Finance sector worries over rising rules violations

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Stakeholders in the financial market have expressed dismay over the rate at which public companies violate extant rules of their respective regulators, thereby attracting heavy fines. According to a cross-section of key shareholders that spoke with Financial Vanguard, recklessness and carelessness on the part of companies’ chief executives that give rise to such penalties should be curtailed, or the board and management of such companies should either be sacked or be made to pay the fines instead of using shareholders’fund.

They said that shareholders bear the brunt of their carelessness as the company’s profit is reduced as a result and in effect lowers the dividends accruing to members of the company. Financial Vanguard investigation showed that, a total of N241.529 million was paid as fines by four banks — FCMB Group Plc, Sterling Bank Plc, Access Bank Plc and United Bank for Africa (UBA) for flouting the Central Bank of Nigeria (CBN) directives in 2014 financial year alone.

Also, this year, the Nigerian Stock Exchange (NSE) fined 33 quoted companies N63.8 million. Their offence was reneging on their post-listing rules requirement in relation to timely submission of yearly and quarterly financial statements.

Financial Vanguard findings showed that Access Bank suffered the most penalties among all the listed entities surveyed and was made to pay N184 million in fines for contravening various sections of Bank and Other Financial Institutions Act (BOFIA) and CBN’s circulars.

The bank was fined N174 million for a contravention on the reporting of public sector deposits in line with the CBN guidelines. It was also fined N2 million by the CBN for weaknesses observed in its internal process and KYC procedures, including other offences. The sum of N51.5 million fine was imposed on Sterling Bank Plc by the CBN and the Nigerian Stock Exchange (NSE) for violating their various regulations, as fines.

Specifically, the CBN fined the bank N50 million for under-reporting its public sector deposits as at August 29, 2014, while the NSE slammed N1.5 million fines on the bank for publication of newly appointed Board members without prior notification and approval from the Exchange. Similarly, FCMB Group Plc paid cash penalty amounting to N6 million for contravening some sections of the provisions of the BOFIA and relevant CBN circulars.

A subsidiary of the bank – FCMB Limited, according to Financial Vanguard findings, failed to satisfactorily implement prior-year external auditors’ recommendations and was fined N2 million; it also rendered incorrect returns to CBN on its MTR 202 and also failed to comply with ATM operation standard at ATM located at Lekki, Lagos, and was fined N2 million each for both of the offences. During the 2014 financial year, the United Bank for Africa paid a penalty of N0.29 million for ‘delay in remitting unapplied funds to beneficiaries’.

Already, this year (2015), the CBN has imposed combined fine of N4.8 billion on UBA Plc and First Bank of Nigeria for Treasury Single Account (TSA) breach. In the same vein, Skye Bank Plc was fined N4 billion for the same offence. The companies involved in the NSE sanctions include: Aso Savings and Loans Plc (N3.7m); Mutual Benefit Assurance Plc (N3.8m); African Alliance Insurance Plc (N4.2m); Resort Savings and Loans Plc (N4.3m); Nigeria Enamelware Co. Plc (N1.6m); eTransact Int’l Plc (N2.7m);

Universal Insurance Plc (N5.3m); Great Nigeria Insurance Plc (N5.6m); C & I Leasing Plc (N1.3m); Nigerian Ropes (N100,000.00); N.E.M insurance (N300,000.00); Fortis Microfinance Bank (N600,000.00); LASACO Assurance (N400,000.00); Equity Assurance Plc (N500,000.00); Japaul Oil and Maritime Plc (N400,000.00); Regency Assurance Plc (N700,000.00); Staco Assurance Plc (N700,000.00); Niger Insurance Plc (N700,000.00); Daar Communications Plc (N6m); Linkage Assurance Plc (N900,000.00); Studio Press Plc (N900,000.00); and R.T Briscoe, which was fined N1.5 million for late submission of its 2014 full year result.

Others are; NASCON Allied and Industries Plc (N100,000.00); Vitafoam Nig. Plc (N1.4m); Union Diagnostic and Clinical Services (N100,000.00); Law Union & Rock Insurance Plc (N100,000.00); Multiverse Plc (N1.8m); Flour Mills of Nigeria Plc (N300,000.00); Standard Alliance Insurance Plc (N2.4m); Arbico Plc (N1.8m); Conoil Plc (N1.8m); Omoluabi Savings and Loans Plc (N1.6m) and Oando Plc (N6.2 million).

Reacting, Mr. Abayomi Obabolujo, President, Avid Shareholders Association, described it as a mark of high level of indiscipline among the management staff of those companies, saying that it shows that they are not competent enough. “As a matter of fact, any of them that erred should be removed because at the end day, whatsoever fine the company pays, the salaries and allowances of those management staff that are responsible for the act still remain the same.

“At the end, we have to suffer it as shareholders because the company’s profit comes to zero or lower than what it should have been. As a result, the dividend they ought to pay will either not be paid or the dividend becomes small. So, it is very sad news and it portends danger for the entire industry.

He urged the Securities and Exchange Commission (SEC) to rise to the defence of the shareholders by ensuring that any management whose organisation is found to have contravened any rule to have made the organisation to pay any fine should be dealt with. “This could be done by ensuring that such money is converted to loan from the salaries and allowances of the management concerned and then they pay back. If not, at the end of the day, it is the shareholders that have invested; that are not part of the management that have to pay.

They contravene, they still collect their allowances and salaries, and at the end, they have nothing to suffer,” he lamented. “Depending on the gravity of the offence, the first thing is that such management staff should be suspended with immediate effect because if nothing is done, others will go ahead and continue to do it, but if it happens that somebody did it and he was punished, others will be very careful.

“If you look at MTN for instance, as we speak today, it is only in Nigeria that such goes unnoticed. As at today, the managing director of MTN global is no longer there; so, it is now that the chairman took over the executive position for a period of six months. If it is in Nigeria, the managing director will continue, the chairman will continue, everybody will continue. So, if such managing director cannot pay, he should be sacked and all his entitlement forfeited. That is the ideal compensation to shareholders,” Obabolujo added.

Speaking in the same vein, Alhaji Gbadebo Olatokunbo, a founding member, Nigeria Shareholders Solidarity Association, said that instead of placing the fines on the companies, the Board and management of the companies concerned should be penalised, adding that it would call them to order.

“If they flout regulatory directives, they should pay, but I will appeal to the regulatory authorities not to always fine the company but to fine the management because they are being paid to do certain things and when they are not doing the right thing and the regulatory authority fines the corporation, it is the company that pays; the management staff don’t feel the pain.

“If there is a way they could make those in the helm of affairs to pay, that will ginger them to do the right thing. They don’t feel the pain when the company pays because they don’t pay from their pocket,” Olufemi insisted. Speaking further, he said: “Every assignment in all companies is attached to a particular directory and they know those that are in-charge of the directory, so those that are paid to do the job should be fined.

“Before, we were shouting that the regulatory authorities are imposing too much fines on companies, but if these people are not fined and they are flouting the rules, the shareholders will suffer it. And don’t forget, the regulatory authorities have more power on these companies than we do because they see their books more than the shareholders. We don’t see their books; it is what they decide to show us that we see.

“The regulators go there for examinations, so, they have more authority over them than us though we are the owners of the companies. So, my appeal is that they should be imposing the fines on the management instead of the companies because if they fine the companies, the offenders will not feel the pain.”

Olufemi Timothy, National President, Renaissance Shareholders Association of Nigeria, said: “All these sanctions, especially in the last five months in 2015, are very terrible and we are not happy about it because they will have adverse effect on the margins of the companies.” He, however, cautioned the regulators, saying that heavy fines could hamper the ability of companies to declare good profit and pay dividends.

“Look at what happened in Skye Bank Plc, (N4 billion fines at a go by the CBN), are you telling me that it will not affect the bank’s profit next year. It will definitely affect that bank and shareholders’ cash dividend. So, we are looking into it and very soon, we will address the issue.” He further stated that imposing huge fines would jeopardise the going concern of such business, adding that it is disincentive to investment. He also noted that such officers should be suspended and should lose their entitlement for the period the suspension lasted.

Source: Vanguard