CBN Proposes New Rules Defining Boundaries Between Banks, Fintech Firms
Nigeria’s financial sector is headed for a significant regulatory shake-up. The Central Bank of Nigeria has proposed new rules that would draw clear operational lines between banks, fintech companies, and other closely linked financial institutions, a move that signals a tougher stance on how connected entities within the same group are allowed to operate.
The proposals are contained in an Exposure Draft Guidelines on Ring-Fencing Operations of Closely Linked Entities in the Nigerian Financial System, released by the apex bank. At the heart of the framework is the CBN’s push to tackle regulatory arbitrage, the practice where financial groups exploit gaps between licence categories to offer services beyond their approved scope. The CBN ring-fencing of banks and fintech firms is designed to close exactly those gaps.
Under the draft guidelines, institutions within the same group structure will be required to operate with far greater independence. One of the most immediate changes would affect how customers move between affiliated platforms. Where a customer opts into a service offered by a closely linked entity, that entity must establish an entirely independent business relationship, including collecting Know-Your-Customer (KYC) information directly from the customer rather than pulling it from a sister company’s records. This would fundamentally alter the seamless cross-platform transfers that many digital financial groups currently offer their users.
The CBN also moved to clamp down on the use of shared technology platforms to extend services beyond what a licence permits. No institution, the draft states, should leverage IT applications to offer non-permissible activities, even where a related entity within the same group is licensed to offer those services. Facilitating transactions on behalf of affiliated entities through a separate institution’s own systems would equally be prohibited.
Shared services arrangements, a common feature of group-structured financial companies, will also face tighter scrutiny. The CBN is proposing that any such arrangement require prior written approval from the apex bank before it commences. Beyond that, annual independent reviews, including value-for-money audits by external consultants, would be mandatory, with results submitted directly to the regulator.
The central bank was equally firm on operational independence, stating that no entity within a group should depend on another’s balance sheet for day-to-day operations. Exceptions would apply only where a parent company is providing capital support to subsidiaries, a line drawn to contain contagion risk and keep individual institutions from becoming liabilities to their affiliates.
The CBN ring-fencing push arrives at a time when Nigeria’s fintech landscape has expanded rapidly, with many banks acquiring or partnering with digital payment and lending platforms. While the framework is still in the exposure draft stage and open to feedback, it sends a clear signal that the regulator intends to tighten its grip on how these overlapping structures are governed.
