Operational Guidelines on Global Standing Instruction

Introduction

On July 13 2020, the Central Bank of Nigeria (“CBN”) released a circular on operational guidelines on global standing instruction (“GSI”). Becoming effective on August 1 2020, the GSI aims to facilitate an improved credit repayment culture; reduce non-performing loans in the Nigerian banking system; and watch-list consistent loan defaulters.

The purport of the GSI is to serve as a last resort by the borrower’s creditor bank to recover past due obligations from a defaulting borrower through a direct set-off from deposits/investments held in the borrower’s qualifying bank accounts with Participating Financial Institutions (“PFIs”). The policy mandates the Creditor Bank to recover the principal and accrued interests only. Penal charges are excluded.

A Creditor Bank is a Participating Financial Institution which has granted a loan/credit to a borrower for which a GSI mandate was executed. The Creditor is responsible for set-up, updating, triggering and deletion of GSI mandates. PFIs are all CBN-licensed Financial Institutions that are connected to NIBSS Instant Payment (NIP) platform.

Stakeholders

There are four key participants: the borrower; the Creditor Bank; PFIs; Nigeria Inter-Bank Settlement System (“NIBSS”); and CBN.

Eligible bank accounts

the GSI applies to individual savings accounts, individual current accounts, individual domiciliary accounts, investment/deposit accounts (naira & foreign currency); electronic wallets; and joint accounts.

Penalty for non-compliance

In order to curb non-compliance, the policy provides amongst others, a penalty against the Creditor Bank if a GSI mandate is activated in error. If this happens, the Creditor Bank shall be liable; pay a flat fine of N500,000.00 per incident; and associated GSI charges borne by the Creditor Bank shall not be refundable.

Applicability to Retirement Savings Account

Is the policy be applicable to a retirement savings account i.e. pension account? Despite its absence from the policy, section 116(3) of the Pensions Reform Act 2014 exempts pension fund from liquidation process or garnishee proceedings. Pension fund and assets in the retirement savings accounts shall not be subject to attachment, injunctive and any garnishee proceedings or used in satisfaction of a judgment debt obtained against any person. Therefore, it is our position that monies in retirement savings accounts are shielded from this policy.

For further information, please contact:

Farouk Obisanya farouk.obisanya@roukco.com