The Central Bank of Nigeria (CBN) has proposed strict limits on loans, guarantees, asset transfers, and other financial exposures between banks and their affiliated companies as part of a new regulatory framework designed to prevent financial distress from spreading across corporate groups.

The proposal is contained in the CBN’s Exposure Draft Guidelines on Ring-Fencing Operations of Closely Linked Entities, signed by the Director of Financial Policy and Regulation, Dr. Rita I. Sike, and made available to stakeholders for consultation.

Under the draft guidelines, transactions between banks and closely linked entities—including fintech subsidiaries, microfinance institutions, and holding companies—must be conducted on arm’s-length terms, fully documented, and disclosed to the regulator.

What they are saying

According to the apex bank, the framework is aimed at ensuring that financial difficulties in one entity do not threaten the stability of other entities within the same group, particularly deposit-taking institutions.

• “Closely linked entities must operate independently, maintain adequate capital and liquidity, and segregate customer funds from group operations,” the regulator stated.

The move comes amid the rapid expansion of financial groups into payments, technology, and other financial services businesses.

While these structures support innovation and financial inclusion, the CBN warned that excessive interconnectedness could allow losses in one subsidiary to spill over into regulated banking operations.

More insights

The draft guidelines require boards of directors to establish formal ring-fencing policies and ensure that conflicts of interest are identified and disclosed.

The draft guidelines require boards of directors to establish formal ring-fencing policies and ensure that conflicts of interest are identified and disclosed.

To strengthen governance, cross-directorships among affiliated entities will be limited to 20%, while all intra-group transactions must be conducted at market rates and reported to the CBN on a quarterly basis.

The framework also prohibits affiliated entities from extending loans or guarantees to one another without obtaining prior regulatory approval.

In addition, customers must provide explicit consent before being onboarded into products or services offered by related entities, with clear disclosure of the identity of the service provider.

New rules for shared services and operational resilience

The proposed framework introduces stricter oversight of shared services arrangements within financial groups.

Under the draft, affiliated entities must establish formal service-level agreements, conduct independent audits of shared service arrangements, and obtain CBN approval where necessary.

• The guidelines also place significant emphasis on operational continuity, requiring entities to maintain business continuity plans, recovery strategies, and resolution frameworks aligned with the CBN’s broader financial stability objectives.
• The CBN said banks must treat affiliated companies in the same manner as third-party customers, ensuring that pricing, collateral requirements, and contractual terms reflect prevailing market conditions.
• Shared funding arrangements and cross-guarantees that could transmit losses across entities will be restricted, while the regulator will require regular reporting of all intra-group exposures.
• The draft also contains extensive consumer protection provisions. Financial institutions will be prohibited from misrepresenting services that fall outside their licensed activities and must maintain separate complaint management systems for each entity.

Customer funds may not be used for intra-group lending, debt servicing, or proprietary trading activities.

Data protection and enforcement measures

The guidelines further require compliance with Nigeria’s Data Protection Act, mandating the segregation of customer data and prohibiting its sharing across affiliated entities without explicit customer consent.