- End use of customers funds for affiliate firms
BY BONNY AMADI
The Central Bank of Nigeria (CBN) has proposed new rules to separate banks from other financial entities, like financial technology (fintech) company, under their control, in a bid to make the subsidiaries operate independently.
CBN also plans to restrict the use of customer funds for their subsidiaries.
The Nigerian apex bank proposed the move in a circular dated June 10 and titled ‘Exposure of the draft guide- lines 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 custom- er 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.
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