The Central Bank of Nigeria, CBN, has condemned in strong terms recent
sanctions approved by the Financial Reporting Council of Nigeria, FRCN,
against the board and management of Stanbic IBTC Holding, SIBTCH, saying
the council did not follow due process.
The FRCN had, amongst others, sacked four directors of Stanbic IBTC,
including its Chairman, Mr. Atedo Peterside, for alleged infractions,
while also calling for the withdrawal of its financial statements for
the years ended December 31, 2013 and 2014.
But in a five-page letter, dated, November, 2, 2015, and signed by the CBN Governor, Mr. Godwin Emefiele, which was obtained by Vanguard,
the apex bank also said the FRCN action was capable of eroding
investors’ confidence as well as causing financial instability in the
system.
After a careful review of the issues, apart from bluntly turning down
FRCN’s request to take disciplinary action against StanbicIBTC, the CBN
also advised the board of the embattled bank to discountenance the
FRCN’s sanctions.
The CBN said: “In the light of the foregoing facts, which clearly
show that FRCN did not follow due process, the bank regrets to inform
you that it is unable to accede to your request to take disciplinary
action against SIBTCH. Indeed, the CBN does not see any reason to
advise/compel SIBTCH to obey the sanctions metted to it by the FRCN.”
The letter was addressed to the Executive Secretary/Chief Executive
Officer, FRCN, and was entitled: Re: Regulatory Decision in the Matter
of Financial Statements of Stanbic IBTC Holdings Plc for Years ended
31st December 2013 and 2014.
The CBN letter with reference number: GVD/GOV/CON/DGF/93/113, also
read in part: “We are seriously concerned that such a drastic regulatory
decision could be taken on an entity under the regulation and
supervision of the Central Bank of Nigeria (CBN) without any form of
consultation with the bank, especially as the CBN is responsible for
promoting safe, stable and sound financial system. Yet, such a
regulatory decision and the manner of the announcement is not only
capable of eroding investors’ confidence but also inimical to the
financial system stability.”
To underscore the implications of FRCN’s action on Nigeria’s
financial system stability, the CBN further noted: “Indeed, the FRC’s
action has already precipitated a fall in the value of the shares of
Stanbic IBTC by about 18 per cent since the announcement of the
Regulatory Decision.”
CBN observations
The CBN in a 13-point observation faulting the FRCN’s actions also observed as follows:
lContrary to the allegation of the FRCN that Stanbic IBTC (SIBTC) did
not obtain approval from the National Office for Technology Acquisition
and Promotion (NOTAP) for the payment of affiliate software license,
our review revealed that the bank actually obtained the necessary
approval from NOTAP to pay affiliate software license from the Standard
Bank South Africa (SBSA), for a period of three years covering June 2012
to May 30, 2015. The remittance from June 2015 to date is still
awaiting approval from NOTAP.
lWith regards to the allegation of non-disclosure of intangible
assets in SIBTC’s 2013 and 2014 financials, we note that the bank
adequately recognised the software as an intangible asset in its 2011
financials and sufficiently disclosed the disposal of the software in
the 2012 financials. Consequently, the said software could not have been
reported as an intangible asset in the succeeding years 2013 and 2014.
- With respect to the allegation of lumping several expense items under “Others”, we are of the view that the items were not material enough to appear as line items in the Income Statement and that the non-disclosure of the items did not materially affect the true and fair view of the financial statements.
lWe agree with FRCN that SIBTC erred in the classification of some
line items. However, the identified misclassifications did not
understate or overstate its assets and liabilities, neither did it
increase nor decrease its income or expenditure, such as would have
caused a material misrepresentation of the financials.
lSIBTC used its judgment to capture the donation of M275 million
under “Others” because it was of the opinion that it was not a
charitable donation but a mandatory contribution towards the victims of
terrorism in the country. For the avoidance of doubt, this contribution
was agreed at a Bankers’ Committee Meeting, with the share for each bank
clearly spelt out. Therefore, we agree with SIBTC’ s position, as
presented.
lContrary to FRCN’s conclusions, our review of lAS 37 and lAS 32.19
indicate that SIBTC had an obligation to accrue the relevant provisions
toward the settlement of the franchise and management fees as agreed
between it and SBSA.
lWithout prejudice to the foregoing financial issues, the CBN is
concerned about the apparent failure of the FRCN to follow due process
as laid down by its own FRCN Act and Regulations, in arriving at the
Regulatory Decision. In this regard, the bank wishes to make the
following observations:
lln conducting investigation into possible breaches of the FRCN Act
and/ or the Regulations, the FRCN is required to give the Entity
concerned sixty (60) days from the service of Final Notice to restate
its accounts where both the Panel and Entity agree on the need for
restatement. In this case, our understanding is that FRCN called a
meeting with the board of SIBTCH at 11.00 a.m on the 26th October 2015.
But rather than holding the meeting, FRCN went ahead to convene a press
conference at 8a.m on the same day to announce its sanctions against
SIBTCH. Our review further indicates that both FRCN and SIBTCH did not
agree on a need for restatement of the accounts before the sanctions
were announced.
lAccording to the FRCN Act, an entity is only punishable under the
Act upon conviction by a court of competent jurisdiction. Yet, in
issuing the Final Notice, the FRCN had already meted out some
punishments to the affected entity, without any conviction by a court.
lWhile FRCN may, following approval of the minister, review
applicable fines, there is no power for compounding offences and
imposing penalty in lieu of conviction as was done in this case.
lBoth the FRCN Act and the Regulations provide for the outcome of the
investigation to be made known to a registered professional or a public
interest entity and a right of appeal to the Technical and Oversight
Committee before resorting to prosecution. In this case, however, there
is no evidence that time was allowed to elapse for the appeal process
before the imposition of sanction.
lThe Regulation provides that if the Entity fails to accept FRC’ s
position at the end of a Notice period, the Council shall institute
legal action against the entity, rather than mete out sanctions. Yet, in
this case, sanctions have been meted out without evidence that legal
action has been fully exhausted.
*A combined reading of both the Act and the Regulations shows that
there are three types of sanctions that may be imposed for
contraventions by Entities.
*These are: lmposition of monetary penalty/fine; Imprisonment for a
term of years; Deregistration of a professional or issuance of a Warning
Notice.
By Clara Nwachukwu & Nkiruka Nnorom
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