Central Bank of Nigeria (CBN) Code of Corporate Governance For Finance Companies in Nigeria

The Central Bank of Nigeria  (CBN) Code of Corporate Governance For Finance Companies (Shareholders, Disclosures, Risk Management)

What does the Code of Corporate Governance For Finance Companies say about the rights and functions of Shareholders?

-Shareholders shall have the right to obtain relevant and material information from the FC on a timely and regular basis.

-Shareholders shall have the right to participate actively and vote in general meetings.

-In addition to the traditional means of communication, FCs are encouraged to have a website and communicate with shareholders via the website, newsletters Annual General Meetings (AGMs) and/or 

Extraordinary General Meetings (EGMs). Such information shall include major developments in the FC, risk management practices, executive compensation, establishment of investment in subsidiaries and associates, board and top management appointments, sustainability initiatives 

including Corporate Social Responsibilities (CSR), and any other relevant information.

What does the code say about equity ownership in finance companies?

– Except as approved by the CBN, no individual, group of individuals, their proxies or corporate entities and/or their subsidiaries shall own controlling interest in more than one (1) FC. 

What does the code say about the protection of Shareholders’ rights?

The code makes the following provisions :-

-Every shareholder shall be treated fairly.

-The Board shall ensure that minority shareholders are adequately protected from overbearing influence of controlling shareholders.

-The Board shall ensure that the FC promptly provides to shareholders documentary evidence of ownership interest in the FCs such as share certificates, dividend warrants and related instruments.

– Where these are rendered electronically, the Board shall ensure that they are sent in a secure manner.

What are the provisions of the code regarding general meetings of finance companies?

The code made the following provisions:-

– Notice of general meetings shall be as prescribed by the CAMA 1990 (as amended).

-The Board shall ensure that all general meetings of the shareholders hold at a convenient and easily accessible venue to the majority of shareholders.

-The Board shall ensure that unrelated issues for consideration are not lumped together at general meetings. Statutory business shall be clearly and separately set out. Separate resolutions shall be proposed and voted on each substantial issue.

-The Board shall ensure that decisions reached at general meetings are properly and fully implemented.

What does the code say about shareholders’ associations ?

The code states that :-

-The Board shall ensure that dealings of the FC with shareholders’ associations are in strict adherence with the Code of Conduct for Shareholders’ Associations issued by the Securities and Exchange Commission (SEC). 

-Where an FC is not listed, its dealings with the Association shall be transparent and in line with the relevant governance codes.

What does the code say about the rights of other stakeholders?

The code provides that :-

– Stakeholders shall have the right to freely communicate their concerns about any illegal or unethical practices to the Board. 

-Where such concerns border on the activities of the Board, such individuals shall have recourse to the CBN in accordance with Section 3.4 of the Guidelines for Whistle Blowing for Banks and Other Financial Institutions in Nigeria. 

– Where stakeholder interests are protected by law, stakeholders shall have the opportunity to obtain effective redress for violation of their rights.

-FCs shall demonstrate good Corporate Social Responsibility (CSR) to their stakeholders such as customers, employees, host communities, and the general public.

What are the provisions of the code on disclosure and transparency?

On disclosure, the code states that :-

– In order to foster good corporate governance, FCs are encouraged to make timely, accurate and robust disclosures beyond the statutory requirements in BOFIA 1991 (as amended), CAMA 1990, and other applicable laws and standards.

– Disclosure in the website, annual and periodic financial reports or by any other appropriate means shall include, but not limited to, material information on:

a) Major items that have been estimated in accordance with applicable accounting and auditing standards;

b) Rationale for all material estimates;

c) Details on Directors;

d) Governance structure;

e) Risk Assets;

f) Risk management;

g) Information on strategic modification to the core business;

h) All regulatory/supervisory contraventions during the year under review and infractions uncovered through whistle blowing, including regulatory sanctions and penalties;

i) Capital Structure/Adequacy;

j) Opening and closure of branches;

k) Any service contracts and other contractual relationships with related parties;

l) Frauds and Forgeries;

m) Contingency Planning Framework;

n) Contingent Assets and Liabilities (off balance sheet engagement).

What are the provisions of the code on risk management?

The code provides that:-

– FCs shall have a risk management framework specifying the governance architecture, policies, procedures and processes for the identification, measurement, monitoring and control of the risks inherent in its operations.

– The Board shall approve the risk management policies of the FC and ensure their implementation by management. 

– Risk management policies shall reflect the FC’s risk management mandate, which shall include:

• Clear objectives and enterprise-wide authority for its activities;
• Risk philosophy, appetite, vision and mission;

• Authority to carry out its responsibilities independently;

• Scope of Enterprise Risk Management (ERM);

• A requirement for it to be communicated throughout the organization to promote transparency;
• Periodic review to ensure continued appropriateness;
• A requirement for management to report regularly on the effectiveness of the institution’s risk management processes and on its aggregate exposures compared to approved limits; and
• Authority to follow-up on action taken by management in response to identifiable issues and related recommendations.

– FCs shall disclose a summary of the risk management policies in their annual financial statements

-The risk management policy of an FC shall clearly describe the roles and responsibilities of the Board, Board Risk Management Committee (BRMC) management and internal audit function.