CBN moves to enforce independence for banks’ subsidiaries

The Central Bank of Nigeria (CBN) has proposed new regulatory guidelines aimed at strengthening the independence of banks’ subsidiaries, including fintech and other related financial entities.

The proposal was contained in a circular dated June 10 titled “Exposure of the Draft Guidelines on Ring-Fencing Operations of Closely Linked Entities in the Nigerian Financial System”, which has been released for stakeholder review and public feedback.

According to the apex bank, the proposed framework seeks to clearly separate the operations of parent banks from their subsidiaries in order to reduce regulatory overlaps, prevent risks arising from interlinked operations, and enhance financial stability.

The CBN said the new rules are designed to address issues of “regulatory arbitrage arising from the commingling of activities across different licence categories” within the financial system.

Under the draft guidelines, closely linked entities will be required to maintain independent governance structures, risk management systems, and capital and liquidity buffers, regardless of group-level financial strength.

The regulator also proposed strict limits on intra-group transactions, stating that loans or guarantees between related entities must receive prior written approval and be conducted strictly at arm’s length, with quarterly reporting to regulators.

In addition, the CBN stressed that customer funds must not be used for intra-group lending, proprietary trading, servicing group obligations, or funding the operational expenses of affiliated companies.

The draft further mandates clear customer consent before onboarding users into products or services offered by related entities, alongside simplified disclosures and alternative service options where applicable.

It also introduces stronger data protection measures requiring segregation of customer information across linked institutions to prevent unauthorized access or data commingling.

The apex bank said promoters of closely linked financial entities may be required to adopt a non-operating holding company structure, while others may consider merging operations or surrendering excess licences where necessary.

Stakeholders are expected to submit feedback on the proposed guidelines by July 9.