The Central Bank of Nigeria (CBN) recently released the exposure draft regulatory guidelines for change of operating licence for banks and other financial institutions in the country. The exposure draft is to solicit public comment on the proposed guidelines.
Stakeholders in the Nigerian financial sector are by the document invited to read and discuss the document and express their opinions on its contents in order to minimize any unintended consequences before the guideline becomes binding.
In a circular issued alongside the exposure draft, the CBN director, Financial Policy and Regulation, Chibuzo Efobi, urged stakeholders in the financial sector to send in their comments and inputs on the draft guidelines within three weeks of the release of the exposure, which was March 28, 2023.
Giving rationale for the guideline, the circular which was issued to all banks and other financial institutions, noted that the Banks and Other Financial Institutions Act (BOFIA), by virtue of section 5, empowers the CBN to amongst others vary the requirements of various licensing regimes.
“Consequently, due to increasing requests from financial institutions to either upgrade or convert to other license regimes, this draft guideline aims to provide clarity to eligible financial institutions on regulatory requirements,” the circular stated.
Thus, the Guidelines provides the procedure for a bank or OFI desirous of changing its license type through conversion, re-categorisation and re-designation as well as the need to comply with the relevant licensing requirements under various regulatory guidelines.
With an objective of providing clarity on the requirements for change of the various license types for banks and OFIs, the guidelines apply to commercial banks, merchant banks, non-interest banks, microfinance banks, primary mortgage banks, payment service banks.
According to the draft guidelines that was released, banks and OFIs that are applying for conversion or re-categorisation are prohibited from expanding or reducing its current banking network pending when the application is determined expand or reduce its current banking network.
Applicants for re-categorisation are also restricted from rolling out “new products and services; carry out any new strategic banking activity but the settlement of rights and obligations shall continue until extinguished in accordance with existing terms and conditions;
“Take any business decision after the conversion process was commenced, except in line with the bank’s conversion strategy submitted to the CBN; Engage in any banking activity specific to the proposed new license; any other requirement that may be prescribed from time to time by the CBN.”
The CBN stated that due to increasing requests from financial institutions to either upgrade or convert to other license regimes, the draft guidelines aimed to provide clarity to eligible financial institutions on regulatory requirements.
In addition to various licensing requirements, the draft guideline also required that Primary Mortgage Banks (PMBs) wishing to convert to another license type “shall provide evidence of divestment from mortgage loans under the National Housing Fund (NHF) as a condition precedent to the issuance of final approval.
“PMBs converting to another license type shall together with the application, provide a plan to divest from all non-permissible real estate business. The divestment shall be concluded within 18 months from the date of the grant of AIP.”
Similarly, banks or OFIs converting to non-interest banking business according to the requirements in the draft guideline, “shall constitute its Advisory Committee of Experts (ACE) upon the grant of an AIP and the ACE shall commence operations before the grant of a final approval.
“Shariah Review Report and ACE’s Certificate confirming that the whole conversion process has been undertaken in conformity with Islamic commercial Jurisprudence. There shall be a meeting among the ACE, Shariah Compliance and Audit Unit of the converting institution with the CBN Financial Regulation Advisory Council of Experts (FRACE) to clarify any issue, where necessary.
“A bank or OFI converting to non-interest bank shall have a plan for migration or off-boarding of their customers within 12 months. A bank or OFI converting to non-interest bank shall align its IT infrastructure with the new business model.
“A bank or OFI converting to non-interest bank shall divest from all their non (1) permissible activities within a maximum period of 12 months. Any non-permissible proceeds shall be treated in line with extant CBN Guideline on Disposal of Non-Permissible Income.
“Revenue not yet received that are of doubtful permissibility are not subject to compulsory disposal, whether they were earned before or during the financial period in which the NIFI decides to convert. Institutions converting to non-interest bank shall be required to carry the NIFIs symbol.”
