By Stanley Opara

Wednesday, 24 Nov 2010

The Central Bank of Nigeria has said that regulatory authorities and other stakeholders in the Nigerian financial sector need to adopt a zero tolerance posture against cases of unsound corporate governance practices.

It said this would ensure that financial institutions like the Deposit Money Banks were well run and administered, which would go a long way to save the country the costs of their failure.

The Deputy Governor, Financial System Stability, CBN, Dr. Kingsley Moghalu, said this at the corporate governance workshop on, “Disclosure, Conflict of Interest: The Very Thin Line,” organised by the Institute of Directors’ Centre for Corporate Governance in collaboration with the Central Bank of Nigeria.

From a presentation made available to our correspondent on Tuesday, Moghalu was quoted as saying that identifying, preventing, and managing conflicts of interest were at the very heart of corporate governance.

He said, “Going forward, the regulatory authorities and other stakeholders need to adopt zero tolerance posture on cases of unsound corporate governance practices.”

Speaking from the perspective of the forensic audit of the Nigerian banks and the ongoing reform of the banking system by the CBN, he said it was clear that conflicts of interest were responsible for the level of decay in most of the banks in which the CBN intervened.

Moghalu, who was represented by the Head, Financial Policy and regulation Department, CBN, Mr. Chris Chukwu, said actions resulting from conflicts of interest generally constituted the most costly frauds (corruption, asset misappropriation and fraudulent financial statements) since they occurred at senior management/governance levels.

He said financial institutions should be able to demonstrate that rigorous internal policies were in place and that procedures existed for identifying and managing conflicts of interest to avoid its adverse consequences on their customers and other stakeholders.

The CBN deputy governor said, ”A list should be drawn up of the situations across the business where the duties individuals owe to their clients may be inconsistent with either their own interests or the interests of one or more clients.

”Appropriate systems also need to be in place and employees should be trained on how to recognise conflicts and manage them. Conflicts of interest management procedures need to be regularly tested and updated, where appropriate.”

However, the Chairperson, IoD Centre for Corporate Governance, Ms. Bennedikter Molokwu, maintained that insider abuse, conflict of interest and widespread market manipulations, were at the heart of the nation’s financial sector crisis.

”These weaknesses, connived at or orchestrated by management and board, not captured by internal and external auditors and regulators, so stressed the system till they reached serious proportions,” she added.

According to him, two weaknesses also suggest a skills gap, which makes it necessary for stakeholders in the financial sector to critically focus on subject and chart the way forward.

Source: Punch