The Central Bank of Nigeria (CBN) has released draft guidelines aimed at imposing stricter controls on transactions between banks, financial institutions, and their affiliated entities. This move is part of efforts to protect depositors' funds, enhance consumer protection, and mitigate risks within the financial system.
Key Provisions of the Draft Guidelines
The proposed 'Guidelines on Ring-Fencing Operations of Closely Linked Entities in the Nigerian Financial System' seek to establish clear operational and functional boundaries among entities within the same corporate group. The goal is to prevent the commingling of activities across different licence categories.
In a circular signed by Dr Rita Sike, Director of the Financial Policy and Regulation Department, the apex bank stated that the framework was developed to promote a safe, sound, and stable financial system, safeguard consumer interests, and strengthen regulatory oversight.
Governance and Operational Independence
Under the proposed framework, boards of closely linked entities must ensure that such entities operate independently, maintaining separate governance, risk management, and control structures. Each entity is expected to have a dedicated board and establish policies that ring-fence its operations from affiliated companies.
The CBN also proposed limits on overlapping leadership roles, stating that the number of directors serving simultaneously on the boards of closely linked entities should not exceed 20 percent of the total board membership.
Intra-Group Transactions
The draft guidelines require that all intra-group transactions be conducted on arm's-length terms and reported to the regulator quarterly. No closely linked entity may extend a loan or guarantee the obligations of another affiliated entity without prior written approval from the CBN.
External auditors must certify annually the effectiveness of board-approved policies and processes designed to ensure operational independence.
Consumer Protection and Customer Data
The guidelines emphasize customer onboarding and consumer protection. Where customers choose services offered by an affiliated company, the receiving entity must establish a direct business relationship with the customer, conduct its own KYC verification, and provide account or wallet details as necessary.
Customer funds must be strictly separated, with daily reconciliation of balances and discrepancies corrected within 24 hours. Customer funds are not permitted for intra-group lending, debt servicing, proprietary trading, external borrowings, or operational expenses of related entities.
Customer data must be stored independently, and sharing among affiliated entities is prohibited without explicit customer consent, except as permitted under the Nigeria Data Protection Act.
Technology and Infrastructure
To reduce operational risks, the CBN proposed restrictions on shared technology infrastructure. Entities are not allowed to use their IT platforms to offer services outside their licence scope or process transactions for affiliated entities. The regulator may require separation of data centres to reduce contagion risks.
Capital Requirements and Holding Company Structure
Promoters of closely linked entities must establish a non-operating holding company structure, with regulatory capital at least 20 percent above the combined minimum capital requirements of subsidiaries. Shareholders unwilling to form a holding company may merge affiliated entities into a single business, subject to regulatory conditions, including surrender of excess licences.
Public Consultation
The CBN has opened the draft guidelines for public review and invited stakeholders to submit comments before July 9, 2026.
