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CBN Drafts Rules to Ring-Fence Bank Affiliates
The Central Bank of Nigeria (CBN) has issued draft guidelines to restrict how banks fund or support their affiliated companies, aiming to prevent financial distress from spreading across corporate groups.
The proposal, contained in the Exposure Draft Guidelines on Ring-Fencing Operations of Closely Linked Entities, was signed by Dr Rita I. Sike, Director of Financial Policy and Regulation, and circulated to stakeholders for consultation.
Under the rules, transactions between banks and subsidiaries, including fintechs, microfinance institutions, and holding companies, must be conducted on arm’s-length terms, fully documented, and disclosed to regulators.
“Closely linked entities must operate independently, maintain adequate capital and liquidity, and segregate customer funds from group operations,” the CBN explained.
It warned that excessive interconnectedness could allow losses in one subsidiary to spill into regulated banking operations.
The draft requires boards to adopt formal ring-fencing policies, limit cross-directorships to 20%, and ensure all intra-group transactions are conducted at market rates and reported quarterly.
Loans or guarantees between affiliates will need prior regulatory approval.
Customers must also give explicit consent before being onboarded into products offered by related entities, with clear disclosure of the provider’s identity.
Shared services will face stricter oversight, requiring service-level agreements, independent audits, and CBN approval.
The framework emphasises consumer protection, banning misrepresentation of services outside licensed activities and prohibiting the use of customer funds for intra-group lending or debt servicing.
It also mandates compliance with Nigeria’s Data Protection Act, ensuring customer data cannot be shared across affiliates without consent.
Breaches could attract sanctions under BOFIA 2020, including fines, management changes, or licence revocation.
The guidelines are expected to take effect later in 2026, following consultations, as part of broader reforms to strengthen transparency, resilience, and consumer confidence in Nigeria’s financial system.