IMF Reveals How Central Banks Can Identify Real Owners Of Commercial Banks

The International Monetary Fund has suggested ways in which the Central Bank of Nigeria (CBN) and other central banks can resolve the issues of opaque bank ownership and related-party exposures.

IMF said it is important to know the persons controlling a bank because unknown owners cannot be held accountable for the emergence of problems attributable to their actions of embezzlement.

These were contained in a report titled, ‘Resolving Opaque Bank Ownership and Related-Party Exposure’ seen by THE WHISTLER.

The multilateral lender said there are three-pillar approaches to addressing the issues with opaque ownership.

The IMF said the first measure is to ensure that the legal framework for bank ownership can effectively support beneficial owner identification.

The second measure, the IMF highlighted, is banks’ reliable reporting on their shareholders represents a cornerstone for adequate beneficial owner identification and owners’ suitability assessments by the supervisor.

The institution said the third measure is to make sure that banks are mandated to bring their ownership structure in compliance with laws and regulations within a reasonable timeframe.

The IMF said opaque “ownership structures are often associated with poor governance, anti–money laundering (AML)/combating the financing of terrorism (CFT) violations, tax evasion, and other fraudulent activities, and can hamper effective prudential supervision of related-party transactions.

“Lack of information and transparency about the natural persons who ultimately own or control banks, makes the banks susceptible to excessive risks and misuse.

“Opacity in a bank ownership structure hampers the reliable identification of a bank’s beneficial owners, the assessment of its owners’ suitability, the verification of (the quality of) banks’ capital, and the timely identification of all related parties.”

According to the IMF, shareholder transparency and suitability must become an integral part of the banking supervisor’s normal course of business.

On related-party exposure of banks, the IMF report said that if not managed properly, it can quickly become a source of bank weakness and a threat to financial stability.

IMF said the first approach to dealing with related-party is that “the legal framework for related-party transactions be first brought in line with international standards and further enhanced to support the use of supervisory judgment.

“When dealing with exposures of systemic importance, support could possibly be sought from independent reputable experts, in case of insufficient supervisory resources, lack in adequate supervisory skills, or where the supervisor is in the early stages of establishing its credibility and autonomy.

“The supervisory authority should carefully address procedural and substantive matters that may arise when applying supervisory judgment to determine relatedness.”