Key Corporate Governance Compliance Requirements for Financial Companies in Nigeria – Corporate / Commercial Law
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In this article, we have discussed the main Code compliance requirements and how CFs in Nigeria can put in place appropriate systems to ensure compliance.
Based on company law, every Nigerian company is required to establish a board of directors (âthe boardâ). Financial companies (‘FC’) are not exempt. The board is generally responsible for ensuring that the objectives of the company are achieved by collectively directing the activities of the company, keeping in mind the interests of shareholders and other relevant stakeholders. The Central Bank of Nigeria (CBN) is one of the relevant stakeholders.
In general, the CF are required to comply with the provisions of the Code on Corporate Governance for Financial Companies in Nigeria 2018 (âthe Codeâ) issued by the CBN.
What is a finance company?
The Financial Corporation is a sub-sector of Banks and other financial institutions and operates within the middle level of the economy’s financial services system, with particular emphasis on micro, small and medium enterprises (MSMEs). According to the Revised CBN Guidelines for Finance Companies in Nigeria, 2014, âa finance company refers to a company licensed and licensed to carry on business of providing financial services to individual consumers and industrial, commercial or business enterprises. agricultural. It plays a complementary role to the banks, by filling the financing gaps and by meeting the financial needs of its target customers “.
The CF may engage in the following activities, among others:
- Consumer loans
- Fund management
- Asset finance (for example, finance lease and hire purchase)
- Project funding
- Financing of local and international trade
- Debt factoring
- Financial advice
Corporate governance compliance requirements
As part of the CBN’s initiatives to establish financial stability and transparency in the financial corporations sub-sector, the CBN published the Code. Compliance with the Code is not optional for the CF. Below are some of the main Code compliance requirements:
The board should ensure that a succession plan is in place for the CEO / CEO (âMD / CEOâ), executive directors and other senior management staff.
Approval threshold for financial transactions
The Board must set approval thresholds for each financial transaction and include these thresholds in its Standard Operations Manual (SOP).
Board composition and size
The board of directors of any FC must have a minimum of five (5) and a maximum of nine (9) directors at any given time, with at least fifty-one percent of the board members being non-directors. executives (âNEDâ). . It is also compulsory for each CF to have at least one (1) Independent Non-Executive Director (‘INED’) within its Board of Directors.
Separation of powers
A separate person will serve as Chairman of the Board of Directors and Managing Director / Managing Director. These two positions cannot be assigned to one person. It is also important to note that no member of the same family can occupy these two (2) positions.
Appointment of directors
Each appointment of directors must be approved by the CBN. The CF are encouraged to first seek CBN approval after shareholder resolution before filing statements with the Corporate Affairs Commission (‘the CAC’).
Mandate of directors
NEDs serve on the Board for a maximum period of three (3) terms of four (4) years each. INEDs will have a maximum of two (2) terms of four (4) years each. While the MD / CEO will have a maximum period of ten (10) years without a specific minimum mandate. The MD / CEO of an FC will only be eligible for renewal in the same company or its subsidiaries after three (3) years after the expiration of his mandate as MD / CEO. It should be noted that for a Board member to be eligible for re-election, he or she must attend at least two-thirds of all Board meetings and of the Board Committees to which they belong each fiscal year.
It is mandatory for the board of directors of any FC in Nigeria to establish the following board committees: risk management committee, audit committee, governance and nominations committee and credit committee of the board of directors. ‘administration. Each of these committees will have a charter approved by the CBN.
Disclosure of Board of Directors Meetings
The board of directors of any CF must disclose in the annual report the total number of board members and board committee meetings held during the year and the attendance of each member.
Each CF must establish a remuneration policy and disclose it in the annual report to shareholders.
Disclosure of shares held by directors
Each CF must disclose the number of shares held by each director and its related parties in its annual report.
Annual assessment of the board of directors
Each CF will formally assess its Board and Directors each financial year. This evaluation must be carried out by an independent consultant whose report will be presented to the shareholders at the annual general meeting. A copy of the annual board assessment should also be sent to CBN by the consultant no later than March 31 of each fiscal year.
Although the Companies and Allied Matters Act 2020 generally requires every business, which is not a small business, to have at least two (2) directors, the Code contains specific provisions for FC. The Code further increased the size of the board of directors for each CF to a minimum of five (5) and a maximum of nine (9) directors, with at least fifty-one percent of the members of the board being of NEDs. Compliance with the requirements of the Code is mandatory for each FC, and this is strictly monitored by the CBN.
Therefore, each CF in Nigeria should regularly conduct a corporate governance audit to ensure compliance with the Code and to avoid possible regulatory sanctions. CFs should consider creating a compliance unit within the company whose functions would include, among other things, monitoring compliance with the Code and other regulatory requirements.
We are more than happy to work with the CF interested in setting up or improving their existing corporate governance system.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.