The policy development process is (too) ad hoc and event-driven.

The legislative process is not sufficiently responsive to enable an up to date legal and regulatory framework in line with internationally generally accepted standards and principles, thereby to ensure that the banking system is duly enabled to facilitate the required economic development and growth while maintaining financial stability.

No “anchor” has been identified to which any updating of the legal, regulatory and supervisory framework and supervisory approach will be aligned.

The BOFI Act was last amended in 1999 and is dated.

The latest version of the BOFI Act contains clauses which, reportedly, had been amended duly by the National Assembly but, erroneously, had not yet been updated in the legislation itself.

The legal and regulatory framework is not sufficiently logically structured and organized and the internal hierarchy is not clear.

Subsidiary legislation and other pronouncements of the CBN are not well-organized, nor readily accessible

There is uncertainty as to the comprehensive list of circulars, codes, decrees, frameworks, guidelines, prudential guidelines, regulations and rules which are current.

Pronouncements of the Basel Committee on Banking Supervision are not always fully and/or appropriately adopted, sometimes resulting in important deviations, which often have a detrimental effect on the standing of the banking sector.

Currently, banks are seemingly required to be audited by way of Nigerian Auditing Standards.

The question arises whether or not the CBN is incurring liability toward third parties, such as investors and depositors, by its “prior approval” of a bank’s audited financial statements.

The versions of the BOFI Act and the NDIC Act on the websites of the CBN and NDIC, respectively, are not the latest versions of the relevant legislation.

The last annual bank supervision report published by the CBN was in respect of 2008. With effect from 2011, a semi-annual Financial Stability Report, which strives to cover also what previously was covered by the annual bank supervision report, has been issued.

The NDIC Act does not contain a mandate and/or objective/s clause.

The NDIC’s “functions” clause does not mention the supervision of banks.

The NDIC Act is not clear on the question of which person or body the NDIC ultimately is accountable to.

Nowhere is it specifically provided for the NDIC to be operationally independent.

BSD staff is permitted to hold and trade shares in banks.

Important pieces of the legal and regulatory framework has been drafted but not yet finalized and implemented, including:

• - Draft updated Code of Corporate Governance Code.

• - Draft Bank Holding Company Framework.

The legal framework does not specifically grant the supervisor full discretion to apply qualitative judgment in coming to a conclusion whether or not a particular situation, circumstance, action of inaction constitutes a threat to financial stability, whether or not a bank is being operated, managed or directed in a safe and sound manner, and in determining whether or not the bank is in a safe and sound condition.

Furthermore, the legal framework does not specifically empower the supervisor where, in the opinion of the supervisor, a bank and/or director and/or management is engaging in unsafe and unsound practices in conducting the business of the bank, to take corrective, enforcement and/or sanctioning actions against such a party/parties.

The legal framework is not explicit and specific that the supervisor has full and unfettered access to all stakeholders involved in a bank, for the purposes of discharging his responsibilities.

The CBN and NDIC staff not indemnified against legal costs of a legal action arising from the discharging of their duties in good faith.

The CBN/NDIC Executive Committee on Supervision meets only infrequently.

The CBN is not obliged statutorily to maintain and publish a list of licensed banks.

The NDIC is not obliged statutorily to maintain and publish a list of licensed banks.

The legal and/or regulatory framework essentially is silent on the following:

• - the criteria for issuing a licence;

• - the desirability and/or license for a shell entity, a shelf company, and a tax haven domiciled entity;

• - whether the criteria for issuing a license is consistent with those applied in ongoing supervision;

• - whether it is of concern or not that the proposed legal, managerial, operational and ownership structures of the bank and its wider group will or will not hinder effective supervision, whether on both a solo and a consolidated basis;

• - whether or not the CBN, when considering a new bank licence application, is required to identify and determine the suitability of major shareholders, including the ultimate beneficial owners, and others who may exert significant influence;

• - whether or not the CBN, when considering a new bank licence application, is required to consider the transparency of the ownership structure;

• - whether or not the CBN, when considering a new bank licence application, is required to identify the sources of initial capital;

• - whether or not the CBN, when considering a new bank licence application, is required to evaluate proposed directors and senior management as to expertise and integrity (fit and proper test), and any potential for conflicts of interest;

whether or not the CBN, when considering a new bank licence application, is required to review and evaluate the proposed strategic and operating plans of the bank, including whether or not an appropriate system of corporate governance, risk management and internal controls, including those related to the detection and prevention of criminal activities, as well a the oversight of outsourced functions, will be in place;

whether or not the CBN, when considering a new bank license application, is required to make a determination whether or not the operational structure reflects and is appropriate for the scope and degree of sophistication of the proposed activities of the proposed bank;

whether or not the CBN, when considering a new bank license application, is required to review pro forma financial statements and projections for the proposed bank, inter alia for purposes of assessing the adequacy of the financial strength to support the proposed strategic plan as well as financial information on the principal shareholder/s of the bank;

whether or not the CBN, when considering a new banking license application, is required to assess whether or not the board, collectively, have a sound knowledge of each of the types of activities the bank intends to pursue and of the associated risks;

whether or not the CBN, when considering a new banking license application, assesses whether or not the shareholder has the ability to supply additional financial support to the proposed bank, as and when needed;

whether or not a license may be obtained on false information; and

whether or not the CBN is required to have policies and processes in place to monitor the progress of new entrants in meeting their business and strategic goals, and to determine that the supervisory requirements outlined in the license approval are being met.

A banking license application is not currently assessed formally against an explicit set of written criteria.

The CBN does not appear formally and comprehensively to document the nature and extent of the work performed in relation to the implicit and informal criteria which it applies when assessing a banking license application.

The legal and regulatory framework does not address the issue of bank’s outsourcing activities.

Section 7(1) of the BOFI Act is not of much practical use in preventing a change of control of a bank without the CBN’s prior approval, as it imposes a duty on a bank in a matter which pertains to shareholders.

The current approach to ensuring that key shareholders are and remain fit and proper is deficient.

Circular BSD/DO/CR/2/2000, dated March 23, 2000, is out of line with the current approach to fit and proper requirements relating to shareholders.

The legal and regulatory framework does not define a beneficial shareholder or distinguish a beneficial shareholder from a nominee shareholder.

A bank is not required to notify the supervisor should it become aware of any material information which negatively affects the suitability of a major shareholder.

Fines prescribed in the BOFI Act are outdated, as they are no longer in line with the gravity of the offence or sufficient deterrent.

The components of the legislative framework dealing with this topic are scattered throughout the legislative framework, seemingly somewhat randomly, in different (types) of documents, while the relevant provisions do not all easily and logically fit together, thereby impeding legal certainty

The legal and/or regulatory framework does not prescribe sufficiently comprehensively and clearly how a bank, when considering a (proposed) acquisition or investment, is required to distinguish between cases which are required to be dealt with by way of an ex ante application, an ex post application, an ex ante notification and an ex post notification, and other cases.

It is of fundamental and serious concern that a bank is enabled to take large stakes (even controlling stakes, and even full ownership) in agricultural, industrial and venture capital companies. The 2011 change in the banking model, with the removal of the universal banking model, did not affect the above provisions of the BOFI Act.)

The components of the legislative framework dealing with this topic are scattered throughout the legislative framework, seemingly somewhat randomly, in different (types) of documents, while the relevant provisions do not all easily and logically fit together, thereby impeding legal certainty

The regulatory capital adequacy requirements are not strictly in line with the Basel I regulatory capital adequacy requirements, as regard both Tier 1 and Tier 2 regulatory eligible elements of capital.

A bank from time to time may own an investment in its own capital instruments or in another bank’s capital instruments, or provide financing facilities or financing for the purchase of its own shares or the shares of another bank, or provide financing facilities or financing against the security of its own shares or the shares of another bank.

The regulatory and/or supervisory framework does not contain any requirements for banks to perform capital management, nor is any guidance given to banks in this regard, nor is any guidance given to supervisors on how to deal with capital management off-site or on-site.

No bank holds regulatory capital against any risk other than credit risk

A bank is permitted to treat the shortfall in regulatory provisions, constituted by the difference when a bank’s regulatory required provisions exceed its IFRS credit impairments, as Tier 1 core capital.

To date, the authorities have not consistently and regularly performed overall micro/bottom up and macro/top down stress testing, scenario analyses and simulation exercises in relation to all key areas.

The components of the legislative framework dealing with this topic are scattered throughout the legislative framework, seemingly somewhat randomly, in different (types) of documents, while the relevant provisions do not all easily and logically fit together, thereby impeding legal certainty

No assessment, seemingly, of the impact of Basel III, has been undertaken.

The legal and/or regulatory framework does not contain detailed guidance on all significant existing and emerging risks (e.g., country and transfer risk, market risk, operational risk and IRRBB).

The legal and regulatory framework does not contain a requirement that the approval level of risk exposures be commensurate with the size and risk of the resulting risk exposure, nor that material risk exposures (say, exceeding a prescribed percentage of a bank’s capital) should be decided by the bank’s senior management or even a higher level body (such as the board risk committee, or even the board itself.)

The CBN does not apply Basel II principles, such as capital management. (ICAAP/SREP), which are fundamental to the safety and soundness of a bank and can be implemented independently of Basel II.

The BSD has limited capacity and capabilities to challenge quantitative models effectively, or to perform stress tests or scenario analyses, or to supervise and challenge Basel II banks and Basel III banks.

No guidance has been developed in respect of internal risk management risk models, stress testing or scenario testing, which implies that one cannot draw much assurance from the outcomes of such models and exercises.

Banks only hold regulatory capital against credit risk, implying that banks do not hold regulatory capital against other significant risks.

The BSD’s reform agenda, which includes also Basel II and Basel III constitutes a significant challenge.

The BSD may not have specialists which can effectively challenge the banks and related stakeholders in areas such as capital management and specialist areas of risk management, accounting, auditing, information technology, and project management.

The components of the legislative framework dealing with this topic are scattered throughout the legislative framework, seemingly somewhat randomly, in different (types) of documents, while the relevant provisions do not all easily and logically fit together, thereby impeding legal certainty

The CBN requires banks to review their credit risk policies only once in every three years, which may not be frequent enough to capture the dynamic nature of credit risk.

The legal or regulatory framework does not require banks to prescribe that major credit exposures (e.g., exceeding certain level of banks’ capital and those beyond the banks’ risk appetite) or especially risky credit exposures to be decided by the bank’s higher level of senior management.

The legal or regulatory framework does not require a bank to consider the potential future exposure of a counterparty credit risk exposure and to capture the material risks inherent in individual products or transactions.

The classification and provisioning of specialized facilities e.g., agricultural finance, project finance, object finance, real estate finance, SME finance and mortgage finance do not take into account qualitative factors.

The CBN is in the midst of capacity building to prepare for full implementation of IFRS. The current supervisory resources have yet to be comfortable with validating banks IFRS models.

The CBN has not leveraged off external expertise in relation to IFRS.

The terminology used in relation to large exposures is not consistent and clear.

The definition of a large exposure is not sufficiently comprehensive, as it ignores certain relationships.

The legal and regulatory framework does not prescribe who may be empowered to approve a large exposure.

The large exposure limit as defined constitutes a “soft” limit, in the sense that it may be breached subject to supervisory approval, as opposed to a “hard” limit, which may not be breached. Consequently, also, the excess amount, being the amount of a large exposure which exceeds the 25 percent of a bank’s capital limit, does not constitute an impairment of capital.

The CBN supervisors are not empowered to deem the existence of relationships, outside those defined by law, as constituting part of a large exposure.

The terminology used in relation to large exposures is not consistent and clear.

The definition of a related party may not be sufficiently comprehensive, as it ignores certain relationships.

The legal and regulatory framework does not contain a prescription on which person/s or body/bodies should be empowered to decide matters involving related parties.

The CBN is not empowered to exercise its discretion and, on a case by case basis, deem the existence of relationships, outside those defined by law, as related party relationships.

There is no legal or regulatory provision which prohibits the granting of advances to related parties on more favorable terms than corresponding exposures to non-related counterparties and/or that such transactions should be entered into on an arm’s length basis.

There is no explicit regulatory requirement for monitoring and reporting of related parties’ transactions to be carried out by an independent credit review process.

The 60 percent limit on the maximum credit exposure to all insiders is high, also relative to international norms.

The breach of the 10 percent limit on individual related party exposures or the breach of the limit on aggregated related party exposures do not impact the regulatory capital adequacy computation of a bank.

The CBN does not appear to accord priority to country and transfer risk.

Some banking groups have significant exposures to country and transfer risk, yet there is no specific supervisory guidance thereon.

No bank holds regulatory eligible capital against country and transfer risk, not even any bank with significant country and transfer risk exposure.

To date, Nigeria has not adopted the 1996 Market Risk Amendment and, consequently, does not impose a market risk requirement or require banks to hold capital against their market risk exposures.

Market risk played an important part in the 2009 banking crisis, yet guidance on market risk is extremely limited and incomplete.

The CBN has not as yet developed comprehensive and detailed standards and guidelines on market risk management.

Supervisory staff does not have access to a satisfactory supervisory program on market risk management which also covers ALCO and treasury operations.

There does not exist any guidance from the CBN on the use of internal models for the valuation of market risk exposures.

Apart from the NOP limit for FX exposures, there are no market risk limits, thresholds and benchmarks.

The supervisory staff may not be comfortable in confronting technical and complex market risk management issues, including valuation of market risk positions, derivatives, stress testing, scenario analysis and back-testing.

No bank holds regulatory eligible capital against market risk, not even any bank with significant market risk exposure.

The Guidelines for the Development of Liquidity Management Policies, 2003, are somewhat dated.

The calculation method for the regulatory liquidity ratio is not comprehensive and does not cover off-balance sheet obligations.

The CBN has not concluded on the impact of Basel III.

There is no specific, comprehensive and detailed guidance on how banks should manage their operational risk profiles (including absence of guidelines on outsourcing).

There is no granular supervisory program to assist the CBN supervisors in specifically assessing operational risk and operational risk management.

No bank holds regulatory eligible capital against operational risk, not even any bank with significant operational risk exposure.

There is no is specific regulation addressing IRRBB.

There is no specific supervisory program to guide the CBN supervisors in determining the effectiveness of banks’ risk management system in managing IRRBB (including absence of an internal trigger for CBN supervisors to monitor the IRRBB of banks).

There is/are not statutory return/s focused on IRRBB.

The results of the FPRD’s top-down stress test exercises have not been shared adequately within BSD.

The BSD does not perform bottom-up stress testing of IRRBB.

No bank holds regulatory eligible capital against market risk, not even any bank with significant market risk exposure.

It is of grave concern that, notwithstanding the 2006 Corporate Governance Code having alerted everyone and having warned about, essentially all, the factors which led to the 2009 banking crisis, the 2009 banking crisis ensued and the banking system and the country suffered a tremendous loss.

The existing laws and regulations are not adequate in relation to the criminalization of AML/CFT.

The recently issued returns are not in electronic format, which would imply significant human and manual intervention, and there does not appear provision for fixing the accountability, for the quality of the information in the returns, to (a) sufficiently senior person/s.

Major failures in corporate governance at banks were a main contributing factor to the 2009 banking crisis. Some of these activities bordered on, if they were not in fact full-blown, criminal acts and activities.

To date, one thematic examination of banks was performed, which highlighted important problems relating to KYC information at the banks.

Important AML/CFT failings were reported by the OCC in relation to a Nigerian bank’s branch in the U.S., which failings had not been picked up by the responsible parties in Nigeria.

Detailed supervisory programs for inherent risks assessment are not available.

The RBS process does not cater for structured peer comparison (qualitative and quantitative).

Criteria to assess the direction of risk are not granularly stated in the RBS Framework.

Structured formal quality assurance process to determine the ratings of banks is not in place.

Engagement with the banks’ board members, particularly the independent and non-executive members, is minimal outside the onsite examination period.

The e-FASS system does not incorporate a workflow component or an on-site component.

A bank is not required to notify the CBN of all material information regarding the bank’s activities, structure or overall condition, or material adverse developments, as soon as possible.

The requirement, provided for by Section 27 of the BOFI Act, for the CBN to approve the draft financial statements, may create the impression that the CBN is responsible for, and therefore legally liable in relation to, the content of the financial statements.

Bank accounting, bank auditing, bank disclosure and corporate governance relating to the roles of bank internal audit/auditors and bank external audit/auditors may not enjoy the required attention, as evidenced by the fact that the CBN does not have specialist capacity and capabilities which are focused on bank accounting, bank auditing, bank disclosure and the corporate governance roles of bank internal and bank external auditors. Accordingly, the CBN may be hamstrung to achieve effective challenge of banks in these areas. So, for example, meetings between supervisors, the external auditors’ professional representative body and bank external auditors take place infrequently and the CBN has not been able to discharge its responsibility to develop reporting templates as required, in terms of Section 7.1.4. of the Code of Corporate Governance, which makes provision for the rendering of reports to the CBN on a bank’s risk management practices, internal control and level of compliance with regulatory practices.

Banks are not required to have formal internal audit, external audit and disclosure policies.

The CBN does not obtain access to an external auditor’s external audit working papers in respect of a problem bank.

An external auditor who complies with Section 29(7) of the BOFI Act and makes a report to the CBN may be held to be in breach of confidentiality requirements.

The BOFI Act does not specifically and explicitly empower the CBN to remove a bank’s auditor who does not discharge his responsibilities satisfactorily.

The document titled Supervisory Intervention Framework has been placed in the public domain—the contents of Part 4, titled Supervisory Actions in the Event of Systemic Banking Distress may give rise to moral hazard.

The Supervisory Intervention Framework may not be fully aligned with and grounded in the BOFI Act.

It is of concern that the supervisor in the past may not consistently have act promptly, resolutely and forcefully in applying corrective, enforcement and sanctioning actions, or in resolving problem banks, especially in instances which hold the potential to imperil financial stability.

The Framework for the Consolidated Supervision of Financial Institutions in Nigeria is still in draft.

The CBN is not (explicitly, directly and unambiguously) empowered to obtain information from or supervise a financial holding company’s related entities.

Consolidated supervision is a new area for the CBN supervisors, who may still have only limited capability to supervise banks on a consolidated basis.

The BOFI Act does not empower the CBN to require a bank to close a foreign office or impose limitations on their activities under specified circumstances, namely if the CBN determines that the oversight by the bank and/or supervision by the host supervisor is not adequate relative to the risks the office presents, and/or if it cannot gain access to the information required for the exercise of supervision on a continuous basis.

Framework for the Supervision of Cross-Border Institutions does not emphasize on the need for CBN to share information with its counterparts, although it stresses the importance of obtaining supervisory information from the overseas authorities.

The CBN has yet to carry out formal comprehensive assessments on the home and host regulators of Nigerian banks, in determining the level of reliance that the CBN can place on these regulators.

Maintain currency of the legal and regulatory framework, by way of prompt responses (to international policy changes and local developments and needs), through sound policy development and a responsive legislative process.

Perform a BCP self-assessment against the 2012 version of the Basel Core Principles, and align the updating of the legal, regulatory and supervisory framework and supervisory approach with the 2012 version of the Basel Core Principles.

Determine objective/s of the NDIC and incorporate within the NDIC Act.

Review thoroughly, and comprehensively update, the BOFI Act.

Make current consolidated (updated) version of legislation and regulations readily available in logical format in the public domain at all times.

Rationalize the regulatory framework by reviewing thoroughly the subsidiary legislation (subsidiary to the BOFI Act) (which, seemingly, consists of circulars, codes, decrees, frameworks, guidelines, prudential guidelines, regulations and rules), inter alia also to remove ultra vires provisions contained therein (which, if necessary, should be moved to the BOFI Act itself), and thereupon comprehensively update, logically structure in an appropriate hierarchy, and logically reference such subsidiary legislation, and then compile a compendium of such subsidiary legislation, which should be maintained updated.

Specify in the legislation the legal status of and internal hierarchy among the subsidiary legislation (such as a circular, code, decree, framework, guideline, prudential guideline, regulation and rule).

Withdraw annually, with effect from the end of a year, all circulars issued during that year, with effect from the end of that year and, where necessary and appropriate, in relation to issues and prescriptions which remain relevant and continue needing to be dealt with by way of circular, issue duly updated and amended versions of such circulars with effect from the beginning of the next year.

Adopt fully (without cherry picking) and appropriately all relevant pronouncements of the BCBS, to avoid important deviations which undermine certainty and consistency, and which can result in unintended consequences.

Require banks to be audited by means of and in line with International Standards of Auditing (ISAs), and that a formal plan be developed and implemented to ensure a high quality application of ISAs.

The CBN should consider how best to be involved, without incurring liability (whether explicitly or implicitly), in the process of finalization of the audited annual financial statements prior to the publication thereof, while simultaneously ensuring that adequate controls are in place to avoid insider abuses.

Ensure that the information disclosed on the websites of the CBN and the NDIC is current, up to date and accurate.

Ensure (in the absence of separate and distinct publications, respectively, covering the macroprudential top down dimension of financial stability, on the one hand, and, on the other hand, covering the microprudential bottom up dimension), that the Financial Stability Report addresses both these dimensions.

Amend the NDIC Act to make provision for a mandate and/or objective/s clause, and spell out clearly and unequivocally to whom or which body the NDIC is accountable. Also, prescribe that the NDIC should have operational independence.

Prohibit all staff of bank supervisory authorities from holding or trading shares in banks, given their access to price sensitive inside information.

Finalize promptly and implement the draft updated Code of Corporate Governance Code and the draft Bank Holding Company Framework.

Update the BOFI Act specifically and explicitly to authorize the CBN to exercise its discretion and judgment to consider whether or not:

• - a particular situation, circumstance, action or inaction constitutes a threat to financial stability,

• - a bank is being operated, managed or directed in a safe and sound manner,

• - a bank is in a safe and sound condition, and

(The NDIC Act should contain a corresponding provision.)

Update the BOFI Act specifically and explicitly to empower the CBN to take corrective, enforcement and/or sanctioning actions or undertake the resolution of a bank, where, in the opinion of the supervisor:

• - a situation, circumstance, action or inaction in relation to that bank constitutes a threat to financial stability

• - a bank and/or director and/or management is engaging in unsafe and unsound practices in conducting the business of the bank.

(The NDIC Act should contain a corresponding provision.)

Provide in the BOFI Act that the CBN has full and unfettered access at all reasonable times to all stakeholders involved in a bank, for purposes of discharging its responsibilities.

(The NDIC Act should contain a corresponding provision.)

Provide for the indemnification, by way of an amendment to the law, of staff of the supervisory authority, against the costs of defending their actions and/or omissions while discharging their duties in good faith.

Reconsider the raison d’être of the CBN/NDIC Executive Committee on Supervision and, if his committee be found to be necessary and indispensible, update its mandate, objectives and functions to ensure its optimal relevance, and fix the responsibility for driving its agenda.

Require the CBN to maintain and publish a list of licensed banks.

Require the NDIC to maintain and publish a list of insured institutions.

Prescribe explicitly and formally in the legal and/or regulatory framework, as follows:

• - A complete listing of the criteria for a bank license—against which a bank license application should be considered

• - The CBN is required formally and in writing to assess any new bank license application against the prescribed bank licensed criteria, and that the CBN should document the nature and extent of the work performed and the conclusions reached in relation to each criterion individually, and also overall

• - The CBN is not empowered to issue a bank license to a shell entity, a shelf company, or a tax haven domiciled entity.

• - The criteria for issuing a license are consistent with those applied in ongoing supervision

• - A license obtained based on false information shall be revoked by the CBN; and

• - That the CBN should have policies and processes in place to monitor the progress of new entrants into the banking sector in meeting their business and strategic goals, and to determine that supervisory requirements outlined in the license approval are being met.

Specify explicitly and formally in the legal and/or regulatory framework that the CBN is required to consider and conclude on whether or not the new bank license application satisfactorily meets at least the following criteria:

• - Evaluate, by review of the (proposed) legal, managerial, operational and ownership structures of a (proposed) bank and its wider group, whether or not such structures would hinder effective supervision on both a solo and a consolidated basis.

• - Identify and evaluate whether or not the (proposed) major/significant/controlling (ultimate beneficial) shareholders, and others that may exert significant influence, are suitable.

• - Assess whether the ownership structure of the (proposed) bank is sufficiently transparent.

• - Identify the (proposed) sources of the (proposed) initial capital for the (proposed) bank, and evaluate whether or not such sources are acceptable.

• - Evaluate whether or not the (proposed) directors and senior management of the (proposed) bank are suitable, in view of their capacity and capability and integrity (fit and proper test), and in view of any potential for conflicts of interest.

• - Evaluate whether or not the (proposed) strategic and operating plans of the (proposed) bank, including the system of corporate governance, risk management and internal controls, and including those related to the detection and prevention of criminal activities, as well as the oversight of the proposed outsourced functions, are acceptable.

• - Evaluate whether or not the (proposed) operational structure reflects and is appropriate for the (proposed) scope and degree of sophistication of the (proposed) activities of the bank.

• - Evaluate whether or not the pro formal financial statements and projections for the (proposed) bank are adequate for purposes of assessing the adequacy of the financial strength of the (proposed) bank and the capacity of the (proposed) bank to support its strategy.

• - Evaluate whether or not the board, collectively, has a sound knowledge of each of the types of activities the (proposed) bank intends to pursue, and of the associated risks.

• - Evaluate whether or not the (proposed) controlling/significant/major shareholders would be in a position to provide the necessary additional financial support to the (proposed) bank to enable it to execute its strategic plan and achieve its strategic aims.

• - Evaluate whether or not the (proposed) major/significant/controlling shareholders would be in a position to provide the necessary additional financial support to the (proposed) bank in the event of a loss suffered as a result of an extreme but plausible event.

Recast BOFI Act Section 7 to ensure that it can have effect. (For example, the obligation to obtain the prior consent of the governor should be imposed on shareholders, as opposed to the bank itself, as only the shareholders, and not the bank itself, can effect a change of control of the bank or give effect to a disposal of the whole of the business of the bank, or effect an amalgamation or merger of the bank, etc.) In addition, empower the supervisor to stop, neutralize or overturn transactions which proceed without the supervisor’s approval or despite the supervisor’s approval.

Permit only fit and proper persons to obtain a shareholding exceeding 5 percent, which constitutes a significant shareholding, in a bank. Accordingly, the prior approval of the CBN should be obtained by a (prospective) shareholder prior to the (prospective) shareholder’s shareholding in a bank exceeding a 5 percent shareholding in the bank. The CBN should base its assessment of the application on whether the prospective significant shareholder is fit and proper and would be in a position to support the bank in time of stress and need. In the event of a transaction in violation of this provision, the CBN should be empowered to suspend such (beneficial) shareholder’s voting rights and dividend rights on all his shares in the bank, until the situation is regularized. Should a significant shareholder in future fail the fit and proper test, the significant shareholder would be required immediately to dispose of his shareholding above 5 percent in the bank. A significant shareholder is required, on an annual basis, to complete and submit to the BSD a form containing his identity, contact details and details of his significant shareholding in a bank.

Prescribe that no person, whether natural or legal may obtain control over a bank without the prior written consent of the CBN. Furthermore, prescribe that where a transaction is concluded which results in breach of (the amended) Section 7(1), the (beneficial) shareholders’ voting rights and dividend rights in respect of all such (beneficial) shareholder’s shareholding in the bank, at the instance of the CBN, could be suspended until such time as the CBN is satisfied as to the fitness and propriety of the new shareholder and has given its consent to such a transaction.

Consider, in the light of the current approach to fit and proper requirements relating to shareholders, whether Circular BSD/DO/CR/2/2000, dated March 23, 2000, is still relevant and, if not, withdraw it.

Define the concept of a beneficial shareholder (in contradistinction with a nominee shareholder). In addition, wherever the submission of shareholder information is dealt with in the legal and regulatory framework, it should be made clear that it means the submission of information on the beneficial shareholder. (Accordingly, it should be incumbent upon the supervisor to ensure that beneficial shareholders are and remain fit and proper and in compliance with the legal and regulatory framework.)

Require a bank to notify the supervisor as soon as it becomes aware of any material information which may negatively affect the suitability of a significant shareholder.

Review the legal and regulatory framework from time to time and update fines to ensure that they are in line with the gravity of the offence and to constitute a sufficient deterrent.

Consolidate, rationalize, logically organize and simplify components of the legal and/or regulatory framework which deal with issues pertinent to BCP4.

The legal and/or regulatory framework should prescribe sufficiently comprehensively and clearly how a bank, when considering a (proposed) acquisition or investment, is required to distinguish between cases which are required to be dealt with by way of, respectively, an ex ante application, an ex post application, an ex ante notification and an ex post notification, and other cases.

Consideration should be given to scrapping the provisions which permit a bank to hold shares in agricultural, industrial and venture capital companies.

Consolidate, rationalize, logically order and simplify components of the legal and/or regulatory framework which deal with issues pertinent to BCP5.

Ensure that the regulatory capital adequacy requirements, at a minimum, are strictly in line with the Basel I, also in relation to Tier 1 and Tier 2 regulatory eligible capital components.

Require a bank, in relation to a capital instrument of the bank or of another bank, to impair its regulatory eligible capital in an amount equal to:

• - its investment therein (whether directly or indirectly, e.g., via a subsidiary);

• - its financing the purchase thereof (whether directly or indirectly, e.g., via a subsidiary,

• - its provision of financing facilities for the purchase there for (whether directly or indirectly, e.g., via a subsidiary);

• - its provision of financing (whether directly or indirectly, e.g., via a subsidiary) against collateral in the form thereof; and

• - its provision of financing facilities (whether directly or indirectly, e.g., via a subsidiary) against collateral thereof.

Develop and maintain updated comprehensive and detailed principles, standards, guidance, prescriptions, statutory returns and supervisory work programs, inter alia based on and aligned with relevant pronouncements of the BCBS, for all key areas, including corporate governance, capital and capital management, significant existing and emerging risks, which would enhance effectiveness, efficiency, consistency, quality control and transparency of supervision, thus enabling more effective challenging of banks by the supervisor.

Require banks to hold adequate regulatory eligible capital also against significant risk exposures:

• - other than credit risk; and

• - credit risk exposures not prudently captured by Basel I.

Prescribe that the shortfall in regulatory provisions, constituted by the difference when a bank’s regulatory required provisions exceed its IFRS credit impairments, does not constitute or qualify as Tier 1 core capital.

Perform, and require banks to perform, overall micro/bottom up and macro/top down stress testing, scenario analyses and simulation exercises in relation to all key areas, including risk areas, as a tool to provide forward-looking assessments of a bank’s capacity (as constituted by its capital, liquidity and earnings) to withstand extreme but plausible macro-financial shocks. The results should be taken into account when establishing and reviewing (a bank’s) policies, processes, limits, thresholds and benchmarks.

Consolidate, rationalize, logically order and simplify components of the legal and/or regulatory framework which deal with issues pertinent to BCP6.

Prescribe that the approval level of risk exposures be commensurate with the size and risk of the resulting risk exposure, and significant risk exposures (say, exceeding a prescribed percentage of a bank’s capital) should be decided by the bank’s senior management or even a higher level body (such as the board risk committee, or even the board itself.)

Consider the selective implementation, in the interim, of Basel II principles to ensure that the relevant elements of risk and risk management are embedded in banks’ capital management.

Develop and issue specific guidance to govern the application of internal risk management models, to ensure that sound principles, practices and controls are applied, and that the measurement and assessment of significant existing and emerging risks yield reasonably prudent outcomes.

Reconsider the quality and quantity of supervisory resources required to enable the regulatory and supervisory authorities to discharge their responsibilities effectively, given also the regulatory reform agenda, including the implementation of IFRS, Basel II and Basel III.

In line with the HRD plan for specialist career streams, engage specialists to support the regulatory and supervisory functions in addressing specialist and complex issues in the areas of capital and capital management, corporate governance, credit risk and credit risk management, country and transfer risk and country and transfer risk management, market risk and market risk management, liquidity risk and liquidity risk management, operational risk and operational risk management, accounting and auditing, information technology and project management, thus enabling the supervisory authority to effectively challenge banks and all related stakeholders, including (boards of) directors, executive management (including the CEO, COO, CFO, CRO, CIA, CIO, CCO, etc) and external auditors.

Consolidate, rationalize, logically arrange and simplify components of the legal and/or regulatory framework which deal with issues pertinent to BCP7.

Where relevant, also apply, mutatis mutandis, BCP7’s recommendations.

Require that a bank’s board regularly reviews the CRM strategy, significant policies and processes, while ensuring that these are consistent with the risk appetite.

Prescribe that the approval level for credit exposures should be commensurate with the size and risk of the resulting credit exposure.

Prescribe that major credit risk exposures exceeding a certain amount or percentage of a bank’s capital and also especially risky credit risk exposures should be decided by the bank’s senior management or even a higher level body (such as the board credit committee or even the board itself.)

Prescribe that a bank should consider the potential future exposure of a counterparty credit risk exposure to capture the material risks inherent in individual products or transactions.

Require that the classification and provisioning of specialized facilities (e.g., agricultural finance, project finance, object finance, real estate finance, SME finance and mortgage finance) also take into account qualitative factors.

Build expertise in IFRS, especially in the validation of banks’ impairment provisioning models.

Leverage off external auditors’ expertise, as an interim measure, in relation to assessing the reasonableness of the classification and provisioning process and outcomes.

Standardize, inter alia through definition, terminology relating to large exposures, whether single entities or groups of connected entities.

Expand the definition of large exposures to include:

• - Subsidiaries and affiliates of a counterparty of a bank;

• - Parties that are controlled by or have significant influence over a counterparty of a bank

• - Parties to whom a counterparty of a bank are exposed in terms of transactions which are not arm’s length transactions

• - The notion of economic dependency

Prescribe that all large exposures (being exposures exceeding 10 percent of a bank’s capital) should be decided by the bank’s senior management or even a higher level body (such as the board’s credit committee or the board itself.)

Amend the legal and regulatory framework to impose a (maximum) 25 percent large exposure limit which may not be exceeded and in relation to which the CBN should be prohibited from granting any exception or condonation.

Prescribe that any amount of an exposure in excess of the large exposure limit (of a (maximum) of 25 percent of capital) constitutes an impairment of capital for purposes of computing regulatory eligible capital.

Prescribe that the total outstanding exposure (on and off balance sheet) by a bank to all tiers of government (other than the sovereign itself), and their agencies shall not at any point in time exceed 10 percent of the total credit portfolio, and that any excess amount above 10 percent of the total credit portfolio limit shall constitute an impairment of capital for purposes of computing regulatory eligible capital.

Develop and impose limits for sectoral exposures of banks, especially in relation to the oil and gas sector and the telecommunications sector.

Empower CBN to exercise its discretion, where relevant and on a case by case basis, to deem the existence of large exposure relationships, for purposes of determining the total amount of a bank’s exposure to a particular counterparty or group of connected counterparties, in addition to those connected counterparty relationships defined in the law.

Standardize, inter alia through definition, terminology relating to related parties and insiders.

Expand the definition of related party and insiders to include

• - subsidiaries and affiliates of a bank;

• - parties that are controlled by or have significant influence over related parties of a bank;

• - parties to whom the related parties of a bank are exposed in terms of transactions which were not arm’s length transactions; and

• - the notion of economic dependency.

Strengthen the definition of related parties by designating, inter alia, also external auditors as related parties.

Prescribe that all matters involving related party exposures should be decided by the bank’s board of directors.

Empower CBN to exercise its discretion, where relevant and on a case by case basis, to deem the existence of related party relationships, for purposes of determining the total amount of a bank’s exposure to a particular related party or group of connected related parties, in addition to those related party relationships defined in the law.

Prohibit the granting of advances to related parties on more favorable terms than corresponding exposures to non-related counterparties and/or to ensure that such transactions are concluded on an arm’s length basis.

Prohibit related parties from being involved in the decision-making process in relation to a related credit or credit facility.

Require that the monitoring and reporting of related party transactions be discharged by way of an independent credit review process.

Adjust substantially downwards the current 60 percent aggregate related party limit.

Amend the legal and regulatory framework to impose a 10 percent single related party limit and an aggregate related parties limit, which limits may not be exceeded and in relation to which the CBN should be prohibited from granting any exception or condonation.

Constitute the total amount of an exposure to a related party as an impairment of capital, which means that such an exposure should be deducted for purposes of determining a bank’s regulatory eligible capital.

Apply also, mutatis mutandis, relevant BCP7 recommendation/s.

Manage country and transfer risk as a separate risk, in the light of the nature and extent of the activities of the banking sector and of individual banks, which constitute it as an emerging and, perhaps, even a significant risk exposure in the case of certain banks.

Require a bank to hold an appropriate (in other words, in relation to the threat which a bank’s risk exposure poses to economic value) amount of regulatory eligible capital against significant country and transfer risk exposure.

Apply also, mutatis mutandis, relevant BCP7 recommendation/s.

Adopt the 1996 Market Risk Amendment.

Manage market risk as a separate risk, in the light of the nature and extent of the activities of the banking sector and of individual banks, which constitute it as an emerging and, perhaps, even a significant risk exposure, in the case of certain banks. Pay particular attention to a bank’s treasury and ALCO.

Require a bank to hold an appropriate (in other words, in relation the threat which a bank’s risk exposure poses to economic value) amount of regulatory eligible capital against significant market risk exposure.

Improve the competencies of supervisory staff in relation to market risk and market risk management.

Apply also, mutatis mutandis, relevant BCP7 recommendations.

Update the Guidelines for the Development of Liquidity Management Policies, 2003, in the light of important subsequent reforms relating to liquidity risk management, including the BCBS’s Principles for Sound Liquidity Risk Management and Supervision, 2008. For example, the guidelines should be enhanced by considering the following issues:

• - Provide a clear expectation on the roles and functions of the management vis-à-vis Asset-Liability Committee (ALCO).

• - Require that net funding requirements need to be assessed in the context of a broader review of how other risks could impact the need for funding.

• - Set limits or ratios to prevent concentration of funding from top depositors, by maturity, and from volatile sources.

• - Require banks to have separate CFPs for overseas branches or subsidiaries.

• - Require clear escalation procedures detailing when and how each of the CFP plans can and should be activated, and determine the expected lead time needed to tap additional funds from each of the contingency sources under a stress scenario.

• - Require the establishment of internal limits or ratios to address diversification and concentration, and identify the party responsible for monitoring and reviewing such limits and ratios.

• - Require that banks establish internal policies to govern the classification of liquid assets to ensure no over-reliance on illiquid assets.

• - Incorporate in the liquidity ratio requirement also the potential impact of crystallization of OBS obligations.

Require a bank with significant multiple currency exposures to have proportionate risk management strategies, policies and processes governing its foreign currency operations. Consideration should also be given to imposing separate liquidity ratio requirements in relation to each currency.

Conclude on and respond to the quantitative impact assessment of the liquidity prescriptions (Liquidity Coverage Ratio and Net Stable Funding Ratio) contained in Basel III.

Apply also, mutatis mutandis, relevant BCP7 recommendations.

Manage operational risk as a separate risk, in the light of the nature and extent of the activities of the banking sector and of individual banks, which constitute it as a significant risk exposure.

Require banks to hold an appropriate (in other words, in relation to the threat which a bank’s risk exposure poses to economic value) amount of regulatory eligible capital against significant operational risk exposure.

Improve the competencies of supervisors in relation to operational risk and operational risk management.

Develop guidance in relation to banks’ outsourcing activities.

Apply also, mutatis mutandis, relevant BCP7 recommendations.

Manage IRRBB as a separate risk, in the light of the nature and extent of the activities of the banking sector and of individual banks, which constitute it as a significant risk exposure.

Require banks to hold an appropriate (in other words, in relation to the threat which a bank’s risk exposure poses to economic value) amount of regulatory eligible capital against significant IRRBB risk exposure.

Improve the competencies of supervisors in relation to IRRBB and IRRBB management.

FRPD’s top-down stress test exercises (including shocks on IRRBB) results should be shared adequately with BSD.

Training (in all aspects of banking, including, especially, corporate governance (including the roles and responsibilities of the various stakeholders, such as directors, senior management, CEO, COO, CFO, CRO, CIA, CCO, external auditors and supervisors), capital management, risk management (including key risks such as credit risk, market risk, operational risk, IRRBB, country and transfer risk, and issues such as concentration and large exposures, and related parties) and internal controls) of all stakeholders (including boards of directors, executive management, bank personnel, external auditors and supervisors, including the consequences of breaches and failures of such duties and responsibilities, should be undertaken on an ongoing basis.

Amend the relevant laws and regulations to bring them in compliance with international standards.

Require that the AML/CFT statutory returns, to be completed by a bank, are in electronic format, to facilitate effectiveness and efficiency and to minimize human manual intervention. Also, the returns should be signed off by senior personnel who should be held responsible and accountable for the quality of the information submitted. Sound validation, inter alia, by way of on-site verification, and editing controls, should be in place to ensure optimal quality information is uploaded to the relevant database/s.

Launch initiatives to improve the effectiveness of AML/CFT in Nigerian banks, including focused thematic examinations of various aspects of a bank’s AML/CFT functions, and perform quality control checks to control and monitor such effectiveness.

Maintain a no-tolerance policy in respect of criminality and corporate governance abuses and breakdowns, react promptly, firmly and forcefully, and impose strong and effective sanctions.

Include peer comparison among banks with similar risk profiles, to enrich the RBS information and improve the assessment.

Develop specific and granular criteria for assessment of the risk direction. Among others, the CBN may consider the utilization of scenario-based stress testing whereby the CBN supervisors can leverage off the proposed top-down stress test exercises conducted by Financial Regulation & Policy Department.

Develop an independent formal governance process for quality assurance of overall supervisory ratings determined for banks and supervision in general, which may include the involvement of the CBN’s risk management and internal audit functions.

Ensure regular and timely communication of any supervisory issues with members of a bank’s board, even outside the onsite examination process.

Give consideration to incorporating into the e-FASS system a workflow module (for handling also correspondence and other routine supervisory tasks) and an on-site supervision module (including work programs and work papers), to leverage e-FASS and optimize the efficiency of supervision.

Require a bank to notify the CBN of all material information regarding the bank’s activities, structure or overall condition, or material adverse developments, as soon as possible.

Reconsider the wisdom of prior approval by the CBN of a bank’s draft annual audited financial statements, as provided for by Section 27 of the BOFI Act, as it holds the potential for the CBN to be held (co-) responsible (whether explicitly or implicitly) for the content of the annual audited financial statements upon publication thereof.

Establish and maintain a specialist function within the CBN/BSD/FRPD on bank accounting, bank auditing, bank disclosure and the corporate governance roles of bank internal and bank external auditors. Task this specialist function with ensuring that the legal and regulatory and supervisory framework and the supervisory approach and practices are in line with sound internationally generally accepted standards and practices. The (senior) specialist should be responsible for driving the agenda relating to accounting, auditing, disclosure and corporate governance issues relating to bank internal audit/auditors and bank external audit/auditors, both internal (within the CBN) and externally, in relation, firstly to banks, but, also, in relation to other stakeholders, such as the accounting and auditing profession’s representative bodies, the individual accounting and auditing firms and the FRCoN. So, for example, the periodic meetings between bank supervisors and FRCoN to discuss issues of common interest relating to bank audits and bank accounting should be reinstated and the agenda driven by the (senior) specialist. The specialist function should develop a reporting template for, and indicate the frequency of reporting on, the reports to be rendered to the CBN by external auditors of banks on a bank’s risk management practices, internal controls and level of compliance, to give effect to the provisions of Section 7.1.4 of the Bank Corporate Governance Code.

Require a bank to develop and implement formal policies in relation to internal audit, external audit and disclosure.

Amend the legal and/or regulatory framework to require that the CBN may obtain access to an external auditor’s external audit working papers in respect of a bank, when a bank becomes a problem bank.

Prescribe by way of the BOFI Act that an external auditor who, in good faith, furnishes a report, as provided in Section 29 (7) of the BOFI Act, to the CBN, is protected against claims of having breached any confidentiality.

Amend the BOFI Act so that it specifically and explicitly empowers the CBN to remove a bank’s auditor who does not discharge his responsibilities satisfactorily.

Ensure Part 4, titled Supervisory Actions in the Event of a Systemic Banking Distress, of the document titled Supervisory Intervention Framework, is not in the public domain, for avoidance of moral hazard.

Review and, if necessary, effect the necessary amendments to ensure that the Supervisory Intervention Framework is fully aligned with and grounded in the provisions of the BOFI Act, and is not open to the charge that it or some of its provisions are ultra vires.

Apply zero tolerance, inter alia in relation to actions or inactions which put financial sector stability or the safety and soundness of a bank at risk, such as corporate governance transgressions and non-compliance with statutory prescriptions.

Supervisors should act promptly, resolutely and forcefully in applying corrective, enforcement and sanctioning actions, and in resolving problem banks, especially in instances which hold the potential to imperil financial stability.

Ensure the comprehensive incorporation into the BOFI Act of necessary enabling provisions to facilitate the implementation and performance of consolidated supervision.

Expedite the finalization of the draft framework for consolidated supervision and implement it post haste.

Enhance the supervisory capacity and capabilities in relation to consolidated supervision.

Amend the BOFI Act to specifically and clearly empower the CBN to require a bank to close a foreign office or impose limitations on their activities under specified circumstances, namely should the CBN determine that the oversight by the bank and/or supervision by the host supervisor is not adequate relative to the risks the office presents and/or it cannot gain access to the information required for the exercise of supervision on a continuous basis.

Empower the CBN to share information with other supervisory authorities.

Carry-out a one-off review exercise of, and thereafter at regular intervals, review all the host supervisory authorities to assess the nature and quality of the regulatory and supervisory frameworks, supervisory approaches and quality of supervision, including enforcement and resolution.