The Central Bank of Nigeria (CBN) has unveiled a draft regulatory framework that would significantly restrict financial dealings between banks and their affiliated companies, in a move aimed at protecting depositors and strengthening the stability of the financial system.
The proposed rules, contained in the Exposure Draft Guidelines on Ring-Fencing Operations of Closely Linked Entities, seek to prevent financial problems in one company from spreading across an entire banking group.
Signed by Dr. Rita Sike, Director of Financial Policy and Regulation, the draft has been circulated to stakeholders for consultation before final approval.
Under the proposed framework, banks, fintech subsidiaries, microfinance institutions, holding companies and other affiliated entities will be required to operate with greater independence.
The apex bank said the new rules are designed to ensure that financial distress in one subsidiary does not threaten the health of deposit-taking institutions or the broader financial system.
The guidelines will place strict limits on intra-group loans, guarantees, asset transfers, cross-collateralisation arrangements and other forms of financial exposure among related entities.
According to the CBN, all transactions between affiliated companies must be conducted on an arm’s-length basis, properly documented and disclosed to regulators. “Closely linked entities must operate independently, maintain adequate capital and liquidity, and segregate customer funds from group operations,” the CBN stated.
To strengthen corporate governance, boards of directors will be required to establish formal ring-fencing policies and implement measures to identify and manage conflicts of interest.
The draft also proposes limits on cross-directorships, with shared board membership among affiliated entities capped at 20 per cent.
In addition, all intra-group transactions must be priced at prevailing market rates and reported to the CBN every quarter.
The regulator is also proposing that affiliated companies cannot extend loans or guarantees to one another without obtaining prior approval from the CBN.
The proposed guidelines contain extensive consumer protection measures aimed at increasing transparency within financial groups.
Customers must provide explicit consent before being enrolled in products or services offered by affiliated entities. Financial institutions will also be required to clearly disclose which company is providing a particular service.
The framework further prohibits banks and related entities from misrepresenting services that fall outside their regulatory licences.
Each entity within a financial group must maintain separate complaint resolution systems, while customer funds cannot be used for intra-group lending, debt servicing or proprietary trading activities.
The CBN is also introducing stricter oversight of shared services arrangements commonly used within financial groups.
Affiliated companies will be required to execute formal service-level agreements, conduct independent audits of shared-service operations and obtain regulatory approval where necessary.
The regulator said the measures are intended to improve operational resilience and reduce the risk of disruptions spreading across multiple entities within a group.
Banks and their affiliates will also be required to maintain business continuity plans, recovery strategies, and resolution frameworks aligned with broader financial stability objectives.
