CBN proposes regulation to ring-fence operations of closely linked financial entities

The Central Bank of Nigeria (CBN) has introduced a proposed regulatory framework designed to ring-fence the operations of closely linked financial entities, with the goal of promoting a stable financial system.

In a circular issued on Thursday, the apex bank stated that these drafted guidelines will ensure a safe, sound, and stable financial system. They are also intended to safeguard consumer interests and enhance regulatory oversight within Nigeria's financial landscape. The framework aims to establish clear operational and functional boundaries among interconnected entities and address regulatory arbitrage that arises from commingling activities across different license categories.

The guidelines outline specific requirements for governance, intra-group transactions, segregation of customer funds and data, operational independence, recovery and resolution planning, and consolidated supervision. The CBN emphasized that these measures are intended to strengthen consumer protection, improve transparency and accountability, mitigate contagion risks among closely linked entities, and preserve financial stability while simultaneously supporting innovation and fair competition.

The CBN plans to make the guidelines available to stakeholders, including banks, payment service providers, financial institutions, and the public, for review and comment. The regulator also stated that it will collaborate with other financial services regulators to extend the scope of the guidelines to entities that are closely linked to CBN-regulated entities but overseen by different regulatory bodies.

Any breach or failure to comply with the proposed guidelines will attract appropriate sanctions, as stipulated by the Banks and Other Financial Institutions Act (BOFIA) 2020 and other relevant regulations. These sanctions may include penalties, replacement of management, and/or revocation of licenses. The CBN stressed that these guidelines will be read in conjunction with existing legislation and directives.

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The guidelines are 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.