Compliance to regulation in Nigeria is becoming increasingly complex Constantly changing, increasing regulatory scrutiny, advancement of technology, emerging risks, record fines are being imposed by supervisors/regulators, poor culture of compliance has been identified as one of the main causes for past few years: “creating a culture of Compliance” and “doing the right thing.”
The Managing Director of Pattison Consulting Limited, Pattison Boleigha, stated the above at the Security and Exchange Commission, SEC, 2023 Training for Journalists, Called SEC Academy, Last Week in Lagos.
The MD who is also the President of Compliance Institute, Nigeria, President of Compliance Officers Forum of GIABA Member States, COFGMS, and a former Chairman of the Association of Chief Compliance Officers of Banks in Nigeria, ACCOBIN, noted that structural challenges facing compliance in Nigeria.
In Nigeria, he said “corruption/Intergity, this is endemic in Nigeria as the Country is rated by TI index as low as 24 out of 100 points in 2023. There is not much regulatory oversight on Anti Bribery and corruption programs in Nigeria on operators”.
He listed the challenges facing Compliance in Nigeria to include weak law enforcement system, adding that one of the significant challenges in Nigeria’s compliance journey is the lack of a robust and effective law enforcement system. So also the lack of collaboration between security agencies, delayed judicial processes, and corrupt practices within the justice system have made it difficult to prosecute money launderers, terrorist financiers, and those engaged in the proliferation of weapons of mass destruction, inadequate Regulatory Oversight: The Regulatory oversight is either inadequate or non-existences in some cases. For example, the Fintech, Other Financial Services and Designated non-financial businesses and professions have not been given the resources for proper coverage. Also, the penalty regime is still too transactional and so not persuasive enough.
Others are inadequate resources: The fight against financial crime in Nigeria suffers from an inadequate allocation of resources, both financial and human. The country’s limited resources assign compliance enforcement to low priority, which results in an insufficient number of personnel and resources being channeled into critical focus areas. e level of competency, skills and legal , complexity of Certain Regulations: Some recent regulations, require some knowledge for proper interpretation and implementation, Low awareness: The culture of compliance in Nigeria is limited, and there is low general awareness of the risks associated with non-compliance. The Awareness gap has led to low organizational commitment to compliance, and adopting a reactive approach to combating financial crime rather than a proactive one, Use of cash: The high level of cash usage in Nigeria’s economy presents a unique challenge for compliance enforcement. The use of cash allows the unhindered movement of illegal funds and makes tracking sources of wealth in crimes such as money laundering and terrorism financing difficult, political interference: Political interference in the fight against financial crimes is another significant challenge. Politically Exposed Persons (PEPs) often use their power and influence to derail or compromise investigations, which hampers the country’s progress in addressing financial crimes, reactive Approach: Reactive measures compared to proactively preventive measures such as implementing controls that will protect funds from being vulnerable, e.g. Implementing ISO standards in Compliance, controls, Quality Management and risk management and poor Adoption Of Technology: The business of government is still largely analog and manual. The controls are not implemented in a system to enable getting it right first time and preventing the cost of noncompliance- corruption and money laundering.
“To address the above challenges, Nigeria needs to establish a culture of compliance that primarily focuses on building ethical values and standards to prevent financial crimes. The culture of compliance can be achieved through the following measures, regular training – Organizations must continuously train their personnel on compliance to create awareness and promote best practices. Establishing a reward system – To encourage a culture of compliance, organizations can set up a reward system to recognize employees who contribute significantly to compliance efforts”, he maintained.
“Fostering Collaborations – Effective collaboration with organizations can help drive cultural change and promote culture of compliance. This can be achieved through establishing active working groups, committees, and partnerships. Adoption of technology – Advanced technologies such as AI, Machine Learning and Blockchain can provide the necessary tools to track down financial crimes such as money laundering, terrorism financing and proliferation of weapons of mass destruction financing, Personal Lability: Start a Senior Manager regime of personal liability for Financial institution employees and Deal With Corruption/Integrity”, he opined.
The Nigeria’s Apex Regulatory authority in the Capital Markets
Speaking on Corporate Challenges with Compliance, he listed high pace of Regulatory Pronouncements: Many Companies find it difficult to keep pace with the high rate of release of new regulations, so also Data Integrity: Information must be complete, accurate, and stored with administrative, physical and technical safeguards to ensure it is not inappropriately accessible to unauthorized users, altered, damaged or deleted and can be produced in an appropriate and timely manner. the Tone at the Top: The organization’s general ethical climate, as established by its board of directors and senior management must be strong at the top as it is believed by business ethics experts to help embed the compliance culture and eliminate unethical practices.
Overlapping of Responsibilities is another challenge as the high pace of release of several regulations/guidelines leads to introduction of additional processes, adhoc functions, inconsistencies and duplication of efforts by organizations if this is not properly managed.
“Cost of Implementation: Sometimes, the company may have to procure new solution(s) and undertake change management process to be able to comply with certain new regulations which comes with unbudgeted cost, lack of Adequate Technological support; to enhance systems and promote automate. government actions and in-actions: Policy inconsistencies due to poor collaboration with Operators
He however stated that good Corporate Governance structure supported by Risk and Controls Framework is the booster to regulatory compliance. So also right Skills/Competencies: Someone with the right skills and competencies must be employed to analyse and interpret the implications of legal/regulatory requirements and recommend the right action steps.
Others are regulatory Compliance Universe: Have a current inventory of all regulatory and business requirements. This is also known as the Rule Book., accessibility to Right Information/Reliable Database: The relevant information required for formulation of effective business models, decision making, reporting and responding to regulatory compliance issue must be in place, collaboration among all stakeholders including Government and Private Sector. Do not neglect the place of Self Regulation i.e. ACCOBIN, Education, Training and more awareness will empower people to willingly comply, Implement a Governance, Risk and Compliance (GRC) : One solution to proactively manage regulatory compliance is by preparing for new regulations rather than reacting to them and Monitoring and Evaluation: The two processes are relevant for effective compliance with, policies, procedures, legal and regulatory frameworks
Speaking further, he stressed that the corporate scandal and unethical behaviours in international market, particularly the financial services, has cost institutions huge sanctions and negative publicity.
“Notwithstanding the huge amount paid by institutions as fines and sanctions, ‘Compliance culture’ is yet to achieve the deserved attention. Wall Street banks and other European banks have paid out over $100bn in US legal settlements since the financial crisis. The UK Financial Conduct Authority have also been penalizing banks for various misconducts. Nigeria has now been put on the FATF “Grey List” largely due to non-compliance with the FAFT recommendations and expected outcomes”, he pointed out.
Noting further, he said, “Sixteen Nigerian Banks paid a total of =N=24.5b approximately for the past ten years (2012 – 2021) on various contraventions to regulatory authorities. These fines are perceived as ‘cost of doing business’ rather than reputational costs by management of most affected financial institutions”.
The MD stated that Inquiries into culture and ethics across the globe all point to the need for change in Compliance culture to restore trust in the affected institutions.