AN OVERVIEW OF THE CBN DRAFT GUIDELINES ON RING FENCING OF THE OPERATIONS OF ENTITIES: COMPLIANCE OBLIGATIONS FOR FINANCIAL INSTITUTIONS

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BY SEUN TIMI-KOLEOLU & HILLARY OKOROTIE

Introduction

The interconnectedness of financial institutions has created opportunities for operational efficiency. In many cases, financial institutions hold interests in one or more financial service providers. This structure, however, raises some regulatory concerns, including: commingling of consumer funds; and the risk that the financial failure of one entity may adversely impact other closely linked entities.

In response to these concerns, the Central Bank of Nigeria (CBN) on June 11, 2026 issued the Draft Guidelines on Ring-Fencing Operations of Closely Linked Entities in the Nigerian Financial System (the “Proposed Guidelines”). The Proposed Guidelines seek to establish a framework that ensures closely linked entities maintain sufficient independence. In this newsletter we share insights into some of the provisions and requirements of the Proposed Guidelines.

Notable Highlights of the Proposed Guidelines

  1. Enhancing Governance Oversight and Operational Independence

The Proposed Guidelines places emphasis on ensuring that closely linked entities maintain independence in their governance structures, operations, and risk management frameworks. Under the governance requirements, the Board of each closely linked entity is responsible for establishing measures to prevent excessive dependence on related entities. This includes implementing a ring-fencing policy and ensuring effective oversight by the Board Audit Committee of the entity. The Guidelines also limit the number of directors from an entity who may serve on the board of a closely linked entity to no more than twenty percent of the total board composition. In addition, the effectiveness of all implemented policies is to be assessed by an external auditor on an annual basis.

Beyond governance safeguards, the Proposed Guidelines introduce detailed ring-fencing obligations aimed at separating the legal, structural, and operational activities of closely linked entities. Each entity is expected to maintain its own governance, risk management systems, and internal controls, including a separate Board. Transactions between closely linked entities must be conducted on an arm’s length basis, properly documented, and structured in a manner that prevents the failure of one entity from affecting the solvency or critical operations of another.

Where entities rely on shared services within the group, such arrangements must be supported by formal service level agreements that clearly define responsibilities, pricing mechanisms, performance standards, and exit arrangements. Entities are also required to ensure that shared service structures do not compromise their ability to operate independently and prior approval is obtained from the CBN on such arrangements.

  1. Safeguarding Customer Funds and Personal Data

The Proposed Guidelines introduce enhanced safeguards aimed at protecting customer funds and ensuring responsible management of customer information within closely linked entities. Entities are required to maintain clear separation between customer funds and group resources by prohibiting the use of customer funds for intra-group lending, securing group obligations, servicing debts, proprietary trading, or supporting the operational expenses of related entities. Entities are also expected to implement daily reconciliation processes to identify and resolve discrepancies in customer accounts within twenty-four hours.  In addition, entities are required to disclose material intra-group transactions in their audited financial statements and provide customers with access to relevant information regarding their accounts and transactions.

The Proposed Guidelines also introduce data governance obligations, requiring entities to adopt appropriate measures such as encryption, access controls, and periodic audits to preserve data integrity, confidentiality, and security. Where customer or operational data is transferred between closely linked entities, such transfers must be done with the explicit consent of the customer. General data processing including data transfer is required to be done in accordance with the Nigeria Data Protection Act.

  1. Protection of Consumers

To strengthen consumer protection, closely linked entities are required to ensure that the services offered by each entity within the group are clearly distinguishable to customers. Entities must avoid advertising, promoting, or providing services beyond the scope permitted under their respective operating licenses. In addition, complaint management processes are expected to operate independently within each entity to ensure that customer concerns are addressed without influence from related entities. Where services are delivered through or involve another closely linked entity, customers must be provided with clear and adequate disclosure to enable them understand the entity responsible for the service.

  1. Formation of a Non-operating Holding Company

Under the Proposed Guidelines, the CBN requires promoters of closely linked entities to incorporate a non-operating holding company, which will function as a primary investment vehicle. The holding company is to hold interests in the subsidiary entities without participating in their day-to-day operations. The holding company is expected to maintain a minimum capital requirement exceeding the combined minimum capital requirement of its subsidiaries by at least twenty percent. In addition, the holding company must hold controlling interests in at least two financial services providers. Where the group structure includes a commercial bank, merchant bank, or non-interest bank, the applicable CBN regulations governing financial holding companies will continue to apply. For further information on the CBN’s recent draft guidelines on financial holding companies, please refer to our previous newsletter.

Conclusion

In anticipation of the Guidelines, it is advisable that promoters of financial institutions operating closely linked entities begin to assess their existing governance and operational arrangements as follows:

  1. evaluate the composition of the board of each entity to ensure it aligns with the Guidelines;
  2. review intra-group transactions;
  3. ensure that each entity’s terms of service clearly state instances where services will be provided by affiliates;
  4. begin to consider setting up a non-operating holding company for the purpose of holding investments in linked entities in line with the requirement of the Guidelines; and
  5. ensure that each entity provides only services permitted under the scope of its regulatory license.

It is important for every financial institution to pay close attention to the Proposed Guidelines and other applicable regulatory requirements to mitigate compliance risks. Failure to comply may result in penalties, including the revocation of licenses and other sanctions, in accordance with the Banks and Other Financial Institutions Act and other extant regulations.

BEYOND LICENSING – CBN’S DRAFT GUIDELINES FOR FINANCIAL HOLDING COMPANIES IN NIGERIA

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BY ADERONKE ALEX-ADEDIPE AND ENIOLA SOGBESAN

BEYOND LICENSING – CBN’S DRAFT GUIDELINES FOR FINANCIAL HOLDING COMPANIES IN NIGERIA.

Introduction

On 10 June 2026, the Central Bank of Nigeria (CBN) issued an Exposure Draft of the Revised Guidelines for Licensing and Regulating Financial Holding Companies (FHCs) in Nigeria (the “Draft Guidelines”). The Draft Guidelines is the first review of Nigeria’s financial holding company framework since the introduction of the Guidelines for the Licensing and Regulation of Financial Holding Companies in Nigeria 2014 (the “2014 Guidelines”).

The Draft Guidelines seek to:

  1. strengthen the financial resilience of holding companies;
  2. improve group-wide governance and oversight;
  3. clarify ownership and control requirements;
  4. enhance regulatory supervision of financial groups; and
  5. address concerns arising from shared service arrangements and complex group structures.

For existing FHCs, banking groups, investors, and prospective promoters, the Draft Guidelines signal a shift from a regime focused primarily on licensing to one that places greater emphasis on governance, capital adequacy, ownership accountability, and consolidated supervision.

Key Highlights of the Draft Guidelines

  1. Definition and StructureThe Draft Guidelines introduce a clear definition of what constitutes a FHC. Under the Draft Guidelines, a FHC is defined as a non-operating holding company that has two or more direct subsidiaries, one of which must be a bank. The Draft Guidelines further stipulate that a FHC may adopt either a Parent HoldCo or Intermediate HoldCo structure.Under the Parent HoldCo structure, a parent holding company holds direct equity investment in each Nigerian subsidiary, however under the Intermediate HoldCo structure, an intermediate holding company is incorporated for the purpose of holding equity investment in foreign subsidiaries. Accordingly, all existing FHCs are required to notify the CBN of their preferred structure within six (6) months of the effective date of the Guidelines. Also, once the preferred structure is approved by the CBN, such FHC must operate that structure for a minimum of 5 years before it may elect to reverse or alter the approved structure.

    The Draft Guidelines list individuals, non-bank corporate investors and banks [commercial, merchant and non-interest] as eligible promoters of FHCs. This clarification provides greater regulatory certainty for investors considering the use of a holding company structure to expand their presence within Nigeria’s financial services sector.

  1. Permissible and Non-Permissible Activities
    Under the Draft Guidelines, the following activities are permissible for FHCs. These activities include-
    1. holding equity investment in subsidiaries engaged in financial services;
    2. investment in government securities or placement with banks;
    3. with the prior approval of the CBN, raising bonds and debentures;
    4. subject to the prior approval of the CBN, borrowing internationally to capitalize any of its subsidiaries and;
    5. providing either by itself or through any subsidiary, shared services to the group members in respect of facilities, legal and ICT services and other services that may be prescribed by the CBN from time to time.

However, FHCs are prohibited from engaging in the following activities –

    1. investing in entities not involved in financial services;
    2. pledging its shares in any subsidiary as collateral for any purpose;
    3. establishing, divesting or closing any subsidiary without the prior approval of CBN;
    4. interfacing with any customers of its subsidiaries and;
    5. bearing the expense of any of its subsidiaries.
  1. Corporate Governance Requirements
    In addition to the provisions of the Corporate Governance Guidelines for Financial Holding Companies in Nigeria, the Draft Guidelines introduce additional corporate governance rules for FHC’s.Some of these additional corporate governance are –
    1. subsidiaries of FHCs are prohibited from acquiring shares in the FHC and/or other subsidiaries of the FHC;
    2. Nominee companies that are subsidiaries of the FHC are prevented from investing client funds in the FHC or any other subsidiary;
    3. where a FHC loses control in the only or all Nigerian banking subsidiaries for a period that exceeds six (6) consecutive months, its license shall be revoked;
    4. where a FHC that has only two (2) subsidiaries loses control in either subsidiary for a period that exceeds six (6) consecutive months, its license shall be revoked;
    5. No employee of a FHC shall be appointed as a non-executive director in the FHC or any other subsidiary; and
    6. interlocking directorship within a FHC is limited to a maximum of one other company.More importantly, the Corporate Governance rules of the Draft Guidelines are required to be read in conjunction with the Nigerian Code of Corporate Governance 2018, Corporate Governance Guidelines for Financial Holding Companies in Nigeria and where applicable the SEC’s Code of Corporate Governance for Public Companies and Listed Entities in Nigeria.
  1. Intra-Group Transactions, Prudential Requirements & AML/CFT Compliance
    The Draft Guidelines make extensive provisions for intra-group transactions. More specifically, FHCs are prohibited from interfering in the daily operations of their subsidiaries and all transactions with their subsidiaries must be strictly on an arm’s length basis. In particular, the Draft Guidelines expressly prohibit the practice where board members of a subsidiary attend board meetings of the FHC and vice versa.All FHCs are required to maintain a minimum regulatory capital which shall exceed the sum of the minimum regulatory capital of its subsidiaries by at least 20%. In determining what constitutes minimum regulatory capital, the Draft Guidelines provide that only the paid up capital shall be recognized. Additionally, excess capital in one subsidiary shall not be computed to make up for a shortfall in the share capital of another subsidiary.Furthermore, the Draft Guidelines require all FHC’s to comply with all AML/CFT/CPF regulations and to appoint a compliance officer who shall not be below the grade of a senior management staff responsible for filing the required returns with the CBN.

What Should Financial Holding Companies Be Doing Now?

Although the Draft Guidelines remain in draft form, affected institutions should begin evaluating the potential implications of the proposed framework.

Key considerations include:

    1. assessing compliance with the proposed ownership thresholds;
    2. reviewing group structures and foreign subsidiary arrangements;
    3. evaluating shared service models and related documentation;
    4. assessing capital adequacy and funding arrangements;
    5. reviewing governance frameworks and board oversight mechanisms; and
    6. identifying areas that may require regulatory engagement or restructuring.

Conclusion

The Draft Guidelines appears to be more than a routine update of the 2014 Guidelines. It reflects a broader regulatory shift towards stronger governance, clearer ownership structures, enhanced prudential safeguards, and more effective consolidated supervision of financial groups. For financial holding companies and banking groups, the message is clear: regulatory expectations are evolving beyond licensing and corporate structure requirements only.

The practical implication of the Draft Guidelines is that financial holding companies must begin to reassess their governance frameworks, group structures, risk management systems, and compliance functions to ensure alignment with the heightened regulatory standards. As the Central Bank of Nigeria continues to strengthen its supervisory oversight of financial conglomerates, early preparation and strategic compliance will be critical to achieving long-term sustainability and regulatory success.

KEY REGULATORY UPDATE IN NIGERIA: THE CBN FOREIGN EXCHANGE MANUAL 2026

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BY SEUN TIMI-KOLEOLU & OLUWAYEMI IBIRINDE

Introduction

On June 1, 2026, the Central Bank of Nigeria (CBN) implemented the Fourth Edition of the Foreign Exchange Manual (the “2026 Manual”), replacing the Foreign Exchange Manual 2018 (the “2018 Manual”). The 2026 Manual introduces significant changes to currency and trade rules and consolidates various foreign exchange policies and directives into a single framework governing foreign exchange transactions in Nigeria. While the 2026 Manual introduces measures intended to improve access to foreign exchange and facilitate cross-border transactions, it also strengthens regulatory oversight and significantly increases the consequences of non-compliance.

In this newsletter, we highlight some of the key changes introduced by the 2026 Manual and their implications for financial institutions and other stakeholders.

Key Operational Adjustment

Increased Flexibility for Trade and Foreign Exchange Transactions

  1. Import and Export
    Under the 2018 Manual, importers were generally permitted to make advance payments of up to 15% of the Free on Board (FOB) value of physical imports. However, under the New Manual the permissible advance payment threshold for physical imports has been increased to 30% of the Free on Board (FOB) value of the goods. This adjustment provides importers with greater flexibility in negotiating payment terms with foreign suppliers and may reduce procurement challenges associated with international trade transactions.Also, to incentivize international trade and reduce processing hassles, the New Manual mandates that the processing of Form NXP for exporters shall now be entirely free of charge.  These measures are expected to simplify access to foreign currency held in domiciliary accounts and reduce administrative blockages associated with remittance transactions.
  2. Tuition Remittances
    Under the 2018 Manual, International tuition fee remittances were restricted to USD 15,000 per semester, capped at two semesters per year. However, the 2026 Manual raises this threshold to USD25,000 per semester. This provision provides greater clarity regarding the amount that may be accessed through official channels for educational expenses.

  3. Domiciliary Account Holders
    Also, the 2026 Manual removes the Form A requirement for outward remittances for holders of self funded domiciliary accounts.

    Similarly, Domiciliary account holders may now initiate direct telegraphic transfers of up to USD10,000 per day without triggering exhaustive trade documentation.

Export Proceeds and Inbound Remittances

The 2026 Manual provides that all exporters shall ensure that export proceeds are repatriated and credited to their export domiciliary account in the bank where the NXP was established, within 180 days from the Bill of Lading date for oil and gas exports and 90 days for non-oil exports. Failure to adhere to this timeline imposes a penalty of 1% of the amount involved.

Furthermore, the Manual provides that inbound foreign currency transfers shall be paid to beneficiaries in Naira or such other currency as may be determined by the CBN from time to time.

It further provides that cash withdrawals relating to inbound transfers shall not exceed the Naira equivalent of USD200, while amounts above this threshold must be paid through a bank account.

Revised Travel Allowance Framework

CBN previously prohibited cash payments of Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) under its 2024 cashless directive. However, Under the 2026 Manual, 25% of the PTA and BTA may now be disbursed in physical foreign currency cash while the remaining 75% must be disbursed through electronic channels such as debit or credit cards. This policy shift aims to balance the digital payment objectives of the apex bank with the practical cash liquidity demands faced by international travelers.

Domestic Transactions and Naira Denomination Requirements

The 2026 Manual reaffirms the requirement that transactions involving goods and services exchanged between Nigerian entities must generally be denominated and settled in Naira.

However, exemptions continue to apply to certain sectors and transactions, including specified activities within the oil and gas, maritime, aviation and free trade zone sectors.

Regulatory Compliance and Enforcement

The New Manual introduces a high-stakes environment for Authorized Dealer Banks (ADBs) and corporate entities:

  1. Financial Sanctions: Banks processing transactions without adequate documentation face a ₦100 million flat fine, plus ₦10 million per affected transaction.
  2. Export Penalties: A 1% penalty applies to exporters failing to repatriate proceeds within the mandatory 90 days (non-oil) or 180 days (oil/gas) windows.
  3. Strict Documentation: The CBN has codified the use of the Electronic Certificate of Capital Importation (eCCI). Capital must be registered within 24–48 hours of inflow; failure to do so may permanently compromise the legal standing of the investment.
  4. Domestic Denominations: All domestic transactions must be priced and settled in Naira. Exemptions are strictly limited to specific sectors, including Oil & Gas, Maritime, Aviation, and businesses within Free Trade Zones.

Conclusion

The 2026 Foreign Exchange Manual represents an important development in Nigeria’s foreign exchange regulatory framework.

On one hand, the Manual provides businesses and individuals with greater flexibility through higher import payment thresholds, increased tuition remittance limits, simplified domiciliary account operations, and reduced export transaction costs. On the other hand, it introduces a more stringent compliance environment characterised by enhanced documentation requirements, stronger reporting obligations, and substantial penalties for non-compliance.

Accordingly, all stakeholders involved should undertake a comprehensive review of their foreign exchange policies, documentation procedures, transaction monitoring systems, and internal controls to ensure alignment with the new framework. Given the scale of the sanctions introduced by the Manual, compliance failures may no longer be viewed as routine administrative lapses but as material regulatory risks with potentially significant financial and operational consequences.

As implementation of the Manual progresses, we expect that further regulatory guidance will be put in place to provide additional clarity on the application of the 2026 Manual provisions.

Key Changes at a Glance

Area 2018 Manual 2026 Manual
Advance Import Payments 15% of FOB Value 30% of FOB Value
PTA/BTA Disbursement More restrictive cash framework 75% Electronic / 25% Cash
Tuition Fee Remittances Lower limits Up to USD 25,000 per Semester
Domiciliary Account Remittances Form A Required Form A Removed
Form NXP Processing Processing Fees Applicable Free of Charge
Documentation Violations Lower sanctions ₦100m + ₦10m per affected transaction
Export Proceeds Repatriation Existing obligations 1% penalty for non-compliance
Inbound Money Transfers Less detailed framework Enhanced payment and withdrawal restrictions

 

CBN CASH POOLING REFORM: IMPACT ON FOREIGN INVESTMENT AND THE OIL AND GAS SECTOR IN NIGERIA

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BY ADERONKE ALEX-ADEDIPE & PROMISE ITAH

Introduction

On 25 March 2026, the Central Bank of Nigeria (CBN) issued a circular on Removal of Cash Pooling Requirements for International Oil Companies (the “Circular”) removing the restrictions previously imposed on the repatriation of export proceeds by International Oil Companies (IOCs). Under the new framework, IOCs may now repatriate up to 100% of their export earnings immediately, reversing the 2024 “50/50 Rule”, which required a portion of export proceeds to remain in Nigeria for a specified period before repatriation.

In this newsletter, we briefly examine the background to the policy, the recent changes introduced by the CBN, some key documentation required by banks, and the implications for companies operating in Nigeria’s oil and gas sector.

  1. What is “Cash Pooling”?

    Cash pooling is a treasury arrangement used by multinational groups to manage the cash balances of their subsidiaries on a consolidated basis. Rather than leaving excess funds idle in separate accounts, the group centralises those funds and deploys them where they are most needed. This improves liquidity management within the group, enhances operational efficiency, and reduces reliance on external financing.

  1. The 2024 Policy Shift: The 50/50 Rule

    Before February 2024, IOCs operating in Nigeria could generally repatriate their US dollar export proceeds offshore, subject to local content requirements. However, due to foreign exchange liquidity pressures in early 2024, the CBN introduced restrictions permitting only 50% of export proceeds eligible for repatriation to be transferred immediately (or sold in the local foreign exchange market), while the remaining 50% had to be retained in Nigeria for at least 90 days.

    These measures were designed to increase foreign exchange liquidity and support stability in Nigeria’s foreign exchange market.

  1. The 2026 Circular: Restoration of Full Repatriation Rights

    As part of its efforts to further deepen and liberalise the Nigerian foreign exchange market, the CBN, through the Circular, removed the restrictions introduced in 2024. As a result, IOCs may now repatriate up to 100% of their export proceeds immediately upon receipt, subject to compliance with applicable documentation and reporting requirements. The previous 90-day retention requirement has been abolished, allowing companies greater flexibility in managing their export earnings and global treasury operations.

  1. Required Documentation
    Although the repatriation restrictions have been removed, Authorised Dealer Banks (ADBs) remain responsible for ensuring that all transactions are properly documented and reported to the CBN.

    Key documents required for processing repatriation requests may include:

  1. Evidence of export: Bills of lading, commercial invoices, and other documents evidencing the quantity, quality, and value of the exported crude oil.
  2. Clean Certificate of Inspection (CCI): Documentation issued by the relevant inspection authority confirming the quality and volume of the shipment.
  3. Evidence of foreign exchange inflow: Bank statements or confirmations showing that the export proceeds have been received into the IOC’s domiciliary account in Nigeria.
  4. Cash pooling agreement: The executed agreement between the Nigerian subsidiary and its parent company setting out the terms of the group’s cash pooling arrangement.

    These requirements are intended to promote transparency and ensure regulatory oversight of cross-border fund transfers.

  1. Key Market Impact:

    The policy change is expected to have important implications for Nigeria’s oil and gas sector.

  1. Foreign Investment

    The removal of the repatriation restrictions is expected to enhance investor confidence by assuring foreign investors and lenders that export proceeds can be accessed and transferred without delay. This may improve the attractiveness of Nigeria as a destination for upstream oil and gas investment, particularly for capital-intensive projects such as deepwater developments.

    In addition, the revised framework simplifies treasury operations for IOCs by eliminating the administrative burden associated with the previous 90-day retention requirement.

  2. Domestic Market Considerations

    The policy may also influence foreign exchange flows within the domestic market. While a greater proportion of export proceeds may now be transferred offshore immediately, the CBN appears to have concluded that prevailing market conditions can accommodate the change without undermining foreign exchange liquidity.

    The continued documentation and reporting obligations imposed on ADBs are expected to support regulatory oversight and help maintain market transparency.

Conclusion

The removal of the cash pooling repatriation restrictions marks a shift in Nigeria’s foreign exchange policy for the oil and gas sector. By restoring immediate access to export proceeds, the CBN has provided IOCs with greater flexibility in managing liquidity and participating in global cash pooling arrangements. For Authorised Dealer Banks, the focus shifts from monitoring retention periods to ensuring compliance with documentation and reporting requirements. Overall, the CBN expects the revised framework to strengthen investor confidence and support a more efficient and competitive foreign exchange market.

 

This newsletter provides a general overview of recent policy changes for informational purposes and does not constitute formal legal or financial advice. Because CBN guidelines can evolve, we recommend consulting a qualified professional regarding how these updates specifically apply to your business operations.

For further information on any of the issues covered in this newsletter, please contact us at info@pavestoneslegal.com. At Pavestones, we deliver quality and innovative legal support across diverse industries, helping businesses operate in compliance with applicable laws and regulations to drive sustainable business growth.