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Q: Who Does the Code Apply To
A: The new Corporate Governance Code, known as the “Corporate Governance Guidelines for Commercial, Merchant, Non-Interest and Payment Service Banks in Nigeria,” applies to:
- Commercial Banks in Nigeria (CB)
- Merchant Banks in Nigeria (MB)
- Payment Service Banks in Nigeria (PSB)
- Non-Interest Banks in Nigeria (NIB)
These guidelines replace previous sectoral codes and provide comprehensive governance principles for the mentioned banking institutions in the country.
Q: When will these guidelines take effect?
A: These guidelines will take effect from August 1, 2023.
Q: How is the procedure for appointment to the Board defined?
A: The procedure for appointment to the Board must be formal, transparent, and documented in the Board Charter.
Q: Who appoints the members of the Board?
A: Members of the Board are appointed by the shareholders of the bank and approved by the Central Bank of Nigeria (CBN).
Q: What is the range of directors allowed on the Boards of different types of banks?
A: The minimum and maximum number of directors on the Boards of Commercial, Merchant, and Non-Interest Banks (CMNIBs) is seven (7) and fifteen (15) respectively. For Payment Service Banks (PSBs), the minimum and maximum number of directors is seven (7) and thirteen (13) respectively.
Q: What is the composition of the Board in terms of Executive and Non-Executive Directors?
A: The Board should consist of both Executive and Non-Executive Directors, with the number of Non-Executive Directors being greater than Executive Directors on the Board and its Committees.
Q: How many Independent Non-Executive Directors (INEDs) should be on the Board?
A: The number of Independent Non-Executive Directors (INEDs) should be at least:
- Three for commercial banks with international and national authorization, merchant banks, and Non-Interest Banks (NIBs) with national authorization.
- Two for Payment Service Banks (PSBs), commercial banks with regional authorization, and NIBs with regional authorization.
Q: Are there specific requirements for Non-Executive Directors regarding knowledge and experience?
A: Yes, at least two Non-Executive Directors (NEDs), one of whom must be an INED, should have requisite knowledge and experience in innovative financial technology, Information Communication Technology (ICT), and/or cyber security.
Q: Is gender diversity mandated on the Board?
A: Yes, in line with NCCG 2018, no Board of a bank should consist of only one gender. Gender diversity and promoting a gender-inclusive board are encouraged.
Q: Are there any restrictions on family members serving on the Board?
A: Not more than two members of an extended family, which includes director’s spouse, parents, children, siblings, cousins, uncles, aunts, nephews, nieces, in-laws, and any other construed relationship, as determined by the CBN, can be on the Board of a bank.
Q: Are there any requirements for disclosure of board memberships in other organizations?
A: Yes, prospective and current directors on the Board of a bank should disclose potential and existing board memberships on boards of other organizations, subject to CBN’s approval.
Q: Are there any limitations on the number of directors from subsidiaries within a Financial Holding Company (FHC)?
A: Yes, the aggregate number of directors from subsidiaries within an FHC should not exceed thirty percent (30%) of the members of the FHC’s Board, and the number of directors on the Board of the FHC in the board of a subsidiary should also not exceed thirty percent (30%).
Q: Are there any restrictions on interlocking or concurrent directorship within a bank’s FHC or Group structure?
A: Yes, interlocking or concurrent directorship by a director of a bank within its FHC or Group structure is limited to two institutions only.
Q: Are there specific positions that are not recognized in the Board structure?
A: The positions of Executive Chairman or Vice Chairman are not recognized in the Board structure of any bank.
Q: What is the notice period for resignation from the Board?
A: A director resigning from the Board of a bank must submit a written notice of resignation addressed to the Chairman of the board ninety (90) days before the effective date of resignation.
Q: Are there any requirements for replacing Independent Non-Executive Directors (INEDs)?
A: If an INED elects to resign, and such resignation would result in non-compliance with the minimum required number of INEDs, the Board must appoint a replacement within the ninety (90) days’ notice period.
Q: What should a director do if resigning due to concerns about the bank’s operation?
A: If a director elects to resign from the Board due to unresolved concerns about the running of the bank, they should detail the concerns in a written statement to the Chairman for circulation to other Board members and forward a copy of the statement to the CBN within seven days of the notice of resignation.
Q: Are there requirements for replacing Non-Executive Directors (NEDs)?
A: If a NED resigns from the Board, and such resignation results in NEDs not being in the majority, the Board must appoint a replacement within the ninety (90) days’ notice period.
Q: What is the procedure if the Chairman of the Board resigns?
A: If the Chairman of the Board elects to resign, they must forward the required notices to the Chairman, Board Nomination and Governance Committee (BNGC), who will circulate them to members of the Board and the CBN within seven days of receiving the notice of resignation.
Q: Are there restrictions on the membership of Advisory Committee of Experts (ACE) and the Financial Regulation Advisory Council of Experts (FRACE) in relation to Non-Interest Financial Institutions (NIFIs)?
A: Members of ACE and FRACE cannot be members of the Board, senior management, and/or staff of any Non-Interest Financial Institutions (NIFIs) under the regulatory purview of the CBN.
Q: How is the length of service of a director affected in the event of a merger or acquisition?
A: When a merger, acquisition, take-over, or any form of business combination involves the appointment of a director from the Board of the legacy institution, the length of service of such director should include both the periods served pre and post combination.
Q: What is the role and responsibility of the Board?
A: The Board is accountable and responsible for the performance and affairs of the bank. Directors owe the bank the duty of care and loyalty and act in the interest of its employees and stakeholders.
Q: Are Board members liable for the activities of the bank?
A: Yes, members of the Board are jointly and severally liable for the activities of the bank.
Q: What requirements must the Board and its Committees meet?
A: The Board and its Committees must have a Charter approved by the CBN. These Charters should be reviewed at least once every three years and submitted to the CBN for approval within 30 days.
Q: What are the responsibilities of the Board regarding the bank’s goals and strategies?
A: The Board defines and approves the bank’s strategic goals, its short, medium, and long-term strategies, and monitors their implementation by management.
Q: What does the Board oversee in terms of investment policies?
A: The Board ensures a review of the investment policies and strategies of the bank at least once every three years and submits them to the Director, Banking Supervision Department (BSD), CBN.
Q: What is the Board’s role in Anti-Money Laundering and risk management?
A: The Board has oversight of the bank’s Anti-Money Laundering/Combating the Financing of Terrorism and Countering Proliferation Financing (AML/CFT/CPF) policies and procedures. It also approves an Enterprise Risk Management (ERM) Framework specifying the bank’s risk appetite, governance architecture, and control processes.
Q: What are the Board’s responsibilities regarding IT and business continuity?
A: The Board must develop and implement an Information Technology (IT) Framework covering data confidentiality, network security, and incident response. It also ensures the existence of a Business Continuity Plan (BCP) for the bank.
Q: How does the Board participate in the appointment and succession of management staff?
A: The Board, subject to CBN approval, appoints the MD/CEO, Executive Directors, and senior management staff. It also approves a succession plan for key positions, which is reviewed every two years.
Q: What is the Board’s role in performance management and internal control?
A: The Board ensures the establishment and monitoring of agreed performance targets for directors and senior management. It also ensures the implementation of an efficient internal control system.
Q: What responsibilities does the Board have in terms of governance and ethics?
A: The Board establishes a framework for the delegation of authority, verifies and safeguards the integrity of financial reporting, and establishes a Code of Business Conduct and Ethics for all employees. It ensures adherence to the Code of Conduct for Directors and practices good Corporate Social Responsibility (CSR).
Q: What additional responsibilities does the Board of a Non-Interest Bank (NIB) have?
A: The Board of an NIB must institutionalize a Shariah governance mechanism, appoint an ACE (Advisory Committee of Experts), oversee the implementation of resolutions and rulings, ensure adherence to non-interest banking principles, manage funds of Profit-Sharing Investment Account Holders, and comply with specific disclosure requirements and policies related to non-permissible income and CSR. The ACE should be independent and have direct access to the Board and management.
Q: What are the qualifications and responsibilities of the Chairman of the Board of a bank?
A: The qualifications and experience of the Chairman of the Board of a bank should be in line with the Guidelines on competency and fit and proper persons for the Nigerian banking sector. The Chairman is required to meet formally with the Non-Executive Directors (NEDs) at least once a year. If a bank is a member of a Financial Holding Company (FHC), the Chairman cannot simultaneously sit on the Board of the FHC.
Q: What is the maximum tenure for a Managing Director/Chief Executive Officer (MD/CEO) of a bank?
A: The tenure of the MD/CEO of a bank is determined by the terms of engagement with the bank, but it cannot exceed twelve (12) years.
Q: What is the maximum tenure for a Deputy Managing Director (DMD) or an Executive Director (ED) of a bank?
A: The tenure of a DMD/ED of a bank is determined by the terms of engagement with the bank, but it cannot exceed twelve (12) years. If an ED becomes a DMD, their cumulative tenure limit remains twelve (12) years and cannot be extended. However, if a DMD/ED becomes an MD/CEO of the same bank, their previous tenure as DMD/ED is not counted towards their tenure as MD/CEO.
Q: What are the tenure and qualifications for Non-Executive Directors (NEDs) of a bank?
A: NEDs, except for Independent NEDs (INEDs), can serve a maximum of twelve (12) years, comprising three terms of four years each. To qualify as an NED, the proposed candidate should not be an employee of a financial institution unless the bank is promoted by that financial institution and the candidate represents its interests. In the case of a commercial bank with an Islamic banking window, at least one NED should have knowledge or experience in Islamic finance or Islamic Commercial Jurisprudence.
Q: What are the qualifications and tenure for Independent Non-Executive Directors (INEDs) of a bank?
A: INEDs should have sound knowledge of the banking sector’s operations, relevant laws, and regulations. They should also possess proven skills and competencies in their field. The tenure for INEDs cannot exceed two terms of four years each. INEDs have additional requirements, including restrictions on past employment with the bank, family relationships with bank employees, material relationships with the bank or its officers, and providing certain services to the bank.
Q: What are the responsibilities of an Independent Non-Executive Director (INED) in terms of their independence?
A: It is the responsibility of an INED to promptly notify the Board of any circumstance, event, transaction, or relationship that may impair their continued independence. The Board is required to annually assess and confirm the continued independence of each INED. If independence is found to be impaired, the INED must vacate their seat on the Board.
Q: What restrictions apply to the transmutation of an Executive Director (ED) or a Non-Executive Director (NED) to an Independent Non-Executive Director (INED) within the same bank or its group structure?
A: Transmutation of an ED or NED to an INED in the same bank or its group structure is not allowed. Similarly, an INED cannot transmute into any other capacity in the same bank or its group structure.
Q: What are the qualifications and restrictions for a Company Secretary of a bank?
A: The qualifications and experience of a Company Secretary of a bank should align with the Guidelines on competency and fit and proper persons in the Nigerian banking sector. The function of a Company Secretary should not be outsourced by banks. In a CMNIB (Commercial Merchant and Non-Interest Bank), the role of the Company Secretary cannot be combined with that of the Head Legal/Legal Adviser without the approval of the CBN. In the case of PSBs (Payment Service Banks), the function of the Company Secretary may be combined with that of the Head Legal/Legal Adviser.
Q: What is the reporting structure and responsibility of the Company Secretary in a bank?
A: The Company Secretary reports directly to the Board and has an indirect reporting line to the MD/CEO. The Company Secretary is responsible for ensuring that all board-related compliance matters are provided to the Executive Compliance Officer (ECO) in a timely manner.
Q: Who has the authority to appoint and remove the Company Secretary of a bank?
A: The appointment and removal of the Company Secretary is a matter for the Board, subject to ratification by the CBN (Central Bank of Nigeria).
Q: What is the role of the Executive Compliance Officer (ECO)?
A: The ECO is responsible for cascading regulatory requirements and expectations to various control and operational functions within the bank, as well as presenting regulatory infractions and concerns to the Board.
Q: What is the required rank for the Chief Compliance Officer (CCO)?
A: The CCO should be at least a General Manager for commercial and non-interest banks with national and international authorization, or an Assistant General Manager for merchant banks and commercial and non-interest banks with regional authorization.
Q: What is the primary responsibility of the CCO?
A: The CCO’s main role is to monitor and coordinate the implementation of regulatory requirements as provided by the ECO.
Q: What are the qualification and experience requirements for the CCO?
A: The qualification and experience of the CCO should be in accordance with the guidelines on competency and fit and proper persons for the Nigerian banking industry.
Q: Who is responsible for appointing and removing the CCO?
A: The Board is responsible for appointing and removing the CCO, subject to approval from the Central Bank of Nigeria (CBN).
Q: To whom does the CCO report?
A: The CCO reports to the Board through the ECO.
SHARI’AH COMPLIANCE FUNCTION
Q: What is the purpose of the Shariah Review/Compliance (SRC) function?
A: The SRC function is established to assess the compliance of a non-interest bank’s operations and activities with Shariah requirements.
Q: What are the responsibilities of the Internal Shariah Compliance Officer (ISCO)?
A: The ISCO is responsible for identifying, measuring, monitoring, and reporting on Shariah Non-Compliance Risks (SNCR), reviewing financing requests before disbursement to avoid SNCR, and reporting to the CCO and indirectly to the ACE.
Q: What is the minimum rank requirement for the ISCO?
A: The ISCO should be at least a Manager or a lower rank in the case of a commercial bank with a non-interest banking window.
Q: Who is responsible for appointing and removing the ISCO?
A: The Board, in consultation with the ACE (presumably the Audit Committee of the Board), is responsible for appointing and removing the ISCO, subject to ratification by the CBN.
WHISTLE-BLOWING
Q: What guidelines should banks follow regarding whistle-blowing?
A: Banks should comply with Recommended Practice 19 of NCCG 2018 (presumably the Nigerian Code of Corporate Governance 2018) and the provisions of the CBN Guidelines for Whistleblowing for Banks and Other Financial Institutions in Nigeria.
EXTERNAL AUDITORS
Q: Who is responsible for appointing and removing the external auditor?
A: The Board is responsible for appointing and removing the external auditor, subject to approval from the Central Bank of Nigeria (CBN).
Q: What is the reporting requirement of the external auditor?
A: The external auditor should report annually in the financial statements about the bank’s compliance with the provisions of NCCG 2018 (Nigerian Code of Corporate Governance 2018) and the Guidelines mentioned.
Q: To whom does the external auditor render annual reports?
A: The external auditor submits annual reports to the Director of the Banking Supervision Department (BSD) regarding the bank’s risk management practices, internal controls, and level of compliance with regulatory directives.
Q: What additional assessments should the external auditor provide for an NIB?
A: For an NIB (Non-Interest Bank), the external auditor should assess the bank’s compliance with the decisions of the Audit Committee of the Board (ACE) and the Financial Reporting and Audit Committee of the Board (FRACE). They should also review the work of the Internal Shariah Audit (ISA) and the Internal Shariah Compliance Officer (ISCO).
Q: When should the external auditor submit their report and management letter?
A: The external auditor should submit copies of their report, along with the management letter on the bank’s audited financial statements, to the Director of the Banking Supervision Department no later than March 31st following the end of each accounting year.
Q: What are the publication requirements for banks’ annual audited financial statements?
A: Banks are required to publish their annual audited financial statements in two national daily newspapers and on their websites.
Q: What types of client services should external auditors avoid to prevent conflicts of interest?
A: External auditors of banks should not provide services such as bookkeeping or accounting-related services, valuation services, actuarial services, internal audit outsourcing services, management or human resource functions, board evaluation and appraisal services, IT and system audit, and software sales, consultancy, and management.
Q: What actions can the CBN take if an external auditor engages in unethical practices or illegal activities?
A: If the CBN determines that an external auditor of a bank has engaged in unethical practices or illegal activities, they can request the Board of the bank to remove the external auditors. The CBN may also impose other sanctions on the bank in accordance with applicable laws and regulations.
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