By The recent release of new customer due diligence regulations by the Central Bank of Nigeria (CBN) highlights the importance of effective regulation in the current phase of Nigeria’s economic development. While the government’s reforms have disrupted established practices and imposed adjustment burdens on the population, the CBN’s inclusion of customers’ social media handles in the list of requirements for financial institutions has raised concerns about privacy invasion.
The collection of individual data raises apprehensions, not only due to the governance challenges surrounding data management in public institutions but also regarding the potential misuse of such information, including targeting those who express dissenting views against the government. Despite these concerns, there is a need to strike a balance between strengthening financial institutions’ know-your-customer protocols and ensuring the protection of Nigerians’ rights and interests as data subjects, as emphasized by the Nigeria Data Protection Commission.
While acknowledging the burdens imposed by these reforms on domestic economic entities, it is crucial to recognize that a more liberal market structure is necessary for the proper functioning of the price mechanism. A liberal market environment requires minimal obstacles to the entry and exit of suppliers and consumers across the country. However, it is essential to understand that economic deregulation does not equate to the absence of regulations.
Therefore, the recent reforms undertaken by the CBN are significant, but not in the manner suggested by initial responses to the regulatory changes. Financial institutions have fiduciary responsibilities towards their clients and the economy, which necessitate processes and procedures free from corrupt practices. While it may be appropriate for financial institutions to regularly profile their customers, the information required for opening bank accounts is often more intrusive than customers’ social media handles.
Many customers do not disclose their permanent addresses, residential addresses, telephone numbers, bank verification numbers, and tax identification numbers on their social media handles. However, they willingly provide this information to banks. Moreover, banks are not the only institutions that consider access to customers’ social media handles essential for background checks, as evidenced by visa application processes.
These considerations bring attention to the governance structure of the CBN. With the previous incumbent suspended on June 9 this year, an acting capacity has been assumed. By now, the process for appointing a substantive governor should have been established. Given the impact of the Tinubu administration’s reforms on domestic prices, the CBN’s responsibility for maintaining price stability is more critical than ever. The next CBN governor must understand the role of the bank’s staff in designing appropriate policy responses, preferably with an economic background. The governance structure should enable professional economists to contribute their expertise to the more complex areas of monetary policy.
PREMIUM TIMES suggests that the vacancy for the CBN governor position be advertised in four newspapers, two in Nigeria and two with global reach, as part of a professional headhunting process. The recommended candidates can then be nominated by the president for confirmation by the National Assembly. This approach would provide clarity on the job description of the CBN governor. While expertise in macroprudential policies is expected, it should not entail confrontations with economic entities with which the apex bank disagrees.
Furthermore, additional reforms are necessary to reorganize the Central Bank. Firstly, to address the damage caused by the previous governor’s tenure and secondly, to ensure the bank is equipped to manage monetary policy in a private-sector driven and market-led economy. One urgent requirement is to separate the regulation of financial institutions from the perception, reinforced by the previous management style, that they are departments of the CBN. A more appropriate response would be to establish the CBN’s banking supervision unit as a standalone section, allowing the central bank to focus exclusively on its price stability mandate.
The CBN’s policy committee, vital in the fight against domestic price increases, should also undergo reforms. The deputy governors should have policy and operational oversight over the country’s six geopolitical regions, enabling them to understand the unique business and economic needs of each region and contribute effectively to policy discussions in the Monetary Policy Committee meetings.
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