Financial Crime World

Here is the rewritten article in markdown format:

Financial Institution Compliance Programs in Nigeria: A Must for Stability and Transparency

=====================================================

The Central Bank of Nigeria (CBN) has issued a Code of Corporate Governance for Finance Companies in Nigeria 2018, which outlines compliance requirements for finance companies operating in the country. The code aims to promote financial stability and transparency in the finance company sub-sector.

Compliance Requirements

Every finance company (FC) in Nigeria is required to comply with the provisions of the Code, which includes a range of requirements such as:

  • Succession planning
  • Approval thresholds for financial transactions
  • Board composition and size
  • Separation of powers
  • Appointment and tenure of directors
  • Establishment of board committees

Definition of Finance Companies

According to the CBN Revised Guidelines for Finance Companies in Nigeria, 2014, an FC refers to a company licensed and permitted to carry out activities such as:

  • Consumer loans
  • Fund management
  • Asset finance
  • Project finance
  • Local and international trade finance
  • Debt factoring
  • Financial consultancy
  • Corporate governance compliance

Board Composition and Requirements

The code requires FCs to have a minimum of five directors and a maximum of nine directors, with not less than 51% of the board members being non-executive directors. It also mandates that every FC has at least one independent non-executive director on its board of directors.

  • The code separates the positions of chairman and managing director/chief executive officer (MD/CEO)
  • Family members are prohibited from holding these two positions

Director Appointment, Tenure, and Reappointment

The code outlines requirements for the appointment, tenure, and reappointment of directors, including:

  • A maximum period of three terms of four years each for non-executive directors
  • Two terms of four years each for independent non-executive directors
  • The MD/CEO is allowed to serve for up to 10 years with no specific minimum term

Board Committees

FCs are required to establish various board committees, including:

  • Risk management committee
  • Audit committee
  • Board governance and nominations committee
  • Board credit committee

Each committee must have a charter approved by the CBN.

Disclosure Requirements

FCs must disclose certain information in their annual reports, including:

  • Total number of board members
  • Number of board committee meetings held during the year
  • Attendance of each member
  • Remuneration policy
  • Disclosure of shares held by directors
  • Results of annual board appraisal

Compliance and Avoiding Regulatory Sanctions

Compliance with the requirements of the Code is mandatory for every FC, and non-compliance can attract regulatory sanctions.

To ensure compliance and avoid potential penalties, FCs in Nigeria are advised to:

  • Regularly conduct corporate governance audits
  • Consider establishing a compliance unit within their organization

The functions of the compliance unit should include monitoring compliance with the code and other regulatory requirements.

Conclusion

The author of this article is happy to work with finance companies interested in setting up or enhancing their existing corporate governance system to ensure compliance with the Code and promote financial stability and transparency in Nigeria’s finance company sub-sector.