Banking Regulation in Nigeria

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Questions and Answers

What does the term 'director' encompass in this context?

  • Any employee of the bank, including clerical staff
  • The director's immediate family and companies linked to the director (correct)
  • Other directors in different banks and financial institutions
  • Only the person who holds the title of director

Under what circumstance can the Governor order a special examination of a bank?

  • If the bank has been performing exceptionally well
  • If there is a need to increase the bank's capital
  • If the bank wants to change its management structure
  • If it is in the public interest to investigate the bank's affairs (correct)

What situation warrants the intervention powers of the Governor in a failing bank?

  • The bank has recently increased its profits
  • The bank is likely to become unable to meet its obligations (correct)
  • The bank is planning to expand its services
  • The bank has received a favorable audit report

Which of the following is NOT a condition under which a special examination can be ordered?

<p>The bank it is not meeting marketing targets (D)</p> Signup and view all the answers

Which of the following describes a scenario where the Governor can exercise intervention powers?

<p>The bank is insolvent (C)</p> Signup and view all the answers

What is one of the primary purposes of the regulator's supervision of licensed banks?

<p>To ensure compliance with requirements (A)</p> Signup and view all the answers

Which of the following is NOT a prudential requirement imposed on banks?

<p>Maintaining a high interest rate (C)</p> Signup and view all the answers

What does the Banks and Other Financial Institutions Act (BOFIA) primarily regulate?

<p>Regulation of banks and other financial institutions (B)</p> Signup and view all the answers

What requirement must a company meet to engage in banking business in Nigeria?

<p>It must hold a valid banking license issued by CBN (A)</p> Signup and view all the answers

Which activity is part of the failure resolution processes for banks?

<p>Handling distress and bank failure (D)</p> Signup and view all the answers

What is one responsibility of the Central Bank of Nigeria as outlined in BOFIA?

<p>Imposing corporate governance standards (A)</p> Signup and view all the answers

Which of the following is a component of the regulatory requirements imposed on banks?

<p>Minimum liquidity ratio (A)</p> Signup and view all the answers

What is the main role of market discipline in bank regulation?

<p>To enable depositors to assess risk better (D)</p> Signup and view all the answers

What is the primary objective of the Financial Services Regulation Coordinating Committee (FSRCC)?

<p>To promote coordinated supervision of financial institutions (B)</p> Signup and view all the answers

Which of the following bodies is NOT a member of the Financial Services Regulation Coordinating Committee (FSRCC)?

<p>Nigerian Stock Exchange (NSE) (D)</p> Signup and view all the answers

What led to the creation of the Financial Services Regulation Coordinating Committee (FSRCC)?

<p>The difficulty in mastering multiple regulations and the resultant conflicts (A)</p> Signup and view all the answers

Which of the following is a responsibility of the Financial Services Regulation Coordinating Committee (FSRCC)?

<p>Deliberating on issues faced by members with financial institutions (B)</p> Signup and view all the answers

What does the Companies and Allied Matters Act, 1990 chiefly empower?

<p>Corporate Affairs Commission to oversee company registrations (D)</p> Signup and view all the answers

Which of the following is a challenge created by conflicting regulations in the banking sector?

<p>Arbitrage opportunities (B)</p> Signup and view all the answers

What signifies the legal authority of regulations, circulars, and administrative directives within the financial sector?

<p>They must be complied with by each regulated body (B)</p> Signup and view all the answers

Which body was created to ensure stability in the banking system through effective regulation and supervision?

<p>Financial Services Regulation Coordinating Committee (FSRCC) (C)</p> Signup and view all the answers

What is the primary purpose of the Bank Verification Number (BVN)?

<p>To verify customer identity and prevent fraud (C)</p> Signup and view all the answers

Which of the following initiatives aims to promote financial inclusion?

<p>Mobile money scheme (D)</p> Signup and view all the answers

What do the Basel Accords require from banks?

<p>To maintain certain levels of capital and liquidity (A)</p> Signup and view all the answers

What distinguishes Off-Site Supervision from On-Site Examination?

<p>Off-Site involves analysis of returns, while On-Site is a physical examination of the bank. (A)</p> Signup and view all the answers

Why is banking supervision considered essential?

<p>To ensure banks operate within the law and remain solvent (D)</p> Signup and view all the answers

Which supervisory method is relied upon more in emerging markets?

<p>Off-Site Supervision due to inadequate resources (A)</p> Signup and view all the answers

What is the role of the Central Bank of Nigeria (CBN) in consumer protection?

<p>To enforce regulations on fees and charges (A)</p> Signup and view all the answers

What aspect of banking regulation do the Basel Accords address?

<p>Capital and liquidity requirements (C)</p> Signup and view all the answers

What is the maximum allowable limit for foreign currency borrowing by a bank according to the prudential regulation?

<p>75% of shareholders’ funds unimpaired by losses (D)</p> Signup and view all the answers

Which of the following actions is NOT part of the measures to combat dud cheques in Nigeria?

<p>Provide free credit for past offenders (D)</p> Signup and view all the answers

What is the primary goal of the Know Your Customer (KYC) regulations?

<p>To prevent money laundering and other financial crimes (C)</p> Signup and view all the answers

How long will the names of serial dud cheque issuers be listed in the databases of credit bureaus according to the outlined measures?

<p>Five years (D)</p> Signup and view all the answers

What must banks do regarding reports of unethical conduct by CBN employees?

<p>Submit them anonymously or confidentially (B)</p> Signup and view all the answers

What happens if an institution fails to report a serial dud cheque issuer?

<p>The institution faces penalties for concealment (B)</p> Signup and view all the answers

Which of the following is a requirement under the regulations regarding the pricing of goods and services in Nigeria?

<p>Goods must be priced in Naira only (C)</p> Signup and view all the answers

Which official body is responsible for receiving reports of unethical conduct from bank employees?

<p>Central Bank of Nigeria (C)</p> Signup and view all the answers

What conditions must be met for the Federal Government or the Bank to avoid being subject to claims or demands?

<p>They must act in good faith. (C)</p> Signup and view all the answers

Which court has exclusive jurisdiction over offences under the Act?

<p>The Federal High Court (A)</p> Signup and view all the answers

What happens to deposit liabilities if a bank goes into liquidation?

<p>They have priority over all other bank liabilities. (C)</p> Signup and view all the answers

What role does the Governor have concerning corporate governance in banks?

<p>The Governor can issue guidelines on corporate governance. (D)</p> Signup and view all the answers

What should happen to unclaimed funds in a bank account after one year?

<p>Withdrawals require the approval of two authorized signatories. (C)</p> Signup and view all the answers

Under what circumstance does the Act prevail over other applicable laws?

<p>When the provisions conflict with the Act. (A)</p> Signup and view all the answers

What authority does the Bank have regarding the operations of agents of banks?

<p>The Bank may regulate the operations of agents. (C)</p> Signup and view all the answers

What is a key function of the Bank concerning systemically important banks?

<p>The Bank may designate any bank as systemically important. (D)</p> Signup and view all the answers

Flashcards

Companies and Allied Matters Act, 1990

A law creating the Corporate Affairs Commission in Nigeria.

Corporate Affairs Commission (CAC)

An agency empowered to oversee corporate activities in Nigeria.

Nigeria Deposit Insurance Corporation (NDIC)

Body providing deposit protection for bank customers in Nigeria.

Financial Services Regulation Coordinating Committee (FSRCC)

Group coordinated by CBN to streamline financial regulations in Nigeria.

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Objective of effective regulation

To ensure a safe and sound banking operation and promote stability.

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Regulatory conflicts

Discrepancies arising from multiple regulatory authorities' rules.

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Regulations, Circulars, and Directives

Legal documents issued by regulators that must be complied with.

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Objectives of FSRCC

To coordinate supervision, reduce arbitrage, and promote sound practices.

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Director's Related Parties

Includes family and companies connected to the director, like spouse or 5% shareholders.

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Special Examination Order

Governor can order an investigation based on public interest or bank's conduct.

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Public Interest in Banking

Reasons for examination include protection of depositors and creditors' interests.

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Intervention Powers of Bank

Governor can take action when a bank is likely to fail or is insolvent.

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Contravening Bank Regulations

When a bank does not follow laws or regulations, it may be investigated.

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Currency Substitution

Using foreign currency for transactions instead of the local currency.

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Dollarisation

Adopting the US dollar as the main currency in a country.

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Reporting Unethical Conduct

Procedure for reporting dishonesty by CBN employees anonymously.

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Prudential Regulation

Rules to limit foreign currency borrowing by banks to manage risks.

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Dud Cheques

Cheques that cannot be honored due to insufficient funds.

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KYC (Know Your Customer)

Regulations ensuring banks verify customer identity to prevent fraud.

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Credit Reporting for Dud Cheques

System listing offenders for issuing dud cheques to restrict credit access.

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Anti-Money Laundering Measures

Laws aimed at preventing the concealment of funds from illegal activities.

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Protection against claims

Federal Government and Bank officers are shielded from liability when acting in good faith.

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Jurisdiction of Federal High Court

The Federal High Court exclusively handles offenses and penalties under this Act.

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Supremacy of BOFIA

This Act prevails over other laws concerning banks if there's any inconsistency.

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Priority of deposit liabilities

In a bank's liquidation, deposit liabilities are prioritized over all other liabilities.

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Power to make regulations

The Governor can create rules for the operation and control of supervised institutions.

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Consolidated Supervision

The Bank can examine books and records of banks and associated entities.

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Corporate Governance and Ethics

The Governor issues guidelines on corporate governance and risk management for banks.

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Unclaimed funds regulation

Withdrawals from unoperated accounts require approval after a specified period.

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Regulator's Role

Supervises banks for compliance and addresses breaches.

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Market Discipline

Banks must publicly disclose information to inform depositors and creditors.

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Prudential Requirements

Regulations to promote bank objectives based on risk exposure.

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Failure Resolution

Processes to manage bank distress and failure for depositors' benefit.

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BOFIA

Banks and Other Financial Institutions Act, primary regulation legislation in Nigeria.

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CBN Act 2007

Gives Central Bank of Nigeria powers to regulate banks.

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Capital Requirements

Regulations mandating banks to hold minimum capital.

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Banking License

Only companies with this can engage in banking in Nigeria.

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Bank Verification Number (BVN)

A unique identifier assigned to each bank customer in Nigeria to verify their identity and prevent fraud.

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Consumer Protection by CBN

Initiatives to protect banking consumers through regulations on fees, overdrafts, and debt collection.

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Financial Inclusion

Efforts to ensure that everyone has access to financial services through initiatives like mobile money and agent banking.

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Basel Accords

International standards for banking regulation focusing on capital and liquidity requirements to reduce systemic risk.

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On-Site Examination

A detailed inspection of a bank's premises to verify reports and compliance with regulations.

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Off-Site Supervision

Review of banks through analysis of mandatory reports sent to regulators without a physical visit.

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Purpose of Bank Supervision

To ensure banks remain solvent and operate within laws to mitigate risks inherent in their intermediary roles.

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Regulatory Authorities in Emerging Markets

Regulators that often rely on off-site supervision due to limited resources for on-site examinations.

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Study Notes

Banking Regulation and Supervision

  • Access Bank SBE Trainee Manual, October 2023
  • Banking regulation in Nigeria is defined as the laws created by the federal legislature, (National Assembly), and supporting legislation, including regulations, guidelines, and directives from regulatory authorities like the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC).
  • Banking regulation in Nigeria has distinct periods:
    • Era of Free Banking (1892-1952): Had no controls or regulations, resulting in bank failures and losses to depositors.
    • Era of Regulation (1952 to present): Marked by the introduction of licensing, minimum capital requirements, and institutional powers given to the CBN in 1952 and 1958, respectively. Also important was the institutionalizing of a regulatory and supervisory framework in the Banking Act (1968).
    • Era of Indigenization and Nationalization (1972-1976): Nigerian Enterprises Promotion Act (Decree) of 1972 encouraged Nigerian participation in the banking sector.
    • Era of Liberalization (1984-1992): Removed stringent regulations, introduced deposit protection scheme in 1988, and saw an increase in the number of licensed banks.
    • Era of Bank Consolidation (2004-2009): Included increased minimum capitalization requirements.
  • Important regulators in the Nigerian Banking Industry include:
    • Central Bank of Nigeria (CBN): The apex institution responsible for supervising the Nigerian financial system and has objectives including ensuring monetary and price stability, issuing legal tender currency, maintaining external reserves, and promoting a sound financial system.
    • Nigeria Deposit Insurance Corporation (NDIC): Insures customers' deposits and implements orderly and efficient liquidation of failed banks.
    • Federal Ministry of Finance (FMF): Handles fiscal policies (financial matters including tax revenue) of the Federal Government.
    • Securities and Exchange Commission (SEC): Registers securities, exchanges, and OTC transactions.
    • Economic and Financial Crimes Commission (EFCC): Investigates and enforces economic and financial crimes laws.
    • National Drug Law Enforcement Agency (NDLEA): Identifies and locates narcotic drugs and psychotropic substances.
  • Direct Regulators
  • Indirect Regulators
  • Basel Committee on Banking Supervision
  • Basel Accords
  • Significance of Banking regulations
    • Prevents systemic crises ensuring stability & public trust
    • Prevents financial crimes and money laundering
    • Ensures bank liquidity and capital sufficient to meet obligations
    • protects consumers from mismanagement
    • Implements robust risk management
    • Controls interest rates for lower borrowing costs
  • Major legislations regulating banking in Nigeria: Banks and Other Financial Institutions Act (BOFIA)
  • Banking Regulation and Supervision in Nigeria has a detailed structure with many regulatory bodies that support governance and stability in the financial system.

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Access Bank SBE Trainee Manual 2023 PDF

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