In the last two years the focus of the Central Bank of Nigeria has been on banking supervision, risk management in banks and other non core function such as the plan to set up a poultry farm, construction of a modern Conference center. Several Central Banks across the globe are now focusing on economic management by channeling resources and energy in battling inflation which is the number enemy of the poor Instead of focusing on inflation reducing mechanisms, the CBN has been regaling the nation with divisive issue like islamic banking. which ordinarily should come as a product developed by any normal bank for those who are interested to take advantage of.
If this government is serious about transforming the economy, it must come up with a bill that will separate the banking regulation, supervision and licensing from the CBN. The apex bank must face monetary policy. A Financial Services Authority is imperative in Nigeria to enable the country deal with the financial crisis that has engulfed the nation since the 2008 global financial melt down.
Curiously, when Nigerian leaders want things their way, they are quick to refer to events and happening in UK, US and elsewhere. But if it is to their disadvantage and for the common good, they will ignore best practices elsewhere. What is happening in the Nigerian financial services sector today happened in the 80s and 90s in the United Kingdom that led to the setting up of the Financial Services Authority?
The FSA in the UK by law is like a company limited by guarantee. It was incorporated on 7 June 1985 under the name of The Securities and Investments Board Ltd (“SIB”) at the instigation of the UK Chancellor of the Exchequer, who is the sole member of the company and who delegated certain statutory regulatory powers to it under the then Financial Services Act 1986.
After a series of scandals in the 1990s, as it is in Nigeria today, culminating in the collapse of Barings Bank, JMB etc there was a desire to bring to an end the self regulation of the financial services industry and to consolidate regulation responsibilities which had been split amongst multiple regulators. It time that the federal government look at the British model. This would mean that the Federal Ministry of Finance must set in motion machinery to key into this arrangement.
In the pursuit of this arrangement in the UK, the Securities and Investments Board changed its name to the Financial Services Authority on 28 October, 1997 and it now exercises statutory powers given to it by the Financial Services and Markets Act 2000 that replaced the earlier legislation and came into force on 1 December 2001. In addition to regulating banks, insurance companies and financial advisers, the FSA has regulated mortgage business from 31 October 2004 and general insurance (excluding travel insurance) intermediaries from 14 January 2005.
The UK Financial Services Authority (FSA) is a quasi judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. The UK is even now proposing to further break the monopoly of one institution over seeing the financial services sector. On June 16, 2010, the Chancellor of the Exchequer, George Osborne, announced plans to abolish the FSA and share its responsibilities among a number of new agencies and the Bank of England.
In the new proposal, The Financial Conduct Authority will be responsible for policing the City and the banking system. A new Prudential Regulatory Authority will carry out the prudential regulation of financial firms, including banks, investment banks, building societies and insurance companies. All other responsibilities will be assumed by the Bank of England which will establish a Financial Policy Committee.
In modeling the Nigeria Financial Services Authority it should have four basic objective; maintaining confidence in the financial system that has been eroded by the current CBN leadership; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and reducing the extent to which it is possible for a business carried on by a regulated person to be used for a purpose connected with financial crime.
This statutory objectives of the Nigerian Financial Services as it is elsewhere should be supported by a set of principles which it must report to when discharging its functions.
The instrument setting it up must state clearly that a firm=s senior management is responsible for its activities and for ensuring that its business complies with regulatory requirements. This principle is needed to guard it against unnecessary intrusion into financial firms= business and it should only be allowed to hold senior management responsible for risk management and controls within firms.
Accordingly, financial firms must take reasonable care to explain to those who have what responsibility and to ensure that the affairs of the firm can be adequately monitored and controlled. This will help prevent the take over of banks and the unnecessary legal battles going on in the country.
It must also be stated clearly that any restrictions the regulator imposes on the industry must be proportionate to the benefits that are expected to result from those restrictions. In making judgments in this area, it must take into account the costs to firms and consumers of such actions. One of the main techniques it must use is cost benefit analysis of proposed regulatory requirements. The policies introduced by the CBN in recent time can not be said to have passed through the crucible of cost benefit analysis hence the situation the Nation is in.