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: What responsibilities should institutional investors carry out according to the guidelines?

A: Institutional investors in a bank should carry out the responsibilities detailed in Recommended Practice 22.3 of NCCG 2018.

Q: How should publicly listed banks deal with shareholders’ associations?

A: Publicly listed banks should ensure that their dealings with shareholders’ associations are in strict adherence to the Code of Conduct for Shareholders’ Associations issued by the Securities and Exchange Commission (SEC).

Q: How should banks that are not publicly quoted deal with shareholders

A: Banks that are not publicly quoted should have transparent dealings with shareholders that are in line with best practices.

Q: What is the ownership limit for controlling interest in multiple banks?

A: No individual, group of individuals, their proxies, or corporate entities should own a controlling interest in more than one bank, unless prior approval of the CBN (Central Bank of Nigeria) is granted.

Q: What is the requirement for acquiring shares of a bank?

A: Prior approval and No Objection from the CBN should be sought and obtained before acquiring shares of a bank that would result in an equity holding of five percent (5%) and above by any investor.

Q: What happens if the CBN objects to an acquisition?

A: If the CBN has an objection to an acquisition, the bank must be notified of the objection within forty-eight (48) hours, and the investor(s) involved must be notified by the bank.

Q: What is the limit for government equity holding in a bank?

A: The government’s direct and indirect equity holding in a bank should not exceed ten percent (10%). This equity should be divested to private investors within a maximum period of five years from the date of investment.

Q: What is the timeframe for complying with the divestment provision for existing investments above five years?

A: For existing investments in banks above five years, the bank should comply with the divestment provision within two years from the effective date of the guidelines.

Q: What should banks establish to maintain confidence in their integrity?

A: Banks should establish a Code of Business Conduct and Ethics, disclosing necessary information and practices to maintain confidence in the bank’s integrity.

Q: How often should the Code of Business Conduct and Ethics be reviewed

A: The Code of Business Conduct and Ethics should be reviewed at least once every three years.

Q: What policy should banks establish regarding insider trading and related party transactions?

A: Banks should establish a policy concerning insider trading and related party transactions by directors, senior executives, and employees. This policy or a summary of it should be published on their website.

Q: How should the policy on insider trading and related party transactions be implemented?

A: The policy should contain appropriate standards and procedures to ensure effective implementation.

Q: What is the requirement for reviewing compliance and effectiveness of the policy?

A: In addition to the implementation standards and procedures, there should be an internal review mechanism conducted by the internal audit function of the bank to assess the compliance and effectiveness of the policy.

Q: What happens if a director’s facility or that of their related interests remains non-performing in a financial institution?

A: If a director’s facility or that of their related interests remains non-performing in any financial institution for more than one year, they should cease to be on the Board of the bank and be blacklisted from sitting on the Board of that bank and any other financial institution under the purview of the CBN.

Q: Can director-related loans and interest be written off without CBN’s approval?

A: No, director-related loans and interest cannot be written off without prior approval from the CBN.

Q: How should a Payment Service Bank (PSB) conduct its dealings with an infrastructure provider?

A: A PSB that is a related company to an existing infrastructure provider should ensure that its dealings with the infrastructure provider are at arm’s length.

Q: What conditions should guide business conduct between PSBs, their parent companies, and other related entities?

A: The following conditions should guide business conduct between PSBs, their parent companies, and other related entities:

• The parent company or related entity may extend similar services to other entities on the same terms and conditions.
• The parent company or related entity is prohibited from giving any preferential treatment to the PSB, such as precluding its subsidiary’s competitor from using its infrastructure or services, offering lower quality of service to its subsidiary’s competitors, or offering differential pricing.
• Failure to abide by these fair competition clauses may lead to the revocation of the PSB’s license.
  

Q: What should a PSB do before implementing Service Level Agreements (SLAs) with its parent company?

A: A PSB should submit the SLAs to the CBN for approval prior to implementation.

Q: What policy should banks develop to manage conflicts of interest?

A: Banks should develop and adopt a policy to guide the Board and individual directors in conflict-of-interest situations. The policy should cover areas such as approval and revision date, definition of conflict of interest, purpose of the policy, and procedures to follow in situations of conflict of interest.

Q: Who is responsible for managing conflicts of interest in a bank?

A: The Board of the bank is responsible for managing conflicts of interest of directors and senior management.

Q: What should be recorded in the minutes of Board/Board Committee meetings regarding conflict of interest concerns raised by a director?

A: Any concern raised by a director on the activities of their Financial Holding Company (FHC) and all discussions on conflict of interest should be recorded in the minutes of the Board/Board Committee meetings.

Q: What provisions should banks comply with regarding sustainability?

A: Banks should comply with the provisions of Recommended Practice 26 of NCCG 2018 and the requirements of the Nigerian Sustainable Banking Principles.

Q: What means of communication should banks have?

A: In addition to traditional means of communication, banks should have a website and are encouraged to communicate with stakeholders via the website and other official channels.

Q: What should the Board develop and host on its website regarding stakeholder communication?

A: The Board should develop a stakeholder communication policy and host it on its website.

Q: What freedom should stakeholders have in communicating their concerns?

A: The Board should ensure that stakeholders have the freedom to communicate their concerns on illegal or unethical practices to the Board. If the concerns relate to the activities of the Board itself, individuals may present a complaint to the CBN.

Q: What important disclosures should be included in the annual report? 

A: The annual report should include disclosures on various topics, under the following further questions and answers:

Q: What information should be disclosed about directors? 

A: Information about directors should include:

• Remuneration policy for board members and executives.
• Total remuneration of non-executive directors (NEDs).
• Total executive compensation, including bonuses.
• Details and reasons for share buy-backs, if any.
• Board of Directors’ performance evaluation.
• Shares held by directors and their related parties.
• Details of directors, shareholders, and related parties owning five percent or more of the bank’s shares, as well as beneficial owners who control the bank.
  

Q: What should be disclosed about the corporate governance structure

A: Disclosures regarding the corporate governance structure should include:

• Appointment and tenure of directors.
• Composition of Board Committees, including the names of chairmen and members.
• Total number of Board and Committee meetings held and attendance by each director.
• Summary of director training and induction.
• For Islamic banks (NIBs), additional disclosures related to Shariah governance mechanism, compliance with Internal Shariah Review Mechanism, composition and attendance of the ACE (Audit Committee of the Board), and ACE certification of compliance with principles of Islamic finance.
  

Q: What risk management information should be disclosed? 

A: Risk management disclosures should cover:

• All significant risks, including those specific to NIBs.
• Risk management practices, indicating the Board’s responsibility and highlighting any lapses observed by external auditors.
  

Q: What information should be disclosed about strategic modifications to the core business? 

A: Disclosures should include information about strategic modifications made to the core business of the bank.

Q: What disclosures should be made about regulatory contraventions and penalties? 

A: Disclosures should include information about any regulatory or supervisory contraventions, sanctions, penalties, and infractions uncovered through whistle-blowing.

Q: What disclosures should be made about capital structure and adequacy?

A: Information about capital structure and adequacy should be disclosed.

Q: What disclosures should be made about the opening and closing of branches/outlets? 

A: The opening and closing of branches/outlets should be disclosed.

Q: What disclosures should be made about service contracts and related party relationships? 

A: Disclosures should include any service contracts and other contractual relationships with related parties.

Q: What disclosures should be made about frauds and forgeries? 

A: Information about frauds and forgeries should be disclosed.

Q: What disclosures should be made about the contingency planning framework? 

A: The contingency planning framework should be disclosed.

Q: What disclosures should be made about contingent assets and liabilities?

A: Disclosures should cover contingent assets and liabilities (off-balance-sheet items).

Q: What disclosures should be made about the bank’s parent/holding institutions, subsidiaries, affiliates, joint ventures, and SPEs/SPVs? 

A: Details of these entities should be disclosed if applicable.

Q: Are there any other important matters to be disclosed?

A: Matters not specifically mentioned in the guidelines but that may materially affect the bank’s financial position or going concern status should be disclosed.

Q: What additional disclosures are encouraged for banks regarding corporate governance? 

A: Banks are encouraged to make robust disclosures beyond the statutory requirements, as outlined in BOFIA 2020 (Bank and Other Financial Institutions Act 2020) and other applicable laws and regulations.

Q: What certification is required in NIBs’ annual reports? 

A: The annual reports of NIBs must contain certification from the ACE (Audit Committee of the Board) that the operations of the NIB are in line with the principles of Islamic finance.

Q: What returns should banks submit? 

A: Banks should submit periodic returns as specified in the Guidelines for Licensing and Regulation of Financial Holding Companies in Nigeria.

Q: How should banks submit these returns? 

A: Banks should render electronic submission of each regulatory return to a dedicated web portal as prescribed by the Financial Reporting Council (FRC).

Q: What are the consequences of non-compliance with the guidelines?

 A: Failure of a bank to comply with the requirements in the guidelines and the Recommended Practices in NCCG 2018 will be considered a regulatory breach and will attract penalties prescribed by the Central Bank of Nigeria (CBN).

Q: What are the sanctions for providing false, misleading, or incomplete information? 

A: Providing false, misleading, or incomplete information to the CBN will result in appropriate sanctions, including monetary penalties and administrative sanctions on both the individual and the bank.

Q: What are the sanctions for breaching the guidelines by a director, manager, or officer? 

A: Breaching any provisions of the guidelines by a director, manager, or officer will result in appropriate sanctions, including monetary penalties and administrative sanctions on the individual responsible for the breach.

Q: What additional sanctions apply to directors, managers, or officers who repeatedly breach the guidelines? 

A: In addition to the sanctions mentioned in Section 28.3, a director, manager, or officer of the bank who repeatedly breaches the guidelines may be suspended for six months initially and could face removal from the board if the breach continues to occur.

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