1. What are the key regulatory bodies overseeing the banking and finance industry in Nigeria, and what is their role in ensuring legal compliance?
In Nigeria, the primary regulatory and supervisory body for the banking and finance industry is the Central Bank of Nigeria (CBN). The CBN authorises, regulates, and supervises banks and other financial institutions (finance houses, merchant banks, financial technology companies, etc).
Another regulator, the Nigerian Deposit Insurance Corporation (NDIC), guarantees the deposit liabilities of banks and together with the CBN, supervises these institutions to mitigate the risk of failure. It also oversees the liquidation of failed insured banks and other financial institutions.
Other notable regulators include the Securities and Exchange Commission (SEC) (where securities of the bank or other financial institution are quoted on a securities exchange) and the Corporate Affairs Commission (CAC) (for incorporation and registration matters) respectively.
2. How has recent legislation and regulation, such as the Nigerian Financial Act, impacted the legal landscape of banking and finance in Nigeria?
Some notable recent legislations in the sector include the Nigerian Deposit Insurance Corporation Act 2023 which contains, amongst others, amendments to the powers of the NDIC. For example, the NDIC is now required to act in concurrence with the CBN when making payments of insured deposits to depositors of failed banks.
Further, the Finance Act 2023 expands the scope of assets chargeable to capital gains tax to include digital assets. The CBN’s current attempts to float Nigeria’s currency, the Naira, and to achieve a unification of differing exchange rates of the Naira relative to other international major currencies are also impacting the sector.
3. What are the legal requirements and procedures for foreign banks and financial institutions to operate in Nigeria?
A foreign bank or other financial institutions seeking to operate in Nigeria must register a local company with the CAC for that purpose and obtain a licence from the CBN. A foreign bank may, with the CBN’s approval, also establish a representative office.
4. Can you explain the legal framework for consumer protection in the Nigerian banking sector, including regulations governing banking fees and charges?
The CBN has bespoke regulations for the protection of bank consumers, including the CBN Consumer Protection Framework 2016, and the CBN Consumer Protection Regulations 2019. Among others, financial institutions are required to treat consumers equitably and in a transparent manner in relation to the cost of a product or service. Financial institutions are also required to give consumers of their services equal access, and are prohibited from varying or making changes to their interest rates, fees, or charges except when expressly provided in contract. The Federal Competition and Consumer Protection Commission (FCCPC) also has similar rules. It established a Consumer Protection Tribunal to adjudicate disputes between consumers and providers of services (banks inclusive).
5. How does Nigerian law address issues related to money laundering and terrorist financing in the banking and finance sector?
Nigeria’s banking and finance sector has a robust Anti-Money Laundering and Combating Financing of Terrorism and Countering Proliferation Financing (AML/CFT/CPF) framework. Amongst other obligations, financial institutions are required to conduct rigorous customer due diligence, monitor and report suspicious transactions to Nigeria’s financial intelligence unit, keep records, set up a dedicated compliance unit, and train their employees on AML/CFT/CPF measures. They are also required to adopt policies stating their commitment to comply with their AML/CFT/CPF obligations.
6. What are the legal implications and obligations for Nigerian banks regarding data protection and customer privacy, especially in light of the General Data Protection Regulation (GDPR) principles?
Consistent with the entrenched right to privacy under Nigeria’s Constitution, the Nigerian Data Protection Act 2023 (DPA) mandates that data processing must adhere to principles of fairness, legality, and transparency. Personal data should only be collected for well-defined, explicit, and lawful purposes, and must not undergo further processing that is incompatible with these intended purposes. There must be a lawful basis for the processing of personal data by financial institutions based either on the consent of the data subject, necessity, or public interest or the legitimate interest of the financial institution.
7. Can you outline the legal processes and mechanisms for dispute resolution in banking and finance cases in Nigeria, including arbitration and litigation?
Resolution of disputes in the banking and finance sector involves negotiations, mediation, arbitration, and litigation. Where either negotiation or mediation fails, litigation is an option. Litigations involving banks and other financial institutions are typically heard in either the Federal or State High Courts.
Arbitration is also a common choice for the resolution of banking disputes. Arbitration awards are binding and enforceable in Nigerian courts.
8. What are the recent developments and challenges related to digital banking and fintech regulation in Nigeria, and how are they impacting the legal framework?
The Nigerian Startup Act 2022, a recent enactment, provides the framework for the regulation and development of fintech startups. The DPA regulates how digital banks and fintech companies should process personal data.
In June 2023, the CBN released the Guidelines for Contactless Payments in Nigeria to standardise operations in the payment system. The recently published Operational Guidelines for Open Banking 2023 aim to simplify and standardise open banking practices and information sharing among participants. The CBN also published the Nigeria Payments System Vision 2025, which focuses on advancing digital innovation and payments, particularly in contactless payments.
A challenge in the regulation of fintech is the rapid increase of unlicensed digital lending companies. To address this, the FCCPC, backed by a regulatory taskforce, released in 2022 guidelines requiring the registration of digital lenders. In 2023, the FCCPC ordered the removal of unlicensed digital loan apps from Google (PlayStore).
9. How does Nigerian law address issues of corporate governance and compliance within banks and financial institutions, especially in regard to board responsibilities and risk management?
The Corporate Governance Guidelines for Commercial, Merchant, Non-Interest and Payment Service Banks, and Financial Holding Companies 2023 (Guidelines) is the primary corporate governance framework applicable to banks and other financial institutions.
Some of the responsibilities of the board of a bank as stipulated in the Guidelines include approving the bank’s strategic goals, ensuring a business continuity plan for the bank, and establishing a structure to independently verify and safeguard the integrity of financial reporting.
On risk management, the Guidelines provide that the board is to approve an enterprise risk management framework specifying the bank’s risk appetite, risk culture, governance architecture, policies, procedures and processes for the identification, measurement, monitoring and control of the risks inherent in its operations.
10. What are the legal requirements and best practices for securities offerings, mergers and acquisitions, and other major transactions involving banks and financial institutions in Nigeria?
The CBN regulates mergers and acquisitions involving banks and other financial institutions. Merging entities are required to obtain the approval of the CBN to proceed with a merger or acquisition. The approval of the SEC will also be required where any of the merging entities or the target and/or acquiring entity is a public company or is quoted on a securities exchange. Where one of the parties is not a financial institution, the approval of the FCCPC may be required if a certain monetary or other regulatory threshold is met.
The procedures for most corporate arrangements such as schemes of arrangements are set out in the Companies and Allied Matters Act 2020 (CAMA). Schemes under CAMA require a court-ordered meeting and a court order sanctioning the scheme.