By Goddy Egene, 08.16.2010 

 

Realising the fact that poor regulation partly contributed to the recent financial crisis in Nigeria, the Minister of Finance, Mr. Olusegun Aganga, has unveiled a new regulatory model aimed at supporting the country’s economic development and transformation towards becoming one the world’s top 20 economies by 2020.

 

The new regulatory model involves the establishment of the Council of the Nigeria Financial System Regulators to be overseen by the Ministry of Finance and Central Bank of Nigeria (CBN) as the two overarching regulators.  According to Aganga, the two overarching regulators, whose mandate will be mutually exclusive, shall cover the entire financial system.

 

The minister unveiled the model in a paper titled, “A Framework for the Reform of  Nigeria’s Financial Regulatory System”, presented at the Bankers’ Night organised by  the Chartered Institute of Bankers of Nigeria (CIBN), Lagos Branch, recently and obtained by THISDAY at the weekend.Aganga said the overall global experience and the reality of Nigeria’s economy strongly recommends the requirement for a reform of the currently fragmented and overlapping regulatory regime into an integrated one. 

 

He said the trend in different countries has been that as the role of financial conglomerates continues to grow in the economy, the effectiveness of overlapping and multiple regulatory agencies have simultaneously continued to decline. “This is the result of fragmented regulatory bodies being unable to form an overall risk assessment of a financial conglomerate on a consolidated basis. Consequently, an integrated or semi-integrated regulatory system in which banking, securities, mortgages, pension and insurance regulation is coordinated is a preferred model for resolving these challenges,” he said.

 

The minister explained that the proposed council of regulators shall, at the macro-level, oversee the affairs of the financial system, but will not necessarily be involved in micro prudential regulation. He said: “The CBN would continue to be responsible for the prudential and risk management for the banking system in closer coordination with the other regulators, Nigeria Deposit Insurance Corporation (NDIC), and National Insurance Commission and National Pension Commission (PENCOM) where financial institutions provide multiple services, however there will be clear and defined roles and responsibilities for each regulatory body in this role.”

 

According to Aganga, a new regulator is necessary and should be responsible for market confidence and integrity; good corporate governance; consumer protection; investor protection; ethics and professionalism; public awareness and reduction in financial crimes.“This represents the pillars of our proposed regulatory reform which I believe will not only guarantee the maintenance of an enduring sound, stable and safe financial system, but will also maximize the system’s economies of scale and scope. We want to see responsible lending in the banking and mortgage sectors. At a regulatory level, we want to see intelligent regulation with poorly performing firms made to play by the rules, an efficient system of redress for customers and timely and appropriate compensation for them where necessary,” he said.

 

The minister emphasised the need to focus on increasing and improving the capacity of our regulators in order to facilitate a stronger enforcement regime, declaring: “This could mean the secondment of seasoned, capable, professionals from the banks or financial sector, to the regulatory agencies as well as the use of compliance officers and consultants within both the regulatory bodies and financial institutions themselves.”He added: “We must look at strengthening sanctions for market abuse and breaches of regulatory rules, which may include specific actions against key officers/chief executive officers.  The financial industry can also regulate itself by aiding regulators through self reporting, which would entail maintaining a breaches register, with stronger sanctions for failure to report.”

 

The minister said in the past, efforts were focused on short-term ad hoc measures to address the symptoms of the regulatory deficit, instead of finding a holistic solution for the underlying causes of the recurrent financial sector distress. He noted that recent events have confirmed that the challenges facing the financial system were deep rooted. Therefore, the solution needs to go beyond quick fixes. According to him, the regulatory reform is in line with the report of the National Financial Sector Technical Working group of Vision 20:2020, which called for a paradigm shift in the financial system’s regulatory framework.  

 

He said  the report specifically recommended a new regulatory architecture that would strengthen and enforce prudential and systemic risk management; prevent the misuse of banks by the operators and their customers by enthroning ethics and professionalism; enhance credit allocation to the real sector; provide for consumer protection; promote competitive neutrality, transparency, credibility, integrity and accountability and develop the requisite human capacity that would transform Nigeria’s financial system to world class.

 

Source:ThisDay