The increased presence of Multinational Enterprises (MNEs) across various jurisdictions has among other things, created the need to centralize certain functions within the MNE Group. Many MNEs have adopted a shared services arrangement to centrally provide certain business support services to members of the group. Such shared services arrangements typically include services such as accounting, finance, procurement, Human Resources (HR), Information Technology (IT), Legal etc. The reasons for such arrangements are not far-fetched.
Adopting a shared services arrangement enables MNEs achieve cost efficiency, improve in their processes and leverage existing expertise. Another reason for such arrangements by MNEs may be the need to ensure uniformity / standardization of their business processes especially for MNEs with a global brand. As such, shared services arrangements are common between related parties.
It is therefore important that shared services are conducted in line with the arm's length principle and the charge for such services allow for the appropriate allocation of profit among various jurisdictions.
In May 2021, the Central Bank of Nigeria (CBN) issued Guidelines on the operations of shared service arrangements between banks and other financial institutions in Nigeria and their parent company or group members ("the Guidelines"). The introduction of the Guidelines was informed by the apex institution's concerns on governance, financial and tax management practices related to shared services.
This article reviews the Guidelines, highlights the compliance requirements and the implications of the Guidelines for Banks and other financial institutions.
Overview of the Guidelines and Approved Services
The Guidelines were introduced to set a supervisory expectation with respect to shared service arrangements, ensure the fees charged under such arrangements are reflective of the services rendered, ensure compliance with the Transfer Pricing (TP) Regulations in Nigeria, and reduce operational costs of recipients of those services.
The Guidelines, which has an effective date for full compliance of 1 June 2022 is applicable to:
- Commercial banks
- Merchant banks
- Financial holding companies
- Other financial institutions
- Payment services banks, and
- Other payment services as licensed by the CBN
The Guidelines provides a list of approved services, which banks and other financial institutions can engage in under a shared service arrangement. Such services include HR, risk management, internal control, compliance, marketing and corporate communications, IT, legal, facilities and any other services that may be approved by the CBN from time to time.
The Compliance Requirements
i Establish Policies and Procedures for Shared Services: Financial institutions are expected to establish policies and procedures to ensure that shared services arrangements are conducted in a manner consistent with the arm's length principle. This policy is to be approved by the board of the financial institution, reviewed annually and submitted to the CBN.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
