The Central Bank of Nigeria (CBN) has proposed new rules to separate banks from other financial entities, like financial technology (fintech) companies, under their control, in a bid to make the subsidiaries operate independently.
CBN also plans to restrict the use of customer funds for
its subsidiaries.
The apex bank proposed the move in a circular dated June 10
and titled ‘Exposure of the draft guidelines on ring-fencing operations of
closely linked entities in the nigerian financial system’.
In the circular, CBN said the proposed framework would
establish clear operational and functional boundaries among related entities,
while addressing “regulatory arbitrage arising from the commingling of
activities across different licence categories”.
According to the financial regulator, the guidelines
prescribe requirements covering governance, intra-group transactions,
segregation of customer funds and data, operational independence, recovery and
resolution planning, as well as consolidated supervision.
“The Guidelines is 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,” the circular reads.
The apex bank said the draft defines a closely linked entity
as one that directly or indirectly controls, is controlled by, or is under
common control with another entity through ownership, voting rights, common
directors or senior management, shared systems or branding, or contractual
dependence.
Under the proposed framework, the CBN said closely linked
entities would be required to operate independently, maintain separate
governance and risk management structures, and meet capital adequacy and
liquidity standards individually, irrespective of group-level resources.
The apex bank also proposed tighter controls on intra-group
transactions, saying no closely linked entity would be allowed to extend loans
to or guarantee the obligations of another without its prior written approval.
CBN added that intra-group exposures must be conducted at
arm’s length and reported to the regulator quarterly.
Also, the financial regulator said customers must give
express consent before being onboarded onto products or services offered by
related entities, adding that institutions would be required to disclose such
arrangements in “clear, simple language” and provide customers with alternative
options where available.
The draft guidelines also seek to prevent the commingling of
customer funds with those of related entities.
CBN said customer funds must not be used for intra-group
lending, proprietary trading, servicing group debts or covering the operational
expenses of affiliated companies.
The apex bank akso proposed stricter data protection
measures, stating that “customer data held by an entity shall be segregated and
stored independently from data systems of closely linked entities to prevent
unauthorized access or commingling”.
CBN further said promoters of closely linked entities would
be required to establish a non-operating holding company, although shareholders
unwilling to adopt the structure may opt to merge their businesses and
surrender excess licences.
The financial regulator said the draft guidelines have been
made available to stakeholders and the public for review and feedback, adding
that comments should be submitted no later than July 9.
The proposal followed the draft on guidelines for financial
holding companies (HoldCos), also dated June 10, which seeks tighter ownership
rules, including a minimum 51 percent stake in subsidiaries.
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