CBN, FRCN TUSSLE OVER STANBIC SANCTION

The Central Bank of Nigeria (CBN) has rejected the request by the Financial Reporting Council of Nigeria (FRCN) that it takes disciplinary action against Stanbic IBTC Holding Company Plc (SIBTCH), saying that the council failed to follow due process in the matter.

To this end, the central bank has said it does not see any reason to advise/compel SIBTCH to comply with the sanctions meted to it by FRCN.

CBN Governor, Mr. Godwin Ifeanyi Emefiele, stated this in a five-page letter, dated November 2, 2015, which was addressed to the Executive Secretary, FRCN, Mr. Jim Obazee.

He also pointed out that as the banking sector regulator, the FRCN failed to consult with the central bank throughout the process of its investigation. According to Emefiele, the announcement by the FRCN on SIBTCH was not only capable of eroding investor confidence, but inimical to financial system stability.

FRCN had sanctioned the bank over its audited accounts for 2013 and 2014 and suspended the Financial Reporting Numbers of the bank’s chairman, Mr. Atedo Peterside, and its chief executive, Mrs. Sola David-Borha, and also barred them forthwith from vouching for the integrity of any financial statements in Nigeria.

The FRCN also suspended two other directors — Mr. Arthur Oginga and Dr. Daru Owei — for attesting to what it termed the “misleading” 2013 and 2014 financial accounts of Stanbic IBTC, as well as Ayodele Othihiwa of KPMG Professional Services for his firm’s alleged complicity in the infractions highlighted in the financial reports for the two-year period.

The FRCN further ordered the directors of SIBTCH to withdraw the financial statements of the holding company (Holdco) for 2013 and 2014 and restate them in accordance with the provisions of Section 64 (2) of the Financial Reporting Council of Nigeria Act and Regulation 21 of the FRCN.

Not stopping there, FRCN also imposed a N1 billion penalty on the bank.

It based its sanctions on issues raised by the minority shareholders led by the Mahtani brothers of the Churchgate conglomerate to regulatory agencies such as the National Office for Technology Acquisition and Promotion (NOTAP), Securities and Exchange Commission (SEC) and CBN, among others.

But in response to FRCN’s request, Emefiele said: “The central bank had carefully reviewed the underlying documents (FRCN Act and Regulations), as well as the financial statements of SIBTCH, which are in contention.”

In addition to relying on its routine examination reports on SIBTCH for 2013 and 2014, Emefiele said the CBN revisited the bank to scrutinise all underlying records relating to the relevant financial statements.

Consequent upon the due diligence measures, the CBN made the following comments and reactions to the allegations made against SIBTCH as contained in the Final Notice issued by FRCN: “Contrary 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 licence, its review revealed that the bank actually obtained the necessary approval from NOTAP to pay affiliate software licence from the Standard Bank South Africa for a period of three years covering 1st June 2012 to 30th May 2015. The remittance for June 2015 to date is still awaiting approval from NOTAP.

“With 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 statement.

“We 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.

“SIBTC used its judgement to capture the donation of N275 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.”

Furthermore, the CBN governor pointed out that contrary to FRCN’s conclusions, the central bank’s review of IAS 37 and IAS 32.19 indicated that SIBTC had an obligation to accrue the relevant provisions towards the settlement of the franchise and management fees as agreed between it and Standard Bank, South Africa.

He also pointed out that FRCN did not follow due process before imposing sanctions on the bank, thus buttressing the view of the council’s lawyer, Prof. Fabian Ajogwu, whose law firm was compelled to withdraw its legal services last week after the imposition of the penalties on the bank.

In the letter, Emefiele stated: “Without prejudice to the foregoing financial issues, the CBN is concerned about the apparent failure of the FRC to follow due process as laid down by its own FRC Act and Regulations in arriving at the regulatory decision. In this regard, the Bank wishes to make the following observations:

“In conducting investigation into possible branches of the FRC Act and/or the Regulations, the FRC is required to give the entity concerned 60 days from the service of financial notice to restate its accounts where both the panel and entity agree on the need for restatement. In this case, our understanding is that FRC called a meeting with the board of SIBTCH at 11am on the 26th October 2015.

“But rather than holding the meeting, FRC went ahead to convene a press conference at 8am on same day to announce its sanctions against SIBTCH. Our review further indicates that both FRC and SIBTCH did not agree on a need for restatement of the account before the sanctions were announced.

“According to the FRC Act, an entity is only punishable under the Act upon conviction by a court of competent jurisdiction. Yet, in issuing the final notice, the FRC had already meted out some punishment to the affected entity, without any conviction by a court. While FRC 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.

“Both the FRC 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.

“The 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 actions have been fully exhausted.

“A combined reading of both the Act and the Regulations showed that there are three types of sanctions that may be imposed for contraventions by entities. These are: imposition of monetary penalty/fine; imprisonment for a term of years; deregistration of a professional or issuance of a warning notice. There is however, no authority for suspension of registration of a professional as was done in this case.”

To this end, Emefiele expressed concern that such a drastic regulatory decision was taken on an entity under the regulation and supervision of the CBN without any form of consultation with it, “especially as the CBN is responsible for promoting safe, stable and sound financial system”.

“Yet, such a regulatory decision and the manner of announcement is not only capable of eroding investor confidence, but also inimical to financial stability.

“Indeed, the FRC’s action has already precipitated a fall in the value of shares of Stanbic IBTC by about 18 per cent since the announcement of the regulatory decision.

“In the light of the foregoing fact, which clearly shows that FRCN did not follow due process, the CBN 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 meted to it by the FRCN. The CBN would however continue to take all necessary steps to protect the interest of depositors and to ensure the safety and soundness of the financial system,” the governor stated.