Corporate governance and anti-money laundering requirements for Bureau De Change operations in Nigeria (2024)

July 18, 2024

The Central Bank of Nigeria (“CBN”) in May 2024 released the updated regulatory and supervisory guidelines for Bureau de Change (“BDC”) operators in Nigeria (the “Guidelines”).

The Guidelines which was released after the issuance of an exposure draft in February 2024 is part of the CBN’s effort to re-position the BDC sub-sector to play its envisioned role in the Nigerian foreign exchange market. The introduction of the Guidelines also seeks to strengthen the regulation of BDCs and tackle the volatility and arbitrage that has influenced the Nigerian Foreign Exchange Market.

In addition to other regulatory measures, the Guidelines provides for enhanced corporate governance and compliance requirements for BDC operators. The provisions of the Guidelines seek to provide structure for board governance and practical methods for anti-money laundering and combating the financing of terrorism (AML/CFT) in the operation of BDCs.

A major introduction by the Guidelines is the requirement for BDCs to increase their share capital in line with the newly introduced two-tier licensing structure. Tier 1 BDCs are licensed to operate in any state in Nigeria and are required to have a minimum capital requirement of N2billion while Tier 2 BDCs are licensed to operate only in one state of the federation with a minimum capital requirement of N500million.¹

Additional regulatory measures for the operation of BDCs particularly as it relates to its Corporate Governance and AML/CFT compliance requirements provided in the Guidelines are as follows:

a.Board Composition

The Board of Directors of a Tier-1 BDC must be comprised of at least 5 directors and a maximum of 7 directors while the Board of a Tier-2 BDC is to be comprised of a minimum of 3 directors and a maximum of 5 directors.² The Board of a BDC is to have at least 1 Independent Non-Executive Director (INED), however, where the BDC is publicly listed, the Guidelines states that at least 1/3 of the directors shall be INEDs in line with the Companies and Allied Matters Act, 2020³ (CAMA).⁴ The Guidelines require Tier-1 BDCs to have an Executive Director (ED) other than the Managing Director/Chief Executive Officer (MD/CEO). This is optional for Tier-2 BDCs.⁵

b.Gender Diversity

BDCs are also required to embrace gender diversity on their Boards as the Guidelines provide that the Board of a BDC shall not comprise of only one gender.⁶ To achieve gender diversity, BDCs are mandated to take practical approaches to women's economic empowerment in line with Nigerian Sustainable Banking Principles.⁷

c.Resignation of Directors

A director resigning from the Board is required to submit a notice of his resignation to the Chairman of the Board 90 days before the effective date⁸ and where the resignation of a director will result in non-compliance with the number of INEDs or Non-Executive Directors (NEDs), the Board is to ensure compliance within 90 days.⁹ In addition, where the resignation of a director is due to unresolved concerns on the operations of the BDC, the resigning director shall send a written statement of his complaints to the Chairman of the Board for circulation to the full board and within 7 days of the notification of resignation, the resigning director is to forward a copy of the statement to the Director, Other Financial Institution Supervision Department, CBN.¹⁰

d.Fitness Requirement for Directors

i.Non-Executive Directors

The Guidelines provide that a NED should have a first degree with a minimum of 5 years post-graduate experience or 10 years post-secondary school experience in financial services. Furthermore, knowledge of the operations of BDC and financial institutions is required and at least 2 NEDs must have a minimum of 3 years’ experience in the financial industry.¹¹

ii.Independent Non-Executive Directors

In addition to the requirements stipulated in the Nigerian Code of Corporate Governance, 2018, and CAMA,¹² an INED of a BDC shall amongst other things not be a former director or employee at a senior management level (SML) or below the SML within the last 5 years. Additionally, INEDs of BDCs shall not have a material relationship with the BDC, or any of its officers, shareholders, or affiliates. An INED is also not expected to have provided financial, legal, or consulting services to the BDC in the past 5 years, borrow funds from the BDC, or be part of an institution supported by the BDC.¹³

The Guidelines place the responsibility on the INED to inform the Board whenever their independence is impaired as soon as such occurs, and the Board is expected to confirm annually the continued independence of each INED.¹⁴

iii.Executive Directors and Managing Director

EDs of BDCs are expected to have a minimum of 5 years post-graduate experience with at least 3 years in the finance industry of which two years must have been at SML. ¹⁵The same is required of the MD of a Tier-2 BDC. For a Tier-1 BDC, the MD is required to have at least 10 years of post-graduation experience with at least 5 years in the finance industry of which 3 years must have been at SML.¹⁶

iv.External Auditors

The External Auditor of a BDC is to be appointed by the Board subject to ratification of the members at a general meeting and approval by the CBN. The tenure of an external audit firm shall not exceed 10 years, subject to the rotation of the audit engagement partner at least once every 5 years. The Guidelines stipulate a cool-off period of 3 years before a partner who retires from an audit firm auditing the BDC can be appointed to the Board of the BDC. A cool-off period of 3 years is also required before the BDC can employ a member of the audit team.¹⁷

v.Tenure of Directors

The Guidelines provide that the tenure of an Executive Director shall not exceed 15 years which may be broken down into periods not exceeding 5 years at a time.¹⁸ However, where an ED becomes an MD, the maximum cumulative tenure as ED and MD in the BDC shall not exceed 20 years. The maximum tenure of a NED shall be 3 terms of 4 years each while an INED shall serve for a single term of 4(four) years which may be renewed for another term of 4 years.¹⁹

e. Senior Management/Head of Department

The Guidelines provide for a direct reporting line to the Board and Board Committees from the Head of Risk and Internal Audit, Head of Legal and Company Secretary, and Head of Compliance. The above-listed officers are also to maintain an indirect reporting line to the MD/CEO.²⁰

f.AML/CFT Compliance Requirements for BDCs

The Guidelines require every BDC to maintain adequate records of all its transactions for compliance with guidelines on AML/CFT issued by the CBN. They are also expected to display at their place of business, caution notices on AML/CFT. Additionally, BDCs are to comply with the provision of the Money Laundering (Prevention and Prohibition) Act, 2022, Terrorism (Prevention and Prohibition) Act, 2022, and other regulations on the following elements: AML/CFT policy, development of a compliance unit and function, designation and duties of a Compliance Officer, Customer Due Diligence and Monitoring and filing of suspicious transactions reports with the Nigerian Financial Intelligence Unit.²¹

Conclusion

The BDC industry in Nigeria has been largely recognized as street trading and hawking of foreign exchange, despite the existence of regulatory guidelines for BDC operations in Nigeria. The newly introduced guidelines seek to transform the narrative around BDCs from street hawking to properly organized corporate entities with well-structured boards for effective management and control. Furthermore, the continued depreciation of the Naira on the foreign exchange (FOREX) market has been a cause of concern and the CBN has introduced the Guidelines to control and manage the trading of FOREX and the operations of the BDCs. This is expected to improve the supply of FOREX while also ensuring that BDCs are not used as instruments for the flow of illicit funds.²²

1. Section 7.0 of the Guidelines
2. Section 9.1(a) of the Guidelines
3. Section 9.1(b) of the Guidelines
4. Paragraph 14 of the Business Facilitation Act 2023 amended section 275(1) CAMA 2020 on the number of INEDs for public companies.
5. Section 9.1(c) of the Guidelines
6. Section 9.1(d)(e) of the Guidelines
7. Principle 4 of The Nigerian Sustainable Banking Principles encourages women empowerment through a gender inclusive workplace culture in business operations and the provision of products and services designed specifically for women
8. Section 9.1(g) of the Guidelines
9. Section 9.1(h)(k) of the Guidelines
10. Section 9.1(i)(j) of the Guidelines
11. Section 9.3.2 of the Guidelines
12. Principle 7, NCCG & Section 275(3) CAMA 2020
13. Section 9.3.3 of the Guidelines
14. Section 9.3.3(c) of the Guidelines
15. Section 9.3.4(a) & 9.3.5(a) of the Guidelines
16. Section 9.3.4 (b) of the Guidelines
17. Section 9.4 of the Guidelines
18. Section 9.3.4 (c) & 9.3.5(b) of the Guidelines
19. Section 9.3.3(e) of the Guidelines
20. Section 9.3.6 of the Guidelines
21. Section 16 of the Guidelines
22. We acknowledge the invaluable contribution of Praise Adeoye to the publication of this article.