Banks and other Financial Institutions Act (BOFIA) Act 2020 and Financial Inclusion
The New BOFIA Act has generated a mixed reaction of applause, harsh criticism and apprehension by various stakeholders. The misgivings of the Nigerian Economic Summit Group (NESG), according to the Senate’s response, cannot sensibly be dismissed as being self-serving, extreme or unlearned. It is unclear if a regulatory impact assessment of the law was undertaken before its passage. Arguably, stakeholder consultation may have been inadequate and the law seems to be a fiat legislation based on an overly centralizing and micro-controlling regulatory posture. This piece examines salient provisions that relate to financial inclusion.
Section 5(6) imposes personal liability on directors, managers and officers of banks for failure to comply with the conditions of a banking license. A similarly worded section 49 (a) (i) can be applied to deter anti-competitive, consumer protection and corporate governance infractions, that is, to instill saner market conduct, as contemplated under section 30. The “invasive” aspects of the Act would have been unnecessary in the first place if operators in the industry displayed better market conduct.
Sections 20 (1) (b) & [c] authorizes banks, with the approval of the Central Bank of Nigeria (CBN), to hold not more than 20% equity in small and medium scale industrial and agricultural enterprises. This aligns with the Nigerian Financial Inclusion Strategy (NFIS) 2018 that identifies MSMEs among the financially excluded and a target group for primary focus of interventions. This may require reconfigured internal arrangements, special purpose vehicles or partnerships with players who have better “mass market” capabilities, or of inter-phasing with and optimally supporting operations at this retail and probably riskier level.
Section 31 empowers the Governor to appoint officers of CBN as supervisors of regulated entities with wide and potentially intrusive powers of supervision, albeit with a caveat that such powers shall not be unreasonably exercised to impede daily business of operators. The danger of unwitting abuse is high. A “Big Brother” type of approach may produce policy choice problems, administrative hold up, differentiated levels of supervision and tend to regulatory and market failure. Introduction and adept use of advanced, context relevant and more pervasive RegTech and SupTech may more optimally, efficiently and less intrusively, promote the required level of monitoring and supervision. Or, alternatively, use of Reg Tech and SupTech may minimize the problems highlighted.
Section 64 (1) anomalously empowers CBN to issue regulations to other regulators of entities related to, associated with or affiliated to banks. Constituting CBN into a super regulator is a wrong call. Rather, professionalism, collaboration and partnership among state entities through negotiation and willingness to subordinate turf wars in the larger public interest is what best promotes the rule of law and the evolution of strong institutions in a democracy.
Section 65(1) excludes the operation of the Federal Competition and Consumer Protection Act to the banking sector, and in particular, as regards any act, financial product, or financial services by a bank or other financial institution. This apparent monolithic approach to consumer protection is excessively centralizing. It is likely an unrealistic and impractical regulatory strategy that may diminish overall consumer rights and safety and financial consumer protection. The lack of multiple systemic redundancy, leverage and synergy with other public consumer protection regulatory agencies and multiple consumer dispute resolution entry-points is problematic. After all, consumer protection is yet a subsidiary competence, albeit core function, of CBN.
Section 68 empowers CBN to regulate cybersecurity in banks and other financial institutions. Hopefully, it will adequately synergize with and collaborate with other relevant agencies and players. It should avoid a mindset of “covering the field” and a regulatory silo approach.
Section 71 brings agents of banks under the direct legislative remit of the Act rather than by guidelines under the erstwhile regime. More critical will be designing an effective and nimble framework for regulating and optimizing the potential benefits of agents who are very important for financial inclusion.
Section 131 includes digital, electronic and virtual operations related to deposit taking, financial consultancy, investments and payments within the definition of “banking business” and non-bank players carrying on those services as “other financial institutions”. Section 43 (1) [c] restricts the registration of a business or company name with the word “fintech” or related derivatives. Commentators argue, rightly, that fintechs are now subject to BOFIA 2020. The ability to regulate fintechs may be welcome from a consumer safety perspective. However, the regular licensing processes, regulatory reporting and supervision under Chapter B and other Chapters of BOFIA 2020 may inadvertently stultify the evolution of fintech start-up players and their innovation and competition contributions to the ecosystem. A light touch administrative framework may be more desirable. The Act may be amended or strategically implemented by creatively utilizing sections 58 (4), 61 (1) and 69 to accommodate this consideration.
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Professor Olawale Ajai is the Policy Lead at the Sustainable and Inclusive Digital Financial Services Initiative
