CBN Proposes Stricter Boundaries Between Banks, Fintech Firms

In a bid to curb regulatory arbitrage and strengthen oversight within the financial system, the Central Bank of Nigeria (CBN) has unveiled new proposals to draw clearer operational lines between banks, fintech companies and other closely linked financial institutions.

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.

According to the CBN, the framework is designed to establish clear operational and functional boundaries among closely linked entities within the financial system as well as address regulatory arbitrage arising from the commingling of activities across different licence categories.

Under the draft guidelines, financial institutions within the same group structure are expected to operate with greater independence, with stricter limits on the sharing of services and customer relationships across affiliated entities.

A key provision requires separate onboarding processes for customers transitioning between related entities.

The CBN stated that where a customer opts to use a service offered by a closely linked entity, that entity must establish an independent business relationship with the customer.

It added that the receiving institution must obtain customer data directly, noting that “the closely linked entity shall obtain the customer’s Know-Your-Customer (KYC) information directly from the customer” before completing onboarding.

The proposal is expected to significantly alter current practices, in which customers are often seamlessly transferred across connected digital platforms within financial groups.

The apex bank also moved to restrict the use of technology platforms in ways that extend services beyond approved licence categories.

It stated that “an entity shall not leverage IT applications to offer non-permissible activities as defined by its guidelines even where closely linked entities are permitted to offer those services,” adding that institutions must not facilitate transactions on behalf of affiliated entities through their own systems.

To further strengthen oversight, the CBN is proposing tighter rules on shared services arrangements among group entities. It noted that such arrangements will now require prior approval.

According to the draft, “a prior written approval of the CBN is required before the commencement of shared services arrangements.”

It also mandated annual independent reviews of such arrangements, including value-for-money audits conducted by external consultants, with reports to be submitted to the regulator.

The CBN stressed that closely linked entities must maintain operational independence, except in cases where a parent company provides capital support to subsidiaries.

It further stated that no entity within a group structure should depend on another’s balance sheet for operational backing, reinforcing its push to limit contagion risks and improve transparency across Nigeria’s evolving financial ecosystem.