In what can be regarded as the first practical step towards protecting depositors’ funds, the Financial Services Regulation Coordinating Committee (FSRCC) has come out with guidelines to protect depositors’ funds from high risk transactions.
Specifically, the committee, whose membership is drawn from the Central Bank of Nigeria (CBN), Federal Ministry of Finance, the Securities and Exchange Commission (SEC), the National Insurance Commission (NAICOM), National Pension Commission (PENCOM), the Abuja Securities and Commodity Exchange, the Nigerian Deposit Insurance Corporation, the Nigerian Stock Exchange (NSE) and Corporate Affairs Commission (CAC), has come out with the formulation of a banking model anchored on a financial holding company structure aimed at protecting depositors by ring-fencing banks from non-banking business.
The committee’s action, which is in furtherance of the objectives of the four pillars of the CBN banking sector reforms, is also expected to bring sanity into the much abused margin trading and proprietary positions in the capital market, which resulted in loss of billions of naira by stockbrokers and banks. Analysts said on Tuesday that the development marks the rejuvenation of the moribund committee which could not act on any of the malpractices in the industry because of lack of meetings in the past. The FSRCC is the highest financial body made up of regulators of the entire key financial service providers. The committee is supposed to meet to share relevant information concerning what is happening in each section of the financial industry.
Sanusi had in a conference recently organised by BusinessDay in Lagos attributed most of the malpractices that brought some of the banks to near collapse to the ineptitude of the committee that is supposed to be the highest policy making body for the financial services industry.
Consequently, Sanusi said that surplus liquidity created an asset bubble which was most evident in the capital markets where total market capitalisation grew 5.3 times between 2004 and the peak in 2007, and the market capitalisation of financial institutions grew 9-fold during the same period. With the new policy by the FSRCC on margin trading and limiting bank business area, depositors’ money will become safer from high risk transactions. Sanusi had also said that some banks had in the past engaged in manipulating their financial statements by colluding with other banks to artificially enhance year-end financial positions and their stock prices, by converting non-performing loans to commercial paper and bank acceptances, and by setting up off-balance sheet special purpose vehicles to hide losses.
“Recently, the CBN put an end to these practices and the collapse of the equity markets effectively put an end to alleged stock price manipulationâ€, he had said. According to him, bank disclosure to the CBN often was incomplete, inaccurate and late. He lamented that though the apex bank was aware of this, the CBN failed to fix this essential supervision process.