CBN Draft Guidelines On Ring-Fencing Operations Of Closely Linked Entities In The Nigerian Financial System

OVERVIEW

The Central Bank of Nigeria (CBN) has issued the Exposure Draft Guidelines on Ring- Fencing Operations of Closely Linked Entities in the Nigerian Financial System (“Draft Guidelines”). This Draft Guidelines dated 10th of June 2026 seeks to strengthen financial stability, enhance consumer protection, and address the regulatory risks associated with increasingly integrated financial groups. By establishing clear legal, operational, and financial boundaries between affiliated entities, the CBN aims to minimise contagion risks, prevent regulatory arbitrage, and ensure that the financial difficulties of one entity do not adversely affect other entities within the same corporate group.

CORE OBJECTIVES AND SCOPE OF THE DRAFT GUIDELINES

• Regulatory Objectives: The Draft Guidelines are intended to strengthen transparency, enhance accountability, and promote the long-term stability and resilience of the financial system.
• Scope of Application: The Draft Guidelines will apply to all institutions licensed by the CBN. Through inter-regulatory cooperation, the framework may also extend to affiliated entities that are supervised by other financial sector regulators (e.g. the Securities & Exchange Commission) where such entities form part of the same financial group.
• Group Structural Requirements: As a general rule, promoters are required to adopt a non-operating holding company ("HoldCo") structure or, alternatively, consolidate their businesses through a merger under a single licence. Where a HoldCostructure is adopted, the holding company must be separately incorporated and licensed, maintain controlling interests in at least two regulated financial institutions, and possess shareholders' funds exceeding the aggregate minimum regulatory capital requirements of its subsidiaries by not less than twenty per cent (20%).
• Alternative Consolidation Model: In lieu of establishing a holding company, financial groups may elect to consolidate their operations under a single licence through a merger or business combination. Such an approach would typically require the surrender of duplicate or overlapping licence categories and the rationalisation of the group's regulatory structure.

OPERATIONAL INDEPENDENCE AND FINANCIAL INTEGRITY

The Draft Guidelines place considerable emphasis on ensuring that entities within a group structure maintain operational independence and financial resilience. To this end, each entity is expected to preserve its legal and operational autonomy through distinct governance arrangements, separate boards, and independent risk management frameworks. The Draft Guidelines also contemplate separate customer relationships and dedicated complaints management mechanisms, thereby reinforcing the independence of each regulated entity.

From a financial perspective, the Draft Guidelines seek to minimise contagion risk by requiring entities to maintain standalone capital and liquidity positions. Capital adequacy and liquidity requirements must be satisfied independently and cannot be supported by reliance on group balance sheets, save for parent-to-subsidiary capital injections. Any form of intra-group liquidity support is subject to the prior written approval of the Central Bank of Nigeria. Furthermore, intra-group loans, guarantees, funding arrangements, and other credit exposures must be commercially structured, properly documented, and conducted on an arm's length basis to ensure that financial distress affecting one entity does not compromise the solvency of another.

The Draft Guidelines also impose stringent requirements relating to the protection of customer funds and data. Customer funds must be strictly segregated and may not be utilised for intra-group lending, collateralisation, debt servicing, proprietary trading, or the operational expenses of related entities. Regulated entities are required to conduct daily reconciliations and promptly rectify any discrepancies within twenty-four hours. In addition, the sharing of customer information across group entities must be undertaken in accordance with the Nigeria Data Protection Act 2023 and, where applicable, supported by the informed and explicit consent of customers.

GOVERNANCE AND OPERATIONAL CONTINUITY

• Governance Standards: The Draft Guidelines imposes clear governance safeguards designed to preserve the operational independence of regulated entities. In particular, overlapping directorships are restricted, with common directors limited to no more than 20 per cent of the total board composition. In addition, the proposed Guidelines generally discourage the sharing of personnel across related entities, except in circumstances expressly permitted under the applicable shared services framework.
• Shared Services and Technology Arrangements: Shared services arrangements are required to be documented through formal Service Level Agreements (SLAs) setting out, amongst other things, the scope of services, allocation of responsibilities, pricing mechanisms, business continuity measures, exit rights, and substitution arrangements. Such arrangements are subject to the prior written approval of the CBN. The framework further requires each entity to maintain sufficient operational independence and empowers the CBN, where necessary, to mandate separate data centres. Importantly, entities are prohibited from deploying information technology systems to provide non- permissible services or to facilitate transactions on behalf of closely affiliated entities in a manner inconsistent with regulatory requirements.
• Operational Resilience and Recovery Planning: The framework places considerable emphasis on resilience and contingency planning. Regulated entities are required to establish and maintain robust Business Continuity Plans (BCPs) for critical operations, with such plans to be tested at least twice annually. In addition, entities are expected to develop Recovery and Resolution Plans (RRPs), duly approved by their respective boards, to ensure the continued operation of critical functions during periods of financial distress. The CBN also retains broad supervisory powers, including the authority to direct the divestment of promoters' interests where the activities of an entity are considered detrimental to the protection of depositors' funds or the overall stability of the financial system.

CONSUMER PROTECTION

The proposed Guidelines places considerable emphasis on transparency and the fair treatment of customers. Regulated entities are required to ensure that customers are able to clearly distinguish between the products and services offered by different affiliated entities and are prohibited from presenting themselves in a manner that obscures or blurs regulatory and licensing boundaries. Furthermore, where customers are to be onboarded or migrated to services provided by an affiliated entity, the receiving entity must independently establish the customer relationship, obtain the requisite KYC information directly or pursuant to the customer's prior consent, provide clear and easily understandable disclosures, and, where appropriate, offer customers alternative options. These measures are intended to promote informed decision-making and prevent customer confusion within group structures.

ENFORCEMENT

Enforcement and Regulatory Sanctions: The framework provides for stringent enforcement measures in the event of non-compliance. Depending on the nature and severity of the breach, the CBN may impose administrative sanctions, including financial penalties, require changes to management, or, in more serious cases, revoke the operating licence of the defaulting institution. These powers are exercisable pursuant to the provisions of the Banks and Other Financial Institutions Act 2020 (BOFIA) and other applicable regulatory instruments, underscoring the CBN's commitment to maintaining the safety, soundness, and integrity of the financial system.

CONCLUSION

The proposed Guidelines represent an important milestone in the CBN's ongoing efforts to strengthen governance, operational resilience, consumer protection, and risk management within the financial services sector. Once they come into force, the framework is expected to have far-reaching implications for banking groups, fintech companies, payment service providers, and other regulated entities operating within increasingly integrated corporate structures.

Undoubtedly, implementation will present certain practical challenges. The requirements for enhanced governance arrangements, greater operational independence, separate technology infrastructure, robust business continuity mechanisms, and formalised shared services frameworks are likely to increase compliance obligations and, in the short term, raise the cost of operations.

Institutions may also need to revisit existing group structures, review technology platforms, strengthen internal controls, and renegotiate intra-group arrangements to align with the new regulatory expectations.

However, these transitional challenges are outweighed by the broader benefits the Guidelines seek to achieve. By promoting clearer governance boundaries, reducing contagion risks, strengthening consumer protection, and enhancing operational resilience, the Guidelines have the potential to foster greater confidence in Nigeria's financial system. They are also expected to improve transparency, support more effective regulatory oversight, and bring the Nigerian financial ecosystem closer to international supervisory standards and best practices.

Importantly, the framework reflects the realities of a rapidly evolving financial landscape where digital platforms and interconnected group structures continue to blur traditional boundaries. By providing clearer rules on intra-group relationships and operational arrangements, the CBN seeks to balance innovation with financial stability and market integrity.

Ultimately, while implementation may require significant investment and organisational change, the long-term effect should be a stronger, more resilient, and more trusted financial ecosystem capable of supporting sustainable growth and innovation in Nigeria.