The Central Bank of Nigeria (CBN) has stated its resolve to heavily sanction financial institutions that flout its corporate governance and risk management rules.
It also said the Bank and Other Financial Institutions Act (BOFIA) 1991 (as amended) was being comprehensively reviewed to enhance its regulatory and supervisory powers, especially as it relates to sanctions with strong deterrent effects to discourage flagrant regulatory breaches by banks and other financial institutions.
Kingsley Moghalu, the CBN deputy governor, financial system stability, disclosed this in a keynote address presented at the 2014 Continuous Education Programme for directors of banks and other financial institutions held in Lagos.
Moghalu spoke on the need to elevate the profile and protect the independence and integrity of the risk management function in banks, saying that best practice requires that chief risk officers (CROs) are members of banks’ top management.
He noted that in a lot of countries, the power and influence of the risk function is now generally being elevated, particularly in the aftermath of the global financial crisis.
He also noted that recent assessment of risk management practices in some banks showed a worrisome lack of appreciation and understanding of this fundamental responsibility by directors.
“For instance, the implementation of Basel II commenced with effect from June 2014 and a key component of the new regulatory paradigm is the requirement that banks submit their Internal Capital Adequacy Assessment Process (ICAAP) to the CBN for review and approval,” Moghalu said.
“The ICAAP embodies the bank’s strategy for assessing its overall capital adequacy in relation to its risk profile, strategic focus, nature of business and analysis of the bank’s current and future capital needs.”
He added that in order to be effective and relevant, bank directors need to be abreast of emerging and contemporary developments in the global and domestic economic environments and their implications for the safety, soundness and strategic positioning of their respective institutions.
“Directors must understand their institution’s operations – top to bottom. They must see both the snapshot picture and the panoramic view.“
Above all else, directors must ask tough questions – the kind that keeps management on its toes,” hhe said.
“For the executive management to take the board seriously and thus to have effective accountability, board members must be capable of challenging, questioning, testing, probing, debating, advising and informing on issues brought before the board.”