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Nigeria’s Finance Companies Face Tighter Corporate Governance Compliance Requirements

In an effort to promote financial stability and transparency, the Central Bank of Nigeria (CBN) has issued a Code of Corporate Governance for Finance Companies in Nigeria 2018. This code sets out stringent compliance requirements that finance companies (FCs) must adhere to, or face regulatory sanctions.

Key Requirements

According to the code, every Nigerian company is required to constitute a Board of Directors, and FCs are no exception. The board is responsible for ensuring the company’s objectives are met while considering the interests of shareholders and other stakeholders, including the CBN.

Some key compliance requirements include:

  • Having a succession plan in place for the managing director/chief executive officer (MD/CEO), executive directors, and other management staff
  • Setting approval thresholds for financial transactions and including these thresholds in the standard operating manual
  • Ensuring that the board composition and size are in line with the code’s requirements

Board Composition

The code also requires that the Board of any FC have a minimum of five and a maximum of nine directors at any given time, with not less than 51% of the board members being non-executive directors (NEDs). Additionally, every FC must have at least one Independent Non-Executive Director (INED) on its board.

Separation of Powers

The position of Board Chairman and MD/CEO cannot be held by the same person, and no member of the same family can hold these two positions.

Director Appointment and Tenure

The code sets out specific requirements for the appointment and tenure of directors, including:

  • A maximum period of three terms of four years each for NEDs and INEDs
  • A maximum period of 10 years with no specific minimum term for the MD/CEO

Board Committees

FCs are also required to establish certain board committees, including:

  • Risk Management Committee
  • Audit Committee
  • Board Governance and Nominations Committee
  • Board Credit Committee

Each of these committees must have a charter approved by the CBN.

Disclosure Requirements

The code requires that FCs disclose certain information in their annual reports, including:

  • The total number of board members and board committee meetings held during the year
  • Attendance records for each member
  • A remuneration policy and its disclosure in the annual report to shareholders

Compliance Monitoring

To ensure compliance, every FC should regularly conduct a corporate governance audit to identify areas of non-compliance and take corrective action. Additionally, establishing a compliance unit within the company can help monitor compliance with the code and other regulatory requirements.

We are more than happy to work with FCs interested in setting up or enhancing their existing corporate governance system.