In my previous article, I wrote about consumer protection and operators’ market conduct. I’d like to revisit the theme of market conduct by presenting snippets of data from a recent empirical survey we conducted on “Regulators Perception of Financial Service Providers in the DFS Ecosystem”. In part, the survey was targeted at 50 regulators from a cross-section of financial services regulatory agencies who had participated in an extended interaction with SIDFS and had the objective of seeking to understand regulator — operator relations within the DFS Ecosystem. A questionnaire was administered to the respondents and responses were received from 33 respondents (66% response rate). Descriptive and Thematic analysis was used to analyze the data.
This opinion piece relates to the first impression question: “Operators are too profit-minded and serial law breakers, you must take whatever they say with a pinch of salt and close mark them with monitoring and detailed regulations. The job of the regulator is more akin to that of a policeman actually. Agree or Disagree?” The response is presented in the graph below:
The factors influencing that response are displayed in the graph below:
In August 2020, the Center for Financial Inclusion at Accion (CFI) released the results of a study on market conduct supervision in consumer protection in several countries in the West Africa Economic and Monetary Union (WAEMU), and in particular, lessons learned in Benin Republic. The report noted that market conduct supervision is an important complement to prudential regulation but found that there was a weak culture of self-regulation among financial institutions, a high prevalence of non-regulated financial service providers and low literacy levels in the country.
It concluded that there was the need to strengthen market conduct supervision and to encourage and guide supervisory agencies to adopt market conduct supervision and Client Protection Principles into their practices.
The Alliance for Financial Inclusion’s (AFI) risk based market conduct supervision framework (PDF) defines market conduct as: “… the manner in which an FSP designs its products and services and manages its relationship with clients and public, including the use of intermediaries (representatives or agents).” The framework incorporates an overall risk scorecard that provides a concise snapshot of FSPs’ current significant activities and risk management procedures and provides basis for flexibility by supervisors in their analysis of the FSP and supervisory actions to be taken.
Nigeria does not suffer from a lack of laws, principles and codes on market conduct in the financial services industry. Nevertheless, the SIDFS survey identifies a significant deficit of wholesome market conduct by operators, at least from the perception of regulators. The CFI report suggests that improving regulatory expertise in market conduct supervision can change behavior over time. Albeit, the subject remains a perennial area of concern across the world.
A 2020 report on the banking sector in Nigeria states that: “Corporate governance is viewed as one of the biggest challenges faced by Nigerian banks, and financial mismanagement or misconduct by executive management has hampered their performance and sustainability.” This was a major reason for the Banking Consolidation policy by CBN during Professor Soludo’s tenure and a major concern during Governor Sanusi’s tenure.
Market conduct depends as much on the state of competition in the markets as on good self-regulatory measures and good corporate governance by operators, as well as effective supervision by regulators. The learning point from the CFI study is that regulatory expertise in market conduct supervision can be enhanced and might be a significant, albeit not exclusive, factor in changing market behavior. Across board capability enhancement for Nigeria’s financial sector supervisory agencies in market conduct supervision and client protection principles may therefore be required.
Innovative policies and systematic, continuing initiatives to increase industry competition and consumer protection, minimize anti-competitive behavior and to improve corporate governance by operators are urgently required.
In the final analysis, the buck of enthroning better market conduct stops at the table of regulators.
— — — — — — — — — — — — — — -
Professor Olawale Ajai is the Policy Lead at the Sustainable and Inclusive Digital Financial Services Initiative