The Central Bank of Nigeria (CBN) has introduced a draft regulatory framework designed to ring-fence the operations of closely linked financial entities in Nigeria, with the goal of fostering a stable financial system. The proposed guidelines, announced in a circular on Thursday, are intended to ensure a safe, sound, and stable financial environment, while also safeguarding consumer interests and enhancing regulatory oversight within the country's financial sector.
Key Objectives of the Guidelines
The guidelines aim to establish clear operational and functional boundaries among entities that are closely linked within the financial system. A primary focus is addressing regulatory arbitrage that arises from the commingling of activities across different licence categories. To achieve this, the framework sets requirements in several critical areas, including governance, intra-group transactions, segregation of customer funds and data, operational independence, recovery and resolution planning, and consolidated supervision.
Strengthening Consumer Protection and Transparency
The CBN emphasized that the guidelines are designed to strengthen consumer protection, enhance transparency and accountability, mitigate contagion risks among closely linked entities, and preserve financial stability. At the same time, the framework aims to support innovation and fair competition within the financial services sector. The regulator stated that the guidelines will be made available to stakeholders—including banks, payment service providers, financial institutions, and the general public—for review and comment.
Collaboration with Other Regulators
Where a CBN-regulated entity is closely linked to an entity regulated by another financial services regulator, the CBN will collaborate with the relevant regulator to extend the scope of the guidelines to that entity. The guidelines are to be read in conjunction with the CBN Act 2007, the Banks and Other Financial Institutions Act (BOFIA) 2020, and other subsidiary legislation, as well as any written directives, notices, circulars, frameworks, or guidelines issued by the CBN or other regulators.
Sanctions for Non-Compliance
The CBN warned that any breach or failure to comply with the provisions of the guidelines will attract appropriate sanctions. These may include penalties, replacement of management, and/or revocation of licence, in line with BOFIA 2020 and other relevant extant regulations. The effort is expected to mitigate risks arising from the commingling of customer funds with those of closely linked entities, thereby promoting a more resilient financial system.
