WITH a seeming arrogant posture, the Financial Reporting Council of Nigeria, FRCN, on October 26 posted on its website the outcome of its investigation of Stanbic IBTC for alleged infractions claimed by minority shareholders of the company, fronting as the Trusted Shareholders Association of Nigeria, TSAN and bankrolled by the Mahtani brothers of the Churchgate Group.
However, by punctuating practically every argument advanced by the FRCN in its media conviction of Stanbic IBTC, the Central Bank of Nigeria, CBN, categorically questioned the competence and integrity of its Executive Secretary, Mr. Jim Obazee and by extension, the FRCN. And to only further compound the FRC’s troubles, Justice Ibrahim Buba of a Federal High Court in Lagos has restrained the FRCN from interfering in the operations of Stanbic IBTC Holdings Plc pending the final determination of a suit against the agency by Stanbic IBTC Holdings.
In a ruling on the motion for interlocutory injunction filed by Stanbic IBTC Holdings, the judge also barred FRCN from inviting the company’s entire Board of Directors to any meeting in connection with any statutory investigation of its financial statements until the final determination of the pending suit. Justice Ibrahim Buba, however, refused the third leg of the reliefs sought by Stanbic IBTC Holdings for the court to restrain FRCN from taking further steps to enforce an invitation it sent to Stanbic IBTC on October 16, 2015 to attend a meeting.
According to FRCN, there were discrepancies in Stanbic IBTC’s financial statements and general financial reporting for 2013 and 2014. It said Stanbic IBTC Bank developed banking application software which it subsequently sold to its parent company, Standard Bank of South Africa Limited, without appropriate approval by Nigeria’s National Office for Technology Acquisition and Promotion, NOTAP.
Among sanctions announced by FRCN was the suspension of the Financial Reporting Numbers of Stanbic IBTC’s Chairman, Mr. Atedo Peterside, and the CEO, Mrs. Sola David-Borha, a step that was supposed to bar them from vouching for the integrity of any financial statements in Nigeria. In addition, the Chief Financial Officer, Arthur Oginga and another director, Dr. Daru Owei were suspended for attesting to ‘misleading’ financial accounts, while Ayodele Othihiwa of KPMG Professional Services, auditors to Stanbic IBTC, was also suspended for the same offence.
Stanbic IBTC was further ordered to withdraw the financial statements for 2013 and 2014 and restate them in accordance with the provisions of
Section 64 (2) of the Financial Reporting Council of Nigeria Act and Regulation 21 of the FRCN. A fine of N1 billion was also slammed on the bank.
In a swift reaction, Stanbic IBTC denounced what it described as inaccurate and unseemly allegations against it and the manner FRCN chose to
make them was procedurally defective. “The matters that FRCN alleges to be wrong are not wrong in any material respect and many are in any event not matters of financial reporting at all, but matters of business decision and judgment for Stanbic IBTC and its board of directors. For example, the decision whether to enter into a sale and lease back, whether in relation to intellectual property or any other asset, is a business decision and entirely a matter for the board of directors of Stanbic IBTC and certainly not a matter for FRCN.
In the same vein, NOTAP’s refusal to register a franchise agreement does not render the agreement null or void, or indeed relieve Stanbic IBTC of its liability. It merely means that any foreign currency payment due to the foreign counterparty under the unregistered agreement cannot be remitted. Stanbic IBTC has not and will not make any remittance which is subject to NOTAP approval without obtaining such approval.”
On its part, KPMG Professional Services, auditors to Stanbic IBTC, restated the propriety of the financial statements of Stanbic IBTC, adding: “Our position is that the decision of the FRC is erroneous on its merits and the process that led to it, is significantly flawed and not in compliance with the requirements of the FRC Act.”
Apparently rattled by the threat which FRCN’s actions portended, shareholders of Stanbic IBTC, under the aegis of Progressive Shareholders Association of Nigeria, held a press conference during which they called for urgent intervention to reign in the FRC before it caused more damage to businesses and the larger economy.
Speaking through its President, Mr. Boniface Okezie, the association stated that “we would have expected FRCN to recognise that circumspection ought to be its guiding standard. FRCN is not a regulator of banks neither is it a regulator of the capital market.” The FRC, Okezie added, ought to have recognised the implication of their reckless pronouncement in an unsophisticated capital market as it could lead to panic among investors.
In rejecting a request by FRCN to sanction Stanbic IBTC, CBN said it does not see enough grounds to advise or compel Stanbic IBTC to re-issue the statements or comply with the sanctions meted by FRCN. The apex bank said FRCN failed to consult it throughout the process of its investigation, noting that the pronouncements by the FRCN on Stanbic IBTC was not only capable of eroding investor confidence, but also very inimical to financial system stability.
As highlighted by CBN, FRCN under Obazee has clearly deviated from its key mandate of financial reporting and corporate governance into the arena of determining sanctions, a function of the courts, in the event of a financial reporting breach. The threat to the economy by the action of this regulator cannot be more frightening.
“Contrary to the allegation of the FRCN that Stanbic IBTC (SIBTC) did not obtain approval from the National Office for Technology Acquisition and Promotion (NOTAP) for the payment of affiliate software licence, its review revealed that the bank actually obtained the necessary approval from NOTAP to pay affiliate software licence from the Standard Bank South Africa for a period of three years covering 1st June 2012 to 30th May 2015. The remittance for June 2015 to date is still awaiting approval from NOTAP.
“With regards to the allegation of non-disclosure of intangible assets in SIBTC’s 2013 and 2014 financials, we note that the bank adequately recognised the software as an intangible asset in its 2011 financials and sufficiently disclosed the disposal of the software in the 2012 financials. Consequently, the said software could not have been reported as an intangible asset in the succeeding years 2013 and 2014. We agree with FRCN that SIBTC erred in the classification of some line items. However, the identified misclassifications did not understate or overstate its assets and liabilities, neither did it increase nor decrease its income or expenditure, such as would have caused a material misrepresentation of the financials.”
Even as stakeholders attempt to dissect the implications of FRCN’s rather rash actions and CBN’s timely intervention, especially pertaining to its efforts at restoring stability to the financial system, Jim Obazee and the Mahtani brothers have expectedly come under intense public scrutiny. For stakeholders in the finance sector, the current storm triggered by Obazee appear to indicate an over-stepping of FRCN’s mandate to protect investor and stakeholder interests, and provide guidance on issues relating to financial reporting and corporate governance, ensure accuracy and reliability of financial reports, and to harmonize activities of relevant professional and regulatory bodies.
As highlighted by CBN, FRCN under Obazee has clearly deviated from its key mandate of financial reporting and corporate governance into the arena of determining sanctions, a function of the courts, in the event of a financial reporting breach. The threat to the economy by a misguided regulator cannot be more frightening.
Akeem Ogunlade a social critic, wrote from Abuja.