5 laws regulating banking activities in Nigeria

5 laws that regulate banking activities in Nigeria

One of the important sectors of the Nigerian economy is the banking sector. A report by Nairalytics, the research arm of Nairametrics, shows that the banking sector has attracted over $15.7 billion in foreign investment in the last 5 years.

According to the Central Bank of Nigeria (CBN), Nigeria recorded $68.87 billion in foreign inflows between 2017 and 2021, with the banking sector accounting for more than 22.8% of the total capital imported.

The banking sector contributes 3.79% of the national GDP in real terms (Q2 2022 estimate).

Laws regulating the banking sector

The main legislation governing banking activities in Nigeria is the Banks and other Financial Institution Act (BOFIA) and the Central Bank of Nigeria Act.

Other laws include the Companies and Allied Matters Act 2020, the Nigerian Deposit Insurance Corporation Act and the Foreign Exchange Act.

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1. Banks And Other Financial Institutions Act, 2020

Before BOFIA 2020, BOFIA 1991 existed for more than 20 years until November 12, 2020, when President Muhammadu Buhari assented to the new bill called BOFIA 2020 which is in force today.

  • While the New Law reviews the penalty for operating without a banking license and introduces additional protections for account holders, the old Law stipulates that anyone operating without a license has liable to imprisonment not exceeding 10 years or a fine of N2 Million or both.
  • This Act empowers the Central Bank of Nigeria (CBN) to supervise and regulate all banks and other financial institutions in Nigeria.
  • In the application for the granting of a banking license, section 3(3) of BOFIA 2020 gives the Governor of the CBN absolute power to refuse to grant a banking license without giving any reason.
  • The section states that “The Governor may, with the approval of the board issue a license with or without conditions or refuse to issue a license and the Governor need not give any reason for such refusal”
  • On the operation of unlicensed foreign banks, Section 3 (5) and (6) stipulates that “Any foreign bank or other entity that does not have a physical presence in the country of incorporation, or does not have a license in the country of incorporation and is not affiliated with any financial services group subject to effective joint management, not allowed to operate. in Nigeria and no Nigerian bank shall establish or maintain any relationship with such bank.”
  • On revoking or varying the conditions of a licence, Section 5 sets out the penalty for failure to comply with the conditions of a licence.
  • The section also imposes additional penalties on officers or directors of a bank who fail to take reasonable steps to ensure compliance with the conditions.
  • According to the Act, such director or officer shall be liable to imprisonment for a term not less than 3 years or a fine not less than N2 million, or for such imprisonment and fine.
  • On the revocation of the banking license, section 12 identifies the circumstances that may result in the revocation of the banking license by the Governor of the CBN.

2. The Central Bank Of Nigeria Act 2007

Before this Act came into existence the CBN Act of 1958 established the Central Bank of Nigeria.

However, The current legal framework in which the CBN operates is the CBN Act of 2007 which repealed the previous CBN Acts and all their amendments.

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The CBN is the lead regulator of the banking sector in Nigeria under the provisions of the CBN Act and BOFIA.

The CBN is charged with the overall control and management of the financial and financial sector policies of the Federal Government of Nigeria as set out in the CBN Act of 2007.

  • Section 2 of the Act outlines the objectives of the CBN which include: To ensure monetary and price stability, Issuing legal tender, Maintaining external reserves to protect the international legal value which is legal tender, Promoting a sound financial system in Nigeria; and Acting as a bank and providing economic and financial advice to the Federal Government.
  • The Act also empowers the CBN to issue guidelines and circulars related to its responsibility to banks, the foreign exchange market, and other financial institutions.

3. The Companies and Allied Matters Act, 2020

This Act established the Corporate Affairs Commission (CAC), charged with regulatory powers over all registered companies in Nigeria, including banks and other financial institutions.

  • Under CAMA, certain principles of corporate governance have been introduced which require a public company to have at least three independent directors and prohibit a person from being a director of more than five public companies and these provisions applicable to a bank which is a public company.
  • The Act governs banking activities because to operate a financial institution or banking business in Nigeria, one must be registered and incorporated under CAMA.
  • CAMA also provides various regulations and compliance that banks have to follow from issuing shares to meetings of companies, etc.
  • CAMA stipulates that every registered company must file an annual return with the CAC as a mandatory requirement that Banks must follow.

4. The Nigerian Deposit Insurance Corporation Act 2006

This Act is responsible for securing all depository loans in licensed banks.t the Act seeks to ensure that liquidation proceeds made by banks are orderly.

  • This Act established the Nigerian Deposit Insurance Corporation (NDIC).
  • The NDIC is responsible for ensuring all deposit liabilities of licensed banks operating in Nigeria, Providing assistance to insured institutions in the interest of depositors, Guaranteeing the payment of depositors and assisting the monetary authorities in formulation and implementation of banking policies.
  • With the directive from the CBN, the NDIC will take over the management and control of a failed bank and ensure the efficient closure of the failed bank and financial institutions without any disruption of the banking system.
  • It also ensures cost-effective realization of assets and settlement of claims of depositors, creditors, and shareholders.

5. Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, 1995 (FEMM Act)

This Law provides the regulatory framework for foreign exchange transactions and control.

  • As provided under the Act, transactions in the foreign exchange market must be conducted in convertible foreign currency.
  • Section 2 (2) of the Act lists specific monetary instruments that may be used in the market

These include: Foreign banknotes, Foreign coins, Travelers’ checks, Bank drafts, Mail or telegraph transfers and any other money market instruments that the Central Bank may have with the approval of the Finance Minister.


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