Reports across major news outlets in Nigeria reveal the central bank is seeking sweeping powers to freeze bank accounts “linked to criminals” in the country. It expects the powers to be given to it via an amendment of the Bank and Other Financial Institutions Act (BOFIA) of 2004.
Powers to freeze accounts; The CBN’s Director Legal Services, Mr Kofo Salam-Alada, who made the representations at the National Assembly requested for the following;
- “The CBN should be able to apply to the court for orders to freeze accounts which are deemed to be linked with criminal and other civil infractions.”
- Apparently, the bill has passed through First and Second Readings but omitted the provisions they are seeking to include now.
What this means: The CBN is increasingly seeing itself as not just an enforcer of monetary policy but a major stakeholder in curbing the activities of fraudsters looking to exploit the financial banking system. Thus, the CBN needs not wait for anti-corruption bodies like the EFCC to seek court orders to freeze bank accounts that they suspect of being used for fraudulent activities.
For example, a bank account that receives a huge inflow that’s far above its average deposits over a period can be flagged by the bank coming under the radar of the CBN. This could give it major oversight over the parallel market demand for forex.
Dormant Accounts: The CBN is also calling for a provision that will allow it to change the administration of dormant accounts in the banking sector.
- “We propose the inclusion of provisions to improve the administration of dormant accounts in the Nigerian banking sector.”
- “The provisions should address such requirements as the criteria for determining dormancy, the processes for managing the funds in dormant accounts and procedure for reclaiming funds by beneficiaries.”
What this means: It appears the CBN wants to have a more direct control over how dormant accounts are managed by banks in Nigeria. It is thought that some of the older generation banks keep tens of billions of naira in dormant account deposits that may not be reclaimed in the foreseeable future.
Distressed Banks: The CBN also wants an amendment to the law to give it options to managing systemic crises and failed banks without seeking funding from taxpayers.
What they are saying;
- “The Central Bank of Nigeria does the former (managing failed banks and bringing them back to good financial health) as provided in the BOFIA while NDIC is saddled with the latter (taking over liquidated banks and protecting depositors money) under the NDIC Act. The global best practice is to have the banking legislation empower the Financial services industry regulator to regulate banks, promote their soundness and stability superintend issuance and revocation of operating licence without recourse to any other institution; while the Deposit insurer is in charge of bank resolution activities after the revocation of the operating licence,”
- “There is a need to expand the options available to the CBN to resolve failing banks and manage the systemic crisis without recourse to the public treasury. In line with international best practices, we recommend the establishment of a resolution fund to pool resources for managing banking sector distress.”
- “We also recommend the adoption of additional resolution tools such as bail-in (ensuring that losses are absorbed by shareholders and creditors), sale of the business (allowing the resolution authority to sell all or part of the failing bank to a private acquirer) and asset separation (isolating the “bad” assets of the bank in an asset management vehicle for an orderly wind-down, if immediate liquidation is not justified in current market conditions).
What this means: The CBN currently relies on taxpayers funds to bail out banks a policy that has been critisized in the last few years. Currently, failed banks are liquidated by the NDIC but this process means depositors still have to lose billions of naira of their deposits.
Nigerian banks also contribute a percentage of their total assets to AMCON sinking fund, which is also part of what is used to purchase eligible banking assets that are non-performing.
This bill, however, looks like they want to include an option that will allow the CBN to use the assets of the bank or its owners to “bail in” the banks rather than a bail out and also remove the bad loans from the balance sheet of the banks allowing it operate as though it is clean.
New Regulatory Powers: The CBN is also looking at amending its bill to give it more powers and oversight to regulate new wave of financial services firms that have emerged in recent times.
What they are saying;
- “Several new types of licenced institutions have entered the Nigerian Financial Services sector since the enactment of the 1991 Act. These include the non-interest banks, credit bureaux, payment system service providers, among others.”
- ‘There is a compelling need to introduce new provisions in the Bill to address the unique peculiarities of these institutions.”
The National Assembly is also looking to approve the use of digital signatures through the introduction of the Electronic Transactions Bill. This will allow electronic communication to be accepted in the place of physical appearances and give validity to online contracts.