CBN Moves to Isolate Risks Across Banks, Fintechs, Financial Groups

The Central Bank of Nigeria (CBN) has introduced sweeping proposals designed to ring-fence risks within the country's financial system, targeting banks, fintechs, and other closely linked entities. The new guidelines aim to create distinct operational, governance, and financial boundaries among affiliated institutions. This initiative seeks to prevent a crisis in one company from cascading across an entire financial group.

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establish clear operational and functional boundaries among closely linked entities within the financial system

These draft guidelines emerge as banking, payments, lending, and wealth management services increasingly converge under common ownership structures. The CBN stated the framework will establish clear boundaries and address "regulatory arbitrage arising from the commingling of activities across different licence categories." The proposals are intended to foster a safe, sound, and stable financial system, protect consumers, and enhance regulatory oversight.

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regulatory arbitrage arising from the commingling of activities across different licence categories

Key measures in the exposure draft include capping the number of directors who can serve on the boards of closely linked entities at 20% of the total board members. It also proposes stricter limits on staff sharing, generally prohibiting employees from concurrently holding positions in different but affiliated entities. Furthermore, the CBN is pushing for greater operational independence, particularly in technology infrastructure, requiring each entity to maintain independent critical functions and preventing the use of IT platforms to bypass licensing restrictions or offer non-permissible activities.

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In furtherance of the mandate to promote a safe, sound and stable financial system, safeguard consumer interests and strengthen regulatory oversight within the Nigerian financial system.