The Central Bank of Nigeria (CBN) has unveiled draft rules aimed at creating clearer separation between banks and other financial entities under their control, such as financial technology (fintech) firms, with the goal of ensuring that those subsidiaries operate independently.
The CBN is also proposing limits on the use of customer funds for affiliated companies.
The proposal was outlined in a circular dated June 10 and titled Exposure of the draft guidelines on ring-fencing operations of closely linked entities in the Nigerian financial system.
In the circular, the CBN said the proposed framework would establish distinct operational and functional boundaries between related entities, while tackling “regulatory arbitrage arising from the commingling of activities across different licence categories.”
According to the regulator, the guidelines would introduce requirements covering governance, intra-group transactions, segregation of customer funds and data, operational independence, recovery and resolution planning, and consolidated supervision.
“The Guidelines is intended to strengthen consumer protection, enhance transparency and accountability, mitigate contagion risks among closely linked entities, and preserve financial stability while supporting innovation and fair competition within the financial services sector,” the circular reads.
The apex bank said the draft defines a closely linked entity as one that directly or indirectly controls, is controlled by, or is under common control with another entity through ownership, voting rights, common directors or senior management, shared systems or branding, or contractual dependence.
Under the proposed framework, the CBN said closely linked entities would be required to operate independently, maintain separate governance and risk management structures, and meet capital adequacy and liquidity standards individually, irrespective of group-level resources.
The apex bank also proposed tighter controls on intra-group transactions, saying no closely linked entity would be allowed to extend loans to or guarantee the obligations of another without its prior written approval.
CBN added that intra-group exposures must be conducted at arm’s length and reported to the regulator quarterly.
Also, the financial regulator said customers must give express consent before being onboarded onto products or services offered by related entities, adding that institutions would be required to disclose such arrangements in “clear, simple language” and provide customers with alternative options where available.
The draft guidelines also seek to prevent the commingling of customer funds with those of related entities.
CBN said customer funds must not be used for intra-group lending, proprietary trading, servicing group debts or covering the operational expenses of affiliated companies.
The apex bank also proposed stricter data protection measures, stating that “customer data held by an entity shall be segregated and stored independently from data systems of closely linked entities to prevent unauthorized access or commingling”.
CBN further said promoters of closely linked entities would be required to establish a non-operating holding company, although shareholders unwilling to adopt the structure may opt to merge their businesses and surrender excess licences.
The financial regulator said the draft guidelines have been made available to stakeholders and the public for review and feedback, adding that comments should be submitted no later than July 9.
The proposal followed the draft on guidelines for financial holding companies (HoldCos), also dated June 10, which seeks tighter ownership rules, including a minimum 51 percent stake in subsidiaries.
