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CBN, judiciary partner to boost financial system stability

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From Uche Usim, Abuja

The Central Bank of Nigeria (CBN) and the National Judicial Institute (NJI) are deepening their collaboration to fast track commercial litigation and ultimately boost financial system stability in the country.

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CBN Governor Godwin Emefiele, delivering his keynote address at the 2021 “Workshop for Judicial Officers on Recent Reforms Of The Banking/Financial Services Sectors in Nigeria with (BOFIA) 2020 in Focus” on Tuesday in Abuja, said the judiciary plays a key role in the economic stability of a country.

Emefiele, who was represented by Aisha Ahmad, Deputy Governor, Financial System Stability (FSS), noted that the entire Committee of Governors (COG) of the CBN recognises the fundamental role of the judiciary in upholding the apex bank’s mandate and ensuring the orderly operation of the financial system. He reckoned that judicial officers as custodians of the law provide certainty of legal rights and the speed of fair and impartial resolution of commercial disputes; which is critical to building confidence in the banking and financial markets.

‘This is why the Bank prioritises these yearly engagements with the Judiciary on critical issues affecting the sector, with either the Governor or a member of the COG attending.

‘The Nigerian banking industry is strong, stable and resilient and continues to experience steady growth. Despite occasional shocks experienced over the last decade, it remains a strong instrument for economic growth and development through granting of credit facilities to the real sector of the economy, critical pass-through for monetary policy measures and maintenance of world-class innovative payment and settlement services.

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‘Banking reforms implemented over the past decade have ensured stability in the financial system, enabling the sector to deliver on these critical functions. Key policy reforms have centred on strengthening governance & risk management practices and enhancing the regulatory framework with the ultimate objective of ensuring overall solvency and stability of the sector,’ Emefiele explained.

He added that reforms were also implemented to enhance financial inclusion and develop the payments system through the issuance of regulatory guidelines for new entrants and products into the Nigerian payments system. This, he noted, has incentivised substantial investments and innovation in the payments ecosystem leading to significant growth in the value and volume of electronic transactions.

The CBN Governor affirmed that the passage into law of the Banks and Other Institutions Act (BOFIA) 2020 by the 9th National Assembly greatly improves the legal framework in the Nigerian financial services sector and complements other policy reforms aimed at fostering financial stability in Nigeria.

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He stressed that the objective for re-enacting the BOFI Act, which was first passed into law in 1991 and amended in 1997, 1999 and 2002, was to upscale the banking law to align with international best practices, taking due consideration the significant financial, socioeconomic and technological transformations that have occurred over time. These developments include growth in the size and significance of the deposit money banks, technological and digital innovation resulting in the emergence of new types of regulated institutions, advancements in supervisory techniques and methodologies, among others.

‘The BOFIA 2020 is expected to reinvigorate the Nigerian banking sector as it will engender a sound and stable financial system that will support sustainable growth and development of the Nigerian economy.

‘Indeed, BOFIA 2020 is a landmark piece of legislation and a remarkable improvement over the repealed BOFIA 1991, given its comprehensive and robust provisions, founded on international best practice. These provisions enhance the regulatory and supervisory powers of the Bank to include various types of regulated institutions whilst also widening its regulatory and supervisory perimeter over other financial institutions to cover all entities providing banking and related financial services whether virtually, digitally, or electronically, in line with global trends.

‘The BOFIA 2020 also strengthens the Anti-Money Laundering and Combating Financing of Terrorism (AML/ CFT) Framework by mandating regulated entities to comply with AML/CFT and cybersecurity regulations. This comes at a very auspicious time as the nation continues to advance in its adoption of the digital economy; which has heralded the birthing of Nigeria’s Central Bank Digital Currency (CBDC) – the eNaira.

‘The Act expressly provides for the issuance of regulations on corporate governance. This will strengthen depositor and investor confidence in the financial system, by preventing market abuse and insider dealing thus, increasing foreign direct investment into the financial sector. It will be recalled that the bank failures which hit the Nigerian banking sector in 2009 were largely caused by non-compliance with principles of corporate governance. The express statutory stipulation of corporate governance in the BOFIA, 2020 makes compliance a mandatory requirement as opposed to being merely persuasive and will go a long way in strengthening the financial system,’ he added.

Emefiele said that BOFIA 2020 contains elaborate provisions on the effective management of unclaimed funds or abandoned property in dormant accounts maintained with banks, specialised banks and other financial institutions, to ensure efficient administration of such accounts for the ultimate benefit of the owners of the funds and/or their beneficiaries.

‘BOFIA 2020 provides enhanced recovery and resolution tools for failing banks, specialised banks and other financial institutions in order to prevent a systemic crisis, maintain the financial system stability and sustain depositor confidence. These tools include “Bail-ins” which allows for the re-capitalisation of the failing institution through the write-down of debt owed by the bank to creditors or the conversion of such debt to equity; “Termination of rights” which imposes temporary stays on a debt provider’s right to exercise early termination, closeout or netting rights in relation to a failing bank and “Asset separation” which enables isolation of “bad” assets of a failing bank in an asset management vehicle for an orderly wind down. These expanded options reduce the recourse to taxpayers’ funds for the bailout of failing institutions.

‘The Special Tribunal for the Enforcement and Recovery of Eligible Loans was introduced in the Act to accelerate credit recovery processes and enforcement of collateral rights. The Special Tribunal, together with the Bank’s Policy on Global Standing Instruction will address the incidence of non-performing loans that have posed a great threat to the Nigerian financial system. Supervisory observance indicates that recalcitrant debtors have exploited the non-prioritisation of credit recovery matters in the Nigerian judicial system to frustrate debt recovery efforts by financial institutions. The Bank is currently informally engaging the key stakeholders in the judiciary to operationalise this provision.

‘The new legislation is undeniable, an answer to the clarion call of both the public and private sectors for financial sector legal reform, as well as that of international and governmental institutions for compliance with best practices.

‘Clearly, the judicial branch is critical to the full operationalisation and implementation of BOFIA, hence the convention of this very important workshop to engage on critical aspects of the Act. Broad topics to be covered include “Examination of Salient Provisions of the BOFIA 2020 and the Necessity for Economic Reasoning in Judicial Decision Making”, “Overview of Key Regulatory and Supervisory Powers of the Central Bank of Nigeria under the BOFIA 2020” and the “Licensing and Regulation Regime under BOFIA 2020”. Provision has also been made for regulated entities to share their perspectives on, and expectations from the Act. There is no gainsaying that as the Nigerian financial services sector continues to witness rapid technological and digital innovation in products and service delivery channels and the legal/supervisory framework adjusts in response, the judiciary must keep abreast of these transformations. It must also evolve, adopting digital transformations and considering the broader objective of fostering growth and economic development in order to creditably adjudicate cases within the financial sector. Significant investments in capacity development, new technologies and digital assets will be required and are strongly encouraged to enable the judiciary to play its role effectively,’ he stated.

In his remarks, the Chief Justice of Nigeria (CJN), Justice Tanko Muhammad, hailed the Emefiele-led CBN for its numerous interventions and innovations towards strengthening the Nigerian economy.

He hailed the apex bank for organising the 2021 edition of the workshop in recognition of the critical role of the judiciary in achieving financial system stability in Nigeria.

‘Effective judicial system is a catalyst for FSS and it dovetails into economic growth. So, the judiciary is a critical stakeholder for FSS. It’s good to bring the judicial officers to speed with financial system procedures. It will help in commercial dispute resolution and eliminate delays as judicial officers are abreast with the laws. Time is money,’ Justice Tanko said.

The post CBN, judiciary partner to boost financial system stability appeared first on VELOXNEWS.

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