April 7, 2021
AN OVERVIEW OF THE NEW SEC CROWDFUNDING RULES
By Akorede Folarin (Associate)
Pursuant to the powers conferred on it by Section 313 of the Investment and Securities Act 2007 (ISA), the Securities and Exchange Commission (SEC) released Rules for the Regulation of Crowdfunding in Nigeria on January 21, 2021. The Rules amongst other things seeks to provide a definite regulatory framework for equity crowdfunding activities in Nigeria and to make the crowdfunding market safe, conducive, and reliable for all stakeholders. This newsletter evaluates the imports of the new Rules and their potential impact on Micro-, Small and Medium-sized Enterprises (MSMEs)and their access to capital for growth and expansion going forward.
March 19, 2021
BOFIA 2020 AND THE NEW REGIME FOR BANKS’ INSOLVENCY AND RESTRUCTURING IN NIGERIA
By Akorede Folarin (Associate)
Nigeria passed the Banks and other Financial Institutions Act 2020 (BOFIA 2020) into law on 13 November 2020, repealing the erstwhile Banks and other Financial Institutions Act 1991 (BOFIA 1991). The new Act (BOFIA 2020) makes provisions for a more modern, more conducive and business-friendly legal framework for the insolvency and restructuring of banks and other financial institutions in Nigeria. This edition of the newsletter highlights some of the provisions.
January 19, 2021
EXTENT OF LIABILITY IN THE EXECUTION OF BANK REFERENCE FORMS
By Felix Ayem (Associate)
One of the criteria for opening a current account in any Bank in Nigeria, is the requirement that at least two referees must recommend the prospective account holder to the Bank. The Referees are expected to execute Reference Forms recommending the persons believed to be well known to them.
Reference Forms of different banks contain some conditions conspicuously written on them. The purpose of executing Reference Forms by Referees however appears to be a mere act of introducing persons whom, in their estimation, are reputable and capable of operating or maintaining current accounts with the Bank without more. However, there is a recent practice on the part of some Banks in Nigeria to attempt to hold referees liable where a customer defaults in the payment of a loan facility obtained in the in the ordinary course of his banking relationship.
In this article, emphasis is on the extent of the liability of Referees in executing Reference Forms. Can a Referee be held liable for all subsequent action of the referenced customer particularly in the event of default in repayment of a loan facility as described above? In other words, does a mere reference of a customer as a fit and proper person to operate a current account with a Bank translate to a guarantee agreement between the Referee and the Bank?
December 21, 2020
DISPUTE RESOLUTION UNDER THE AFRICAN CONTINENTAL FREE TRADE AREA (AfCFTA) AGREEMENT
By Ruth Nwankwo (Associate)
Nigeria has ratified the African Continental Free Trade Area (AfCFTA) Agreement which will come into effect on 1st January 2021 following the approval of the Federal Executive Council. This is after more than a year Nigeria became a signatory to the Agreement on 7th July 2019. The reason for the cold feet shown by Nigeria towards the ratification of the Agreement is to ensure the protection of Nigerian Industries.1 There was much deliberations and consultations with trade and industry stakeholders on the threats the operation of the Agreement may present such as the rise in smuggling, import surge arising from trade liberalisation without corresponding growth in export of Nigerian products and the fear of Nigeria turning into a “dumping ground” for non-African goods.2
The AfCFTA Agreement portend a good omen for Africa because of its objectives which include the creation of a single market for goods and services, facilitation of investments, enhancing competitiveness of the economies of State Parties etc.3 The Agreement seeks a progressive elimination of tariffs and non-tariff barriers to trade in goods, liberalisation of trade in services, cooperation on investment, intellectual property rights, competition policy, trade-related areas, custom matters, establishment of a dispute settlement mechanism amongst others.4
An assessment conducted by the Economic Commission for Africa5 reports that AfCFTA will be a game changer for stimulating intra-African trade which is projected to increase by between 15% and 25% depending on liberalization efforts in 2040 compared to a situation with no AfCFTA in place The more ambitious the liberalisation of trade, the greater the expansion. This expansion will be most pronounced in industrial sectors thereby providing great opportunities to industrialize through trade.6
December 15, 2020
AN OVERVIEW OF THE BANKS AND OTHER FINANCIAL INSTITUTIONS ACT 2020
By Akorede Folarin (Associate)
The amendment and replacement of the Banks and Other Financial Institutions Act (BOFIA) 2004, has long been touted to be the next major milestone in the country’s ambitious drive towards creating an enabling business environment in the country and improving the Nigerian investment climate.
The now repealed Act had been in operation for about 16 years without amendment, despite progressive innovations in the banking and finance sector globally and the increasing complexities as a result of disruptive technologies and their associated risks. Also, lax corporate governance under the old Act had given room for insider abuse and corruption, culminating in the humongous increase in non-performing loans (NPLs) in the country’s banking system. Additionally, the erosion of faith in the Nigerian banking system as a result of the 2004 and 2008 financial crises which can be traced to the excessive risk taking, reckless credit facilities, and other unethical practices in the system had resulted in the long and growing public clamour by stakeholders for the review of the regulatory framework for banking and finance in Nigeria.
The enactment of the Banks and Other Financial Institutions Act (BOFIA) 2020 is, therefore, intended to update the existing Act to tackle some of these debilitating challenges in the Nigerian banking and financial services industry occasioned by an Act which has proved to be grossly inadequate in the present ecosystem and to bring it in line with global best practices. The Act seeks to regulate banking and businesses of other financial institutions by prohibiting the carrying on of such businesses in Nigeria except under license and by a company incorporated in Nigeria; update laws governing Banks, Financial Institutions and Financial Services Companies; enhance efficiency in the process of obtaining/granting banking licenses; accurately delineate the regulatory functions of the Central Bank of Nigeria (“the Bank” / “CBN”) in the financial services industry; update and incorporate the laws for enacting, licensing and regulating microfinance banks; regulate the activities of financial technology companies (Fin-Techs); and update commensurate penalties for regulatory breaches in the financial services sector.
The key provisions of the new Act are highlighted as follows:
Operating without License
- The Act makes it an offense for any person/body to transact banking business without a valid license issued by the CBN. The Act goes further to provide a stiff penalty of 5 years imprisonment or a fine not less than N50 million or two times the cumulative deposits or other amount collected or both imprisonment and fine for anyone who violates this provision. This we expect will serve as a deterrent to operators of Ponzi schemes who swindle naïve investors through fraudulent means. The Central Bank of Nigeria (CBN) itself has previously iterated that widespread innovation in channels for delivering financial services, emergence of new types of regulated institutions, advancements in supervisory techniques and methodologies are some of the contemporary developments that necessitate the need to upscale the legal framework for banking regulation and supervision in Nigeria.