FG to Set up New Financial Regulatory Body

• Council of Regulators on the cards •Self-reporting to be encouraged

By Goddy Egene, 08.16.2010
Realising the fact that poor regulation partly contributed to the recent
financial crisis in Nigeria, the Minister of Finance, Mr. Olusegun Aganga,
has unveiled a new regulatory model aimed at supporting the country’s
economic development and transformation towards becoming one the
world’s top 20 economies by 2020.
The new regulatory model involves the establishment of the Council of the
Nigeria Financial System Regulators to be overseen by the Ministry of
Finance and Central Bank of Nigeria (CBN) as the two overarching
regulators.  According to Aganga, the two overarching regulators, whose
mandate will be mutually exclusive, shall cover the entire financial system.
The minister unveiled the model in a paper titled, “A Framework for the
Reform of  Nigeria’s Financial Regulatory System”, presented at the
Bankers’ Night organised by  the Chartered Institute of Bankers of Nigeria
(CIBN), Lagos Branch, recently and obtained by THISDAY at the weekend.
Aganga said the overall global experience and the reality of Nigeria’s
economy strongly recommends the requirement for a reform of the
currently fragmented and overlapping regulatory regime into an integrated
one.
He said the trend in different countries has been that as the role of financial
conglomerates continues to grow in the economy, the effectiveness of
overlapping and multiple regulatory agencies have simultaneously
continued to decline.
“This is the result of fragmented regulatory bodies being unable to form an
overall risk assessment of a financial conglomerate on a consolidated
basis. Consequently, an integrated or semi-integrated regulatory system in
which banking, securities, mortgages, pension and insurance regulation is
coordinated is a preferred model for resolving these challenges,” he said.
The minister explained that the proposed council of regulators shall, at the
macro-level, oversee the affairs of the financial system, but will not
necessarily be involved in micro prudential regulation.
He said: “The CBN would continue to be responsible for the prudential and
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risk management for the banking system in closer coordination with the
other regulators, Nigeria Deposit Insurance Corporation (NDIC), and
National Insurance Commission and National Pension Commission
(PENCOM). Where financial institutions provide multiple services, however
there will be clear and defined roles and responsibilities for each regulatory
body in this role.”
According to Aganga, a new regulator is necessary and should be
responsible for market confidence and integrity; good corporate
governance; consumer protection; investor protection; ethics and
professionalism; public awareness and reduction in financial crimes.
“This represents the pillars of our proposed regulatory reform which I
believe will not only guarantee the maintenance of an enduring sound,
stable and safe financial system, but will also maximize the system’s
economies of scale and scope. We want to see responsible lending in the
banking and mortgage sectors. At a regulatory level, we want to see
intelligent regulation with poorly performing firms made to play by the rules,
an efficient system of redress for customers and timely and appropriate
compensation for them where necessary,” he said.
The minister emphasised the need to focus on increasing and improving
the capacity of our regulators in order to facilitate a stronger enforcement
regime, declaring: “This could mean the secondment of seasoned, capable,
professionals from the banks or financial sector, to the regulatory agencies
as well as the use of compliance officers and consultants within both the
regulatory bodies and financial institutions themselves.”
He added: “We must look at strengthening sanctions for market abuse and
breaches of regulatory rules, which may include specific actions against
key officers/chief executive officers.  The financial industry can also
regulate itself by aiding regulators through self reporting, which would entail
maintaining a breaches register, with stronger sanctions for failure to
report.”
The minister said in the past, efforts were focused on short-term ad hoc
measures to address the symptoms of the regulatory deficit, instead of
finding a holistic solution for the underlying causes of the recurrent financial
sector distress.
He noted that recent events have confirmed that the challenges facing the
financial system were deep rooted. Therefore, the solution needs to go
beyond quick fixes.
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According to him, the regulatory reform is in line with the report of the
National Financial Sector Technical Working group of Vision 20:2020,
which called for a paradigm shift in the financial system’s regulatory
framework. 
He said  the report specifically recommended a new regulatory architecture
that would strengthen and enforce prudential and systemic risk
management; prevent the misuse of banks by the operators and their
customers by enthroning ethics and professionalism; enhance credit
allocation to the real sector; provide for consumer protection; promote
competitive neutrality, transparency, credibility, integrity and accountability
and develop the requisite human capacity that would transform Nigeria’s
financial system to world class.

COMMENTS [total: 4]

 This is wonderful news. Like Obama said and i strongly believe, what
we need in Nigeria is strong institutions not strong men ...
 How can any good plan work in Nigeria when corruption is still not
addressed? Why do we like wasting our time. First tackle co...
 This model is long overdue. Looking at the fragmented nature of the
last financial crisis where the action of one sector affec...
 Brilliant idea that should be encouraged. I do honestly hope that
some of the sharks will allow this initiative to function ef...

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 China tops Japan as second biggest economy
REUTERS
August 17, 2010 01:10AM

 Japan's economic growth slowed to a crawl in the second quarter and

analysts see more weakness ahead, adding to policymakers'
headaches as they grapple with deflation and a rise in the yen that
threatens an export-reliant recovery.
 Slowing growth in main export destinations such as the United States
and China clouds the outlook, while policymakers are trying hard to
talk down the yen after it surged to a 15-year high against the dollar
last week.
 Japan's quarterly gross domestic product growth of 0.1 percent
translates to annualised expansion of 0.4 percent, well below the
median market forecast of 2.3 percent and the United States' 2.4
percent annualised growth in the same quarter.
 That followed revised 4.4 percent annualised growth in the first
quarter, when both exports and a stimulus-driven recovery in
consumption contributed to overall growth.
 In the April-June quarter, the stimulus effects have worn off, leaving
exports as the sole engine of growth and with its contribution to
growth halved to 0.3 percent, the economy just eked out a third
straight quarter of expansion.
 Prime Minister, Naoto Kan, and Bank of Japan governor, Masaaki
Shirakawa, are expected to meet later this week to discuss the yen's
strength and possible responses, although analysts said there is not
much they can do.
 "I think the Bank of Japan and the government need to take decisive
action against currency moves. Solo currency intervention is possible
if the yen approaches 80 to the dollar. If that is accompanied by
monetary easing by the Bank of Japan, it may have a certain effect,"
said Takeshi Minami, chief economist at Norinchukin Research
Institute in Tokyo.
 China leap-frogs ahead
 The latest figures put China ahead of Japan as the world's second-
largest economy for the quarter on a nominal dollar basis, said
Keisuke Tsumura, a parliamentary secretary at the Cabinet Office. He

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 added, however, that one should wait for full-year figures before
changing the rankings.
 "Since we have different calculations for seasonal adjustments, it
would be correct and fair to compare the figures for the whole year,"
Tsumura said.
 Japan's second-quarter GDP before seasonal adjustments totaled
$1.2883 trillion against China's second-quarter unadjusted GDP of
$1.3369 trillion, he said.
 China's top currency regulator said last month that his country's
economy had already overtaken Japan's.
 Japanese government bond futures jumped after the weak data, with
September 10-year futures rising 0.28 point to 142.67, their highest
since June 2003, while benchmark 10-year yields slipped to a seven-
year low of 0.950 percent. The Nikkei stock index .N225 fell nearly 1
percent.
 "The economy may enter a lull late this year or early next year, or
even stagnate. Much depends on the performance of overseas
economies," said Yoshiki Shinke, senior economist, Dai-Ichi Life
Research Institute.
 Concerns of Rising Yen
 Analysts added that the rise in the yen, which climbed to 84.72 per
dollar, may begin to pinch export growth in the latter half of the fiscal
year to next March.
 Kan has expressed concern about the yen's strength and government
sources said he may meet the central bank governor as early as this
week to discuss the matter.
 "We need to look at this closely, and that includes the currency
problem. I have asked cabinet ministers involved to report to me
about the economic situation," Kan told reporters when asked
whether the GDP data showed the economy needed new stimulus
measures.
 Late last year, the last time the yen strengthened beyond the 85 yen
mark, the BOJ called an emergency meeting and announced a three-
month funding scheme, a day before Shirakawa met with the then-
prime minister, Yukio Hatoyama.
 The yen has risen steadily against the dollar since early May, gaining
more than 10 percent and closing in on its 1995 record high of 79.75
per dollar, prompting markets to speculate that Tokyo might take
action.

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 But currency market intervention is seen as difficult, whether jointly
or alone, although market players said the risk of solo action
increases the closer the yen gets to 80 per dollar, and if its rise
accelerates to a pace of 2 to 3 yen per day.
 Investors see a monetary policy response from the BOJ as more likely
than currency intervention.
 Signs of a faltering economy put more pressure on Kan, ahead of his
party's leadership vote next month, in which he may face a challenge
from powerbroker, Ichiro Ozawa, or a proxy, either of whom would be
less keen to forge ahead with fiscal reform.
 Japan's recovery has been spotty since emerging from its worst
recession since World War Two in mid-2009, relying heavily on
exports, particularly to Asia, and government stimulus for spending
on energy-efficient cars and electronics.