The Central Bank of Nigeria has banned closely linked financial entities from extending loans or guaranteeing each other’s obligations without its prior written approval.
The CBN disclosed the directive on June 11 in an Exposure Draft on “Ring-Fencing Operations of Closely Linked Entities in the Nigerian Financial System.” The guidelines aim to curb contagion risks, prevent the co-mingling of customer funds, strengthen governance, and support orderly resolution of distressed entities.
Under the draft, closely linked entities must operate independently and maintain adequate capital and liquidity to stand alone. The CBN said the board of each entity must ensure legal, structural, and operational independence from its affiliates, with separate governance, risk management, and control frameworks, including a dedicated board.
Transactions between closely linked entities must be conducted at arm’s length and properly documented. The guidelines also set measures for different licence categories to reduce risks from inter-group exposures
The CBN warned that breaches will attract sanctions, including penalties, replacement of management, or revocation of licence, in line with the Banks and Other Financial Institutions Act 2020 and other relevant regulations.
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