As the FRC vs. CBN saga continues, restraint is needed

The recent salvo fired at the Central Bank of Nigeria and its governor by Jim Obazee, executive secretary of the Financial Reporting Council of Nigeria, highlights the several contradictions in Nigeria’s business environment and who should regulate what. The letter itself is in response to the comeuppance given to the FRC by the apex bank over what the CBN described as the council’s meddlesomeness in issues which are beyond its remit. FRC had sanctioned Stanbic IBTC Holdings Plc over what it termed misstatements of its financial reports. CBN, after reviewing FRC’s actions, described them as hasty and procedurally defective because the council ought to have observed its own rules and informed the apex bank beforehand, being the regulator of banks, before meting out sanctions.

Obazee’s letter to the CBN governor adds a new twist to an issue that had become muddled up as a result of the several contending interest groups but one which the courts are trying to straighten out. We have learnt from Obazee’s letter that there have been meetings as high up as the presidency held to fashion a way out of the mess created by FRC. We also learnt that the CBN governor does not work on weekends! We indeed learnt that the interest the public, particularly stakeholders in Nigeria’s financial services industry, including the media, has shown in the whole saga is worrisome to Jim Obazee.

If the letter achieved anything at all, it serves to highlight the vacuity that underlined FRC’s actions, which have attracted deserved criticisms and commentaries. While the CBN’s letter to FRC dwelt on issues involved in FRC’s rather hasty actions, from legal and financial perspectives, as well as the implications for Nigeria’s financial services sector, Obazee’s letter delved into depths unexpected of a public officer who ought to maintain the highest level of decorum and composure no matter the level of provocation. Details of the meetings at the presidency, CBN Governor Godwin Emefiele’s work schedule, and whether the CBN has the capacity to read and interpret FRC’s Act as it impacts on the financial services industry, among several others, are not germane to the main issue and certainly not to be included in communications between the FRC and the CBN. What the CBN governor does with his weekends, as far as it has no material impact on the financial services industry, is really his business.

CBN was right to be alarmed, and more than justified to have issued the letter which helped to restore sanity to a situation that was fast deteriorating and spiralling beyond the control of the FRC. As the CBN clearly noted in its reading of the FRC Act 2011, there are steps to take in sanctioning an organisation. The moment any of the steps is circumvented, no matter how zealous the executive secretary might be, his actions will likely become defective. The major reason why the procedures are there in the first place is to enable the FRC engage constructively. The timeframe spelt out in the FRC Act gives enough room to ensure that every detail is double-checked. This is to save organisations from being unduly punished for infractions they did not commit. Before the CBN intervention, shares of Stanbic IBTC were making a rapid descent southwards, losing about N26 billion in one week. The losing streak stopped when the CBN intervened; the shares have since recovered much of the lost value.

The greater danger of rushing to sanction organisations and individuals without following the stringent procedure as spelt out in the FRC Act is that when reputations are damaged, it is a lot more difficult to repair. In addition, the impact on the industry could be much severe: investors will lose confidence and uncertainty sets in. No sane investor will feel safe in an environment where regulators could bypass their own rules in order to appear to be working.

The FRC has its work cut out in redeeming its image. Nigerians have not forgotten how the Financial Reporting Council was the platform, and its executive secretary a tool which some described as too willing, that were used to humiliate and hound the erstwhile governor of the CBN out of office. The court rightly described Obazee as too willing to be used to achieve pre-determined ends. Indeed, Honourable Justice James Tsoho described FRC, and by extension its executive secretary, thus: “Prejudice is very pronounced in the language of that document. The language of the briefing note [transmitted by the FRC to the presidency] conveys a sense of the defendant [the FRC] desperately goading the presidency to deal with the plaintiff [Lamido Sanusi, then CBN governor]. The plaintiff submitting himself for investigation [by FRC] is like the cockroach in the midst of fowls. Such a cockroach cannot be innocent.”

With this damning verdict, the judge stopped FRC from hounding Sanusi but by then, the “results” of its purported investigation had already been used to cut Sanusi to size and bring to an abrupt end his tenure at the CBN.

Any regulator with such a sordid past, especially one with the same characters whom a judge had so publicly upbraided still presiding over its affairs, will be more circumspect in its public engagements. The FRC is involved in a fight with the CBN that it cannot win. On who between the CBN and FRC is to be believed in the Stanbic IBTC issue, the CBN stands on a moral high ground. While Emefiele stuck to issues of regulations and due process in the letter addressed to the FRC, Obazee delved into irrelevant issues and attacked personalities. With the reforms being championed by the current administration, Obazee is apparently grasping at straws in order to save his job, which is almost certainly lost.

Akeem Ogunlade