 years.”

“Section 44 (6) imposes a fine of not less than N50 million on any bank that contravenes the provisions of this section and a fine of not less than N50 million or imprisonment for a term not less than three years or both on any director, manager or any other officer of the bank, who contravenes the provisions of this section. 

“Section 47 imposes a fine of not less than N50 million on any bank that contravenes any provisions of the Act for which an offence or penalty is not expressly provided. 

“Section 51 provides a fine of not less than N50 million on anybody corporate that operates a specialised bank without a license and in any other case a fine not exceeding N20 million or imprisonment not exceeding 10 years or both imprisonment and fine.”



Essentially, the BOFI Bill is designed by lawmakers to instill discipline in the banking and other financial services sector to protect public deposits, particularly against the backdrop of banking failures occasioned by insider abuses, corporate governance breaches and other unethical practices. 



The proposed amendments, however, drew commendations from critical stakeholders.

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele and the Managing Director, Nigeria Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim, both described the proposed amendments to BOFIA as apt and long overdue, particularly in the incremental sanctions directed mainly at individuals rather than the institutions. 

Emefiele said operators were often ahead of regulators, partly because of the sheer financial resources at their disposal and had often exploited loopholes in the BOFIA to perpetrate unwholesome activities. 

He said small monetary penalties no longer served as deterrence to banks, knowing they could break laws and get away with payment of fines, which are nothing compared to what they stand to achieve by refusing to comply with established rules. 

He gave an instance of banks engaging in round tripping deliberately knowing that the profit it stands to make far outweighed the regulatory fines. 

While cautioning, however, that increases in fines may not necessarily deter the banks from breaching regulatory guidelines, the governor expressed hope that the monumental increment in money penalties in the proposed alteration would ameliorate the situation. 

Represented by CBN Director, Legal Services, Mr. Johnson Akinkunmi, the governor, also asked that the apex bank be granted reserved powers in the amendments to be able to take decisions to manage banks in times of crisis. 

He pointed out that the reserve power would further give the CBN powers to revoke licences of non-compliant financial institutions where necessary, while any challenge of such powers by affected banks, in a law court will be penalised. 

He noted that, even if affected banks go to court, its claims should be limited to damages, if it felt the revocation was done in bad faith, and not ask for reversal or restoration of the revoked licence. 

Citing the case of Savannah Bank, he said though the bank’s licence had been restored as directed by the court, the bank is still unable to find its ground, because of the public confidence already lost, while depositors were yet to get their deposits. 

He argued that such legal tussle was not in the best interest of bank customers and investors. 

But, lawmakers feared that granting such express powers to the CBN could lead to abuses,  a claim which Emefiele strongly denied, giving practical examples where though it could have taken harsh measures against some banks, but restrained itself in order not to send the wrong signal to bank customers. 

The governor said there were currently legislative brick walls, which bank operators capitalised on to perpetrate breaches. 

Nevertheless, Onyereri said the incremental sanctions particularly where a bank pays N2 million each day a penalty stays, could be enough to serve as deterrence. 

Onyereri said the mandate of the House was to provide a financial system anchored on a viable, strong, accountable, reliable and transparent banking and currency regime. 

Expectedly, the proposed amendments had caused great unease among industry players who never saw it coming. 

No doubt, when eventually implemented, the new order in banking businesses will expose the inherent strength and weakness of financial institutions, which will have to play by the rules at all cost, especially with the attendant implications for the industry.

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