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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 recentfinancial crisis in Nigeria, the Minister of Finance, Mr. Olusegun Aganga,has unveiled a new regulatory model aimed at supporting the country¶seconomic development and transformation towards becoming one theworld¶s top 20 economies by 2020.

The new regulatory model involves the establishment of the Council of theNigeria Financial System Regulators to be overseen by the Ministry of

Finance and Central Bank of Nigeria (CBN) as the two overarchingregulators. According to Aganga, the two overarching regulators, whosemandate will be mutually exclusive, shall cover the entire financial system.

The minister unveiled the model in a paper titled, ³A Framework for theReform of Nigeria¶s Financial Regulatory System´, presented at theBankers¶ 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¶seconomy strongly recommends the requirement for a reform of the

currently fragmented and overlapping regulatory regime into an integratedone.

He said the trend in different countries has been that as the role of financialconglomerates continues to grow in the economy, the effectiveness of overlapping and multiple regulatory agencies have simultaneouslycontinued to decline.

³This is the result of fragmented regulatory bodies being unable to form anoverall risk assessment of a financial conglomerate on a consolidated

basis. Consequently, an integrated or semi-integrated regulatory system inwhich banking, securities, mortgages, pension and insurance regulation iscoordinated is a preferred model for resolving these challenges,´ he said.

The minister explained that the proposed council of regulators shall, at themacro-level, oversee the affairs of the financial system, but will notnecessarily be involved in micro prudential regulation.He said: ³The CBN would continue to be responsible for the prudential and



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risk management for the banking system in closer coordination with theother regulators, Nigeria Deposit Insurance Corporation (NDIC), andNational 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 regulatorybody in this role.´

According to Aganga, a new regulator is necessary and should beresponsible for market confidence and integrity; good corporategovernance; consumer protection; investor protection; ethics andprofessionalism; public awareness and reduction in financial crimes.

³This represents the pillars of our proposed regulatory reform which Ibelieve 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 thebanking and mortgage sectors. At a regulatory level, we want to seeintelligent regulation with poorly performing firms made to play by the rules,an efficient system of redress for customers and timely and appropriatecompensation for them where necessary,´ he said.

The minister emphasised the need to focus on increasing and improvingthe capacity of our regulators in order to facilitate a stronger enforcementregime, declaring: ³This 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 theregulatory bodies and financial institutions themselves.´

He added: ³We must look at strengthening sanctions for market abuse andbreaches of regulatory rules, which may include specific actions againstkey officers/chief executive officers. The financial industry can alsoregulate itself by aiding regulators through self reporting, which would entailmaintaining a breaches register, with stronger sanctions for failure toreport.´

The minister said in the past, efforts were focused on short-term ad hocmeasures to address the symptoms of the regulatory deficit, instead of finding a holistic solution for the underlying causes of the recurrent financialsector distress.

He noted that recent events have confirmed that the challenges facing thefinancial system were deep rooted. Therefore, the solution needs to gobeyond quick fixes.



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According to him, the regulatory reform is in line with the report of theNational Financial Sector Technical Working group of Vision 20:2020,which called for a paradigm shift in the financial system¶s regulatoryframework.

He said the report specifically recommended a new regulatory architecturethat would strengthen and enforce prudential and systemic riskmanagement; prevent the misuse of banks by the operators and their customers by enthroning ethics and professionalism; enhance creditallocation to the real sector; provide for consumer protection; promotecompetitive neutrality, transparency, credibility, integrity and accountabilityand develop the requisite human capacity that would transform Nigeria¶sfinancial system to world class.

COMMENTS [total: 4] y This is wonderful news. Like Obama said and i strongly believe, what

we need in Nigeria is strong institutions not strong men ...y How can any good plan work in Nigeria when corruption is still not

addressed? Why do we like wasting our time. First tackle co...y This model is long overdue. Looking at the fragmented nature of the

last financial crisis where the action of one sector affec...y 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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y China tops Japan as second biggest economy

REUTERS

August 17, 2010 01:10AM

y Japan's economic growth slowed to a crawl in the second quarter andanalysts see more weakness ahead, adding to policymakers'headaches as they grapple with deflation and a rise in the yen thatthreatens an export-reliant recovery.

y Slowing growth in main export destinations such as the United Statesand China clouds the outlook, while policymakers are trying hard totalk down the yen after it surged to a 15-year high against the dollarlast week.

y Japan's quarterly gross domestic product growth of 0.1 percenttranslates to annualised expansion of 0.4 percent, well below themedian market forecast of 2.3 percent and the United States' 2.4percent annualised growth in the same quarter.

y That followed revised 4.4 percent annualised growth in the firstquarter, when both exports and a stimulus-driven recovery inconsumption contributed to overall growth.

y In the April-June quarter, the stimulus effects have worn off, leavingexports as the sole engine of growth and with its contribution to

growth halved to 0.3 percent, the economy just eked out a thirdstraight quarter of expansion.y Prime Minister, Naoto Kan, and Bank of Japan governor, Masaaki

Shirakawa, are expected to meet later this week to discuss the yen'sstrength and possible responses, although analysts said there is notmuch they can do.

y "I think the Bank of Japan and the government need to take decisiveaction against currency moves. Solo currency intervention is possibleif 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 ResearchInstitute in Tokyo.

y China leap-frogs ahead y The latest figures put China ahead of Japan as the world's second-

largest economy for the quarter on a nominal dollar basis, saidKeisuke Tsumura, a parliamentary secretary at the Cabinet Office. He



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added, however, that one should wait for full-year figures beforechanging the rankings.

y "Since we have different calculations for seasonal adjustments, it would be correct and fair to compare the figures for the whole year," Tsumura said.

y 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.

y China's top currency regulator said last month that his country'seconomy had already overtaken Japan's.

y Japanese government bond futures jumped after the weak data, withSeptember 10-year futures rising 0.28 point to 142.67, their highestsince 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.y "The economy may enter a lull late this year or early next year, or

even stagnate. Much depends on the performance of overseaseconomies," said Yoshiki Shinke, senior economist, Dai-Ichi LifeResearch Institute.

y Concerns of Rising Yen y 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.

y 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.

y "W e need to look at this closely, and that includes the currency problem. I have asked cabinet ministers involved to report to meabout the economic situation," Kan told reporters when asked

whether the GDP data showed the economy needed new stimulusmeasures.

y Late last year, the last time the yen strengthened beyond the 85 yenmark, the BOJ called an emergency meeting and announced a three-

month funding scheme, a day beforeS

hirakawa met with the then-prime minister, Yukio Hatoyama.y 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 79.75per dollar, prompting markets to speculate that Tokyo might takeaction.



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y But currency market intervention is seen as difficult, whether jointly or alone, although market players said the risk of solo actionincreases the closer the yen gets to 80 per dollar, and if its riseaccelerates to a pace of 2 to 3 yen per day.

y Investors see a monetary policy response from the BOJ as more likely than currency intervention.

y Signs of a faltering economy put more pressure on Kan, ahead of hisparty's leadership vote next month, in which he may face a challengefrom powerbroker, Ichiro Ozawa, or a proxy, either of whom would beless keen to forge ahead with fiscal reform.

y Japan's recovery has been spotty since emerging from its worstrecession since W orld W ar T wo in mid-2009, relying heavily onexports, particularly to Asia, and government stimulus for spendingon energy-efficient cars and electronics.

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AMCON Implementation