CBN DRAFTS GUIDELINES ON RING-FENCING OPERATIONS OF CLOSELY LINKED ENTITIES IN THE NIGERIAN FINANCIAL SYSTEM

Introduction

CBN Ring-Fencing Guidelines introduce a new regulatory framework aimed at strengthening governance, protecting customer funds, and ensuring operational independence among closely linked entities in Nigeria’s financial system.

On the 10th day of June, the Central Bank of Nigeria (CBN) introduced a draft of the Guidelines on Ring-Fencing Operations of Closely Linked Entities in the Nigerian Financial System (The Guidelines). The guideline is in line with the mandate of CBN to promote a safe, sound and stable financial system, safeguard consumer interests and strengthen regulatory oversight within the Nigerian financial system. The guideline addresses the unpopular issue of functional and operational integration of financial institutions with their subsidiaries, franchises or other closely linked entities. The guidelines attempt to limit the risk of liability of customers participating in the integrated financial services of these institutions. At their core, the Guidelines seek to establish a degree of ring-fencing between related entities. This means that each entity must operate strictly within the scope of its licence and maintain sufficient independence from affiliated entities.

This newsletter provides a brief insight into the provisions of the guidelines, their aims, and the implications for financial institutions as well as customers’ interests.

The Guidelines

According to the circular, the CBN Ring-Fencing Guidelines seek to to establish clear-cut operational and functional boundaries among closely linked entities within the financial system. CBN seeks to ensure and implement this operational boundary using ring-fencing operations. The ring-fencing operation ensures clear separation of duties, roles, functions and operations of financial institutions that are closely linked.

The guidelines apply to financial institutions, payment service providers, their subsidiaries offering financial -related services and the public.

Objectives of the Guidelines

The guidelines outline measures to:

1. Address regulatory arbitrage associated with commingling the activities of different licence categories

2. Mitigate risks from the commingling of customer funds with those of closely linked entities

3. Provide additional governance requirements for closely linked entities.

4. Support orderly resolution of distressed closely linked entities.

Key Provisions of the Guidelines

1. Governance: Although the guidelines support the practice of cooperate governance applicable to the specific financial institution, the guidelines make provisions for the governance of closely linked entities as it relates to the membership of the board of directors, audit procedure and employment of staff.

2. Intra-Group transactions: The guidelines ensure that interactions and transactions between closely linked entities are conducted at arm’s length. It further actively involves the CBN in intra-group transactions wherein reports are sent and adequate CBN approval is sought.

3. Segregation of Customer Funds and Data: The guidelines strive to prevent the commingling of closely linked entities by segregating and protecting customer funds and data. This is done by daily reconciliation of accounts and prior consent of the customer.

5. Consolidated Supervision: The CBN Ring-Fencing Guidelines provide for a consolidated supervision by the CBN. For entities licensed by CBN, the assessment shall be led by relevant supervisory department of the predominant closely linked entity.

Implications for Financial Entities

1. The guidelines ensure that financial institutions operate and function within their licensed category and ensure the independence of operations.

2. The guidelines prohibit the mixing, blending and integration of services of closely linked entities. This ensures that financial institutions must have the liquidity and capacity to operate independently

Implications for the Customers

1. The guidelines ensure that the customers are actively involved in the decision-making affecting the quality of services being rendered by the financial institutions

2. The guidelines ensure that customers’ funds and data are protected. It ensures that the customers have grounds for redress in times of breach.

Conclusion

The objective is to ensure that customers remain at the centre of the regulatory framework. By promoting transparency and accountability, the Guidelines aim to ensure that customers understand how their funds are handled, how their data is collected, stored, shared, and processed, and how services are delivered where more than one closely related entity is involved. The framework also seeks to mitigate the contagion risks that may arise from excessive operational or financial dependence between affiliated entities. Thus breach or failure to comply with the provisions of the Guidelines attract appropriate sanctions, including penalties, replacement of management, and or evocation of license in line with BOFIA 2020and other relevant extant regulations

Therefore, stakeholders, financial institutions and the public are advised to review the draft and relay any feedback to the financial policy and regulation department of the CBN via PolicyandRegulationsDivision@cbn.gov.ng on or before the 9th day of July 2026. It should also be noted that the guideline is to be read in conjunction with the Central Bank of Nigeria (CBN) Act 2007 and the Bank and Other Financial Institutions Act (BOFIA) 2020 for better understanding.

This newsletter is provided for general information purposes only and does not constitute legal, regulatory, or professional advice. While reasonable care has been taken in preparing this publication, readers are advised not to rely on its contents as a substitute for specific legal advice. Institutions and individuals are encouraged to consult their legal, compliance, or other professional advisers to obtain advice tailored to their particular circumstances.