The Central Bank of Nigeria has introduced new restrictions preventing closely connected financial institutions from issuing loans to one another or backing each other’s obligations without prior regulatory clearance.
The directive was contained in an exposure draft outlining proposed ring-fencing rules for affiliated entities within Nigeria’s financial system.
According to the apex bank, such entities must obtain written approval before engaging in any form of credit extension or guarantee arrangement with related organisations.
The proposed framework is designed to reduce systemic risks associated with interlinked operations, including the improper mixing of customer funds and weak governance structures.
Under the guidelines, affiliated firms are required to function as independent entities, maintaining sufficient capital and liquidity buffers to sustain their operations without reliance on related parties.
The policy also mandates that each entity operates with separate governance systems, including dedicated boards, as well as independent risk management and internal control frameworks.
Additionally, all transactions between related firms must be conducted on a strictly commercial basis and properly documented to ensure transparency.
The central bank warned that violations of the proposed rules could attract sanctions, including financial penalties, management changes, or withdrawal of operating licences, in line with provisions of the Bank and Other Financial Institutions Act.
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