The Central Bank of Nigeria (CBN) has released an exposure draft called the Exposure Draft Guidelines on Ring-Fencing Operations of Closely Linked Entities in the Nigerian Financial System. The proposal aims to create clear boundaries among banks, fintechs, and other related financial firms to prevent distress in one entity from spreading to others.
Key goals and features
- Strengthen safety, stability, and supervision of the Nigerian financial system, protect consumers, and improve regulatory oversight.
- Address regulatory arbitrage and avoid cross-license activity mixing by enforcing distinct operational and governance boundaries within financial groups.
- Improve transparency, accountability, and consumer protection while supporting fair competition and innovation.
Governance and structural rules
- Directors: No more than 20% of a company’s directors may sit on the boards of closely linked entities.
- Staffing: Restrictions on shared personnel; except as allowed by existing Shared Services Guidelines, staff cannot serve concurrently on multiple closely linked entities.
- IT and data: Each entity must maintain independent core functions; using IT platforms to bypass licensing rules or to offer non-permitted activities is prohibited; in some cases, the CBN may require separate data centers to prevent contagion and support standalone operation.
- Transaction channels: An entity cannot use its IT systems to process customer transactions for closely linked entities.
Capital, liquidity, and funding
- Each regulated institution must meet its own capital adequacy and liquidity requirements, regardless of support from other group members.
- Any intra-group liquidity support requires prior written CBN approval.
Customer onboarding and disclosures
- When customers are moved between affiliated entities, explicit consent must be obtained.
- Clear disclosures must be provided, including information about alternative options to avoid confusion about which institution is delivering a service.
Recovery and resolution planning
- Each entity must have a recovery and resolution plan outlining how it would regain viability during severe stress or wind down in an orderly manner without destabilizing the broader system.
Comment period
- Stakeholders can submit comments on the exposure draft by July 9, 2026, after which the guidelines may be finalized.
Overall, the proposed framework aims to isolate risks within closely linked financial groups, enhance governance and operational independence, protect consumers, and preserve financial stability while allowing ongoing innovation in financial services.
