The Central Bank of Nigeria (CBN) has unveiled a new proposal aimed at strengthening the banking sector by limiting financial dealings between banks and their affiliated companies. The move is designed to prevent financial problems in one company from spreading across an entire corporate group and threatening the safety of depositors’ funds.
The proposed rules were contained in the CBN’s Exposure Draft Guidelines on Ring-Fencing Operations of Closely Linked Entities, which has been released for consultation with industry stakeholders. The document was signed by the Director of Financial Policy and Regulation, Dr. Rita I. Sike.
According to the draft guidelines, banks and their related companies—including fintech firms, microfinance institutions, and holding companies—must conduct all transactions on commercial terms similar to those used with independent third parties. Such transactions must also be fully documented and reported to the regulator.
The apex bank said the goal is to ensure that financial difficulties faced by one member of a corporate group do not negatively affect affiliated banks that hold customer deposits. To achieve this, the proposed framework places strict limits on lending, guarantees, funding arrangements, asset transfers, and other financial exposures between related entities.
Under the proposal, affiliated companies will be required to operate independently with sufficient capital and liquidity. They must also keep customer funds separate from other group operations. The CBN emphasized that customer deposits must not be used for intra-group lending, debt repayments, or speculative investment activities.
The draft also introduces stronger governance measures. Boards of directors will be required to adopt formal ring-fencing policies and disclose any potential conflicts of interest. In addition, cross-directorships among related entities will be limited to 20 percent to reduce excessive influence and improve oversight.
All transactions between affiliated companies must be carried out at market rates and reported to the CBN every quarter. Furthermore, no related company will be allowed to provide loans or guarantees to another affiliated entity without obtaining prior approval from the regulator.
Customer protection is another major focus of the proposal. Financial institutions will be required to clearly inform customers when they are being introduced to products or services offered by a related company. Customers must also give explicit consent before their personal data can be shared across affiliated businesses or before they are transferred between group services.
The guidelines also seek to improve oversight of shared services within financial groups. Affiliated entities will be expected to sign service-level agreements, undergo independent audits, and obtain regulatory approval for certain shared arrangements. They must also establish business continuity plans and recovery frameworks to support financial stability during periods of stress.
The CBN warned that violations of the proposed rules could attract severe penalties under the Banks and Other Financial Institutions Act (BOFIA) 2020. Possible sanctions include financial fines, management changes, and even the withdrawal of operating licences.
The proposed framework is expected to become effective later in 2026 after consultations with stakeholders and final approval by the regulator.
The initiative comes at a time when many Nigerian financial groups are expanding into technology, payments, and other non-banking services. The CBN believes stronger safeguards are necessary to ensure that risks in these businesses do not threaten the stability of the country’s banking system.
