Distinguished Colleagues, Ladies and Gentlemen,
It is a great honour for me to be invited to deliver this keynote speech at the 45th general meeting of the Association of Chief Audit Executives of Banks in Nigeria (ACAEBIN). I would like to thank the association and its executives for providing this forum wherein Chief Audit Executives of banks are able to share ideas and work jointly to resolve thorny issues thatimpactthebankingindustryasawhole.
At FSDH we consider the hosting of this event as a privilege which enables us to demonstrate our ongoing commitment to the growth of the financial services industry.
Today, I will be speaking on the topic chosen for this meeting – Consumer Protection and the role of Internal Audit. At the heart of banking is financial intermediation, which involves taking funds from the surplus sectors and lending to the deficit sectors in an economy. The economic agents in the surplus and deficit sectors are individuals and corporations that constitute the consumers of banking products.
The most basic, yet fundamental ingredient on which Banking thrives is trust. Unfortunately trust appears currently to be in short supply in our society. Consumers of banking services do not trust their banks; citizens do not trust their elected officials; politicians do not trust the press (and vice-versa). Our concern is to do what we can to promote trust in our industry. Formal protection of the consumers of banking products has enormous potential to restore trust in the banking industry.
To underscore the importance of customers to the industry, we note that 60% of Nigerian Banks as at today have the word ‘customer’ or ‘client’ in either their mission or vision statements.
However, the protection of consumers goes beyond having catchy phrases that connote customer-centrism in the mission or vision statements. It is more about having definitive processes to ensure transparent dealings with the consumers.
Consumer Protection entails protecting the rights of consumers from injustice and exploitation in the market place. The concept of consumer protection was first introduced on 15th of March 1962 by the late US President John F. Kennedy in a speech to the US Congress. His speech identified four basic rights of the consumers:
Right to safety
Right to be informed
Right to be heard
Right to chose
This speech propelled the development of consumer protection regulations in the US and across the globe. In Nigeria, the Federal Competition and Consumer Protection Commission (FCCPC) was established through a decree in 1992, this was later amended by an Act of Parliament in 2004.
The FCCPC was established with the aim to promote and protect the interest of consumers over products and services. In the financial services industry, the Central Bank of Nigeria (CBN) is charged with the responsibility for the safety and stability of the financial system and also to ensure public confidence in the system.
The CBN has over the years been concerned about consumer protection in the banking industry. It is this concern that culminated in the creation of the Consumer Protection Department in the CBN and the publication of the consumer protection framework in November 2016.
Emphasis on consumer protection in the banking industry appears to have been overwhelmingly focused on customer complaints management. The CBN has mandated deposit money banks (DMBs), through various circulars, to publish complaints statistics in their financial statements and also render monthly returns on complaints.
While these measures are laudable, they fall short of providing comprehensive protection to consumers. Customers complaints are merely symptoms of underlying problems, therefore managing the symptoms alone will not eliminate the underlying issues.
In December 2019, the CBN issued a detailed consumer protection regulation. This regulation amongst other requirements addresses disclosure guidelines, sales promotion, consumer education, responsible business conduct, amongst others. This regulation also mandates all deposit money banks to develop their individual consumer protection policies by 31st March 2020.
The role of Internal Audit
Internal Audit, being an indispensable element within the governance process, is required to provide independent , objective assurance and consulting activity designed to add value and improve an organization’s operations. In essence, Internal Auditors have a major role of adding value to the consumer protection drive of every bank.
The Internal Audit unit should first and foremost
provide insight on the consumer protection policy of a bank. The CBN consumer protection regulation mandates that a policy on consumer protection be put in place by 31st of March 2020. Although it is an independent function, Internal Audit should not be aloof in the consumer protection policy formulation process. How many of you are making (or have made) input in the consumer protection policy of your bank?
Given the role Internal Audit plays in reviewing business processes, the Internal Audit department is often equipped with a bird’s eye view of the totality of processes and can easily identify the pain points of the consumers as well as the inefficiencies within the processes. The internal auditors should use this knowledge and insight to enrich the consumer protection policy of their banks.
Secondly, Internal Audit should through its annual audit plan provide assurance on the consumer protection processes in a bank and report to the management and the board. Critical processes that support consumer protection should be reviewed and follow-up mechanism put in place to ensure that deficiencies noted are resolved by the responsible business units. If there is a proliferation of consumer complaints that casts a shadow over the confidence the banking public places on a bank, the question would be asked, where were the internal auditors?
Internal Audit acting as a trusted advisor should provide valued advice to their management on consumer conflict resolution. The routine reports of the Sub Committee on Ethics and Professionalism indicate clearly that there have been so many instances where consumers have been justified (and ultimately vindicated) in their complaints against banks. It is unfortunate that even then, banks hesitate to settle justified claims even when the amount involved is relatively small.
It is this sort of behaviour that erodes confidence in the entire banking industry. The Internal Audit function should therefore prevail on its principals to accept the outcome of the adjudication of the sub- committee on Ethics and Professionalism.
Finally, I urge you all to participate fully in today’s program of events. Your deliberations on consumer protection will no doubt result in improvement in the reputation of the banking industry to the benefit of all its members. Distinguished ladies and gentlemen, on behalf of the Association, I formally declare this session open.