WHEN THE REGULATOR TAKES THE BOARD: THE LEGAL LIMITS OF NERC’S INTERVENTION

/0 Comments/in , /by

BY ADERONKE ALEX-ADEDIPE & EFE OKPARAVERO

Introduction

On 10 August 2026, the Nigerian Electricity Regulatory Commission (“NERC”) issued Order No. NERC/2026/086 in respect of Kaduna Electricity Distribution Plc (“KAEDC”), dissolving its existing board and appointing an interim board of “Special Directors” to oversee the company. NERC has also appointed an Administrator and commenced a 12-month process aimed at identifying a new core investor for KAEDC.

The intervention follows what NERC describes as a “grave situation”, including prolonged regulatory and market defaults, inadequate investment, operational weaknesses and significant outstanding market obligations.

The Order raises an important question for Nigeria’s electricity sector, which is how far can NERC go in taking control of a privately owned electricity distribution company without crossing the line between regulatory intervention and corporate ownership?

Taking control is not taking ownership

Section 75 of the Electricity Act, 2023 (“Electricity Act”) permits NERC, following an inquiry into the conduct or affairs of a licensee, to intervene where it determines that the licensee is in a “grave situation”.

The statutory triggers include;

  • an inability to discharge obligations under the Act or licence terms,
  • prolonged default in complying with statutory or regulatory obligations,
  • a protracted management crisis detrimental to shareholders, consumers or the operation of the undertaking, or
  • insufficient assets to meet liabilities with an imminent risk of receivership.

Where these circumstances exist, NERC is empowered to issue an interim order dissolving and removing the board and appointing Special Directors and an Administrator to manage the undertaking, notwithstanding anything contained in any written law and the memorandum and articles of association of the undertaking/licensee.

Accordingly, while the usual rights of shareholders to appoint or remove directors are displaced for as long as the intervention remains in force, the intervention does not transfer the shareholders’ ownership of KAEDC to NERC. The shareholders retain their shares and their underlying proprietary interests. What changes is the control over the affairs of the licensed undertaking.

Implications of an unsuccessful intervention

By the provisions of the Electricity Act, where the state of affairs of the licensee does not improve after NERC has taken the appropriate measures, NERC shall revoke the licence.

The Act therefore contemplates progression from regulatory intervention to licence revocation where the intervention fails, and ultimately to the sale and transfer of the undertaking. It provides  for the sale and transfer of the undertaking and addresses the treatment of liabilities and security interests.

Accordingly, if the intervention fails and a core investor has been identified, NERC may in line with the Electricity Act, proceed to revoke KAEDC’s licence and invoke the statutory process for the sale of the undertaking. This must however follow the statutory process:

  1. Regulatory intervention: This is the stage KAEDC is currently at and is critical to the preservation of its existing shareholding. At this stage, the focus is on addressing the circumstances that gave rise to the intervention and restoring the undertaking to a viable position.
  2. Licence revocation: If the regulatory intervention fails and the underlying issues are not resolved, NERC may revoke KAEDC’s licence in accordance with the Electricity Act. Revocation would trigger the statutory process for dealing with the undertaking.
  3. Compulsory sale: Following the licence revocation, NERC shall invoke the statutory sale mechanism under Section 77 of the Electricity Act and direct the sale of the undertaking.

Implications of the Intervention for KAEDC’s Creditors

The intervention has immediate implications for KAEDC’s creditors. While NERC has not revoked KAEDC’s licence or commenced the statutory process for the sale of the undertaking, the Order places KAEDC under regulatory control and introduces measures governing the company’s affairs during the intervention period.

For example, the Order directs the Corporate Affairs Commission not to register any change in KAEDC’s shareholding or directorship during the intervention period without NERC’s prior written approval. NERC has also directed the Administrator, Bureau of Public Enterprises, Nigerian Bulk Electricity Trading Plc, Nigerian Independent System Operator and other material creditors to reconcile KAEDC’s liabilities and file a liability-management plan with the Commission within 90 days from the commencement of the Order. This means that creditors should endeavour to file their interests with the Commission. The Order further provides that the liability-management plan may allow for interim warehousing of the liabilities. Under this arrangement, such warehoused liability would not be immediately enforceable but temporarily preserved for later settlement as part of the sale transaction. The warehoused liabilities would need to be disclosed in the transaction documents in relation to the sale, and prospective investors would be required to set out in their bids how they propose to settle those liabilities.

The above becomes even more significant if NERC proceeds to a statutory sale as the Electricity Act provides that the new purchaser of the undertaking gets it free of KAEDC’s existing debts and other encumbrances. Therefore, the creditors are precluded from filing any claims against the undertaking or its assets after the sale. Instead, they must recover what they are owed from the funds paid for the purchase of the undertaking, according to their order of priority.

In the interim, however, the key point is that KAEDC is in a regulatory intervention, not yet a statutory sale.  Hence, Creditors should seek to have their interests expressly captured in the liability-management plan, where they can be warehoused and settlement provided for in the event of a sale.  If they fail to do so, their principal avenue for recovery may be limited to the purchase price paid by the purchaser, distributed in accordance with the applicable order of priority, which may ultimately be insufficient to satisfy their outstanding debts.

The legal limits of NERC’s power

NERC’s intervention powers are broad, but they are not unfettered. Their exercise remains subject to the statutory framework established by the Electricity Act. In particular:

  1. Statutory threshold: There must be a proper basis for concluding that the licensee is in a “grave situation” within the meaning of section 75 of the Electricity Act with at least one of the four statutory triggers identified above being present.
  2. Statutory purpose: The intervention must be directed towards the statutory objectives underlying section 75 of the Electricity Act, including maintaining the continuity of electricity supply and resolving the particular statutory trigger that warranted the regulatory intervention.
  3. Legal constraints: NERC’s exercise of its powers remains subject to applicable legal principles. Accordingly, issues of compliance with statutory preconditions, procedural requirements, and the rationality of the decision may arise in any litigation challenging the intervention.

These limitations do not, however, mean that NERC requires shareholder approval before exercising its power to remove or replace a licensee’s board.

Recommendations

  1. For KAEDC and its shareholders: KAEDC and its shareholders should closely monitor the intervention and ensure strict compliance with the requirements of the Order. In particular, they should obtain legal advice on the extent to which the intervention affects existing shareholder rights, board powers, contractual arrangements and proposed changes to the company’s shareholding or directorship.
  2. For creditors: Creditors should undertake an immediate review of their existing exposures to KAEDC, including the nature and enforceability of any security interests. They should also assess the effect of the Order on enforcement rights and engage with the liability-management process within 90 days as directed by NERC, to ensure that their claims are properly recognised and protected.
  3. For NERC: NERC should ensure that the intervention remains closely tied to the statutory conditions and objectives under section 75 of the Electricity Act. Any further measures taken during the intervention should have a clear statutory basis and be implemented in a manner that provides sufficient certainty to KAEDC, its shareholders, creditors and prospective investors.
  4. For prospective investors: Potential investors should conduct enhanced legal and regulatory due diligence before committing to KAEDC. This should extend beyond KAEDC’s financial position to include its regulatory obligations, outstanding liabilities, existing security interests, shareholder structure and the statutory implications of any subsequent licence revocation or sale.
  5. For other DisCos and their stakeholders: Other electricity distribution companies should treat the KAEDC intervention as a regulatory warning. DisCos should strengthen compliance, investment, governance and financial-management frameworks to address regulatory and market defaults before they develop into circumstances capable of triggering intervention under section 75 of the Electricity Act.
  6. For policymakers and regulators: The KAEDC intervention also highlights the need for greater clarity around the relationship between regulatory intervention, shareholder ownership, creditor rights and the proposed replacement of a core investor. Clearer guidance on how a replacement investor is to acquire an interest during an intervention would provide greater certainty for existing shareholders, creditors and prospective investors.

Conclusion

The KAEDC intervention is more than a decision to remove a board. It is a test of the boundary between regulatory control and corporate ownership. The Electricity Act gives NERC significant powers to intervene in the management of a distressed electricity licensee. However, removing the board does not, by itself, make NERC the owner of KAEDC or extinguish the proprietary interests of its shareholders and creditors.

If the intervention succeeds and KAEDC is returned to a viable position, NERC’s role may remain one of temporary regulatory control. If it does not succeed, section 75(4) of the Electricity Act creates a potential route towards licence revocation and the statutory sale of the undertaking. This is where the balance between regulatory intervention, shareholder ownership and creditor rights becomes most significant.

TAXATION OF VIRTUAL ASSETS IN NIGERIA

/0 Comments/in /by

SEUN TIMI-KOLEOLU & PROMISE ITAH

Introduction

On July 31, 2026, the Nigeria Revenue Service (NRS) issued the Guidelines on the Taxation of Virtual Assets (the “Guidelines”), providing the first comprehensive administrative framework for the taxation of virtual asset transactions in Nigeria.

While the Guidelines do not introduce new taxes, they clarify how existing tax laws apply to virtual assets and establish new compliance obligations for taxpayers, Virtual Asset Service Providers (VASPs) and certain peer-to-peer (P2P) marketplace operators.

This newsletter highlights the key provisions of the Guidelines and their implications for businesses operating within Nigeria’s digital asset ecosystem.

  1. Who and What Are Covered by the Guidelines?

The Guidelines apply to persons and entities who acquire, dispose of, exchange or otherwise deal in virtual assets; receive income or payments in virtual assets; operate as VASPs or P2P marketplace operators; derive taxable income, profits or gains from virtual assets; or provide virtual asset-related services. They cover a broad range of activities, including cryptocurrencies, stablecoins, non-fungible tokens (NFTs), tokenised assets, DeFi transactions, staking, mining, airdrops and token swaps.

  1. What transactions are taxable?

A tax liability generally arises where a virtual asset is disposed of or income is earned from a virtual asset activity. Common taxable transactions include:

  • selling a virtual asset;
  • exchanging one virtual asset for another;
  • receiving staking or mining rewards;
  • earning rewards from DeFi activities;
  • selling NFTs;
  • receiving virtual assets as payment for goods or services; and
  • other transactions that result in taxable income or gains.

Depending on the nature of the transaction, the applicable taxes may include income tax, withholding tax, value added tax (VAT) and stamp duty.

  1. What transactions are not taxable?

The Guidelines clarify that not every transaction involving a virtual asset gives rise to a tax liability. Generally, the following are not treated as taxable events:

  • holding a virtual asset without disposing of it;
  • transferring virtual assets between wallets owned by the same person;
  • locking up virtual assets for staking;
  • creating or minting NFTs;
  • tokenising real-world asset without a change in beneficial ownership; and
  • using virtual assets as collateral for a loan.

The Guidelines also clarify that the transfer of a virtual asset is generally not subject to VAT. Instead, VAT applies to taxable services provided by VASPs, such as exchange, brokerage and transaction facilitation services. In addition, the Guidelines do not apply to the eNaira or other Central Bank Digital Currencies (CBDCs).

  1. How Are Taxable Gains Computed?

The Guidelines introduce a new method for calculating gains from the disposal of virtual assets. Under this method, the purchase price and sale price are first converted into United States Dollars (USD) using the applicable exchange rates on the dates the asset was acquired and sold. The gain is then calculated in USD before being converted back into naira for tax purposes.

This approach is designed to ensure that taxpayers are taxed on their actual investment gains rather than gains arising solely from changes in the exchange rate.

  1. How Will Virtual Asset Taxes Be Collected?

The Guidelines establish a structured framework for collecting taxes on virtual asset transactions, with responsibility shared between taxpayers and intermediaries such as VASPs and P2P marketplace operators. While taxpayers remain responsible for filing their annual tax returns and paying any outstanding tax, these intermediaries are required to deduct and remit certain taxes on behalf of users where applicable. The Guidelines also clarify that income earned from virtual asset activities, such as staking rewards, mining rewards, DeFi yields and virtual assets received as payment for goods or services, is generally taxable when received.

  1. What Does Token-Native Tax Remittance Mean?

The Guidelines introduce a token-native tax remittance framework. Under this framework, withholding tax on qualifying virtual asset disposals and stamp duty are deducted and remitted in the same virtual asset used in the transaction, rather than first being converted into naira.

To support this framework, the NRS intends to establish a Token Treasury, which will initially accept only supported virtual assets from participating registered VASPs. Where a transaction involves an unsupported virtual asset, the Guidelines provide that it will be converted into a supported token without affecting the taxpayer’s withholding tax credit.

  1. How Should Virtual Assets Be Valued?

The Guidelines establish valuation rules to ensure that virtual assets are valued consistently for tax purposes. Where a virtual asset is not directly priced in USD, taxpayers must use approved valuation sources to determine its fair market value and retain records to support their tax calculations. The Guidelines also prescribe how the cost of a virtual asset should be determined depending on how it was acquired, whether through a purchase, token swap, staking or mining rewards, a hard fork (where a blockchain splits and creates new tokens), or an airdrop (where free tokens are distributed by a project).

Where a taxpayer holds multiple units of the same virtual asset acquired at different times or prices, the Guidelines require a consistent method for determining the cost of the units disposed of. The default method is First-In, First-Out (FIFO), which assumes that the earliest acquired units are sold first, or the Weighted Average Cost method, which uses the average cost of all units held to calculate gains or losses. Once a method is adopted, it must be applied consistently.

Taxpayers may offset virtual asset gains and losses within the same tax year, but losses can only be applied against virtual asset gains and cannot be used to reduce other income.

  1. What Are the Key Compliance Requirements and Penalties?

The Guidelines impose extensive compliance obligations on taxpayers, VASPs and certain P2P marketplace operators. Among other things, taxpayers engaging in virtual asset activities must register for tax purposes and obtain a Tax Identification Number (TIN), while VASPs are required to verify users’ TINs, maintain prescribed records, file statutory returns and comply with the reporting requirements under the Nigeria Tax Administration Act (NTAA).

Failure to comply with these obligations may result in significant penalties including administrative penalties imposed by the NRS.

Key Takeaways for Businesses

The Guidelines provide greater certainty on the taxation of virtual assets but also introduce significant compliance obligations. Businesses should therefore:

  • review how their virtual asset transactions are treated under the Guidelines;
  • ensure their accounting and tax systems can support the new valuation and reporting requirements;
  • maintain comprehensive transaction, valuation and exchange-rate records;
  • review arrangements with VASPs and other intermediaries to understand how tax compliance obligations will be managed; and
  • monitor further guidance from the NRS as the new framework is implemented.

Conclusion

The Guidelines mark a significant step in the development of Nigeria’s virtual asset tax framework by providing much-needed clarity on the taxation of digital asset transactions and the compliance obligations of taxpayers and intermediaries. While this newsletter highlights some of the key provisions of the Guidelines, it is not intended to be an exhaustive analysis of the framework.

Businesses involved in virtual asset activities should review their systems, governance and compliance processes to ensure they are prepared to meet the new reporting, withholding and record-keeping requirements and seek appropriate advice where necessary.

NIGERIA’S FOREIGN EXCHANGE MARKET: RECENT REGULATORY REQUIREMENTS FOR BDC OPERATORS AND BANKS

/0 Comments/in , /by

BY ADERONKE ALEX-ADEDIPE & HILLARY OKOROTIE

Introduction

On February 10, 2026, the Central Bank of Nigeria (CBN) issued a circular on the Participation of Licensed Bureau De Change Operators in the Nigerian Foreign Exchange Market, permitting licensed Bureau De Change (BDC) operators to participate in the Nigerian Foreign Exchange Market (NFEM).

Following the commencement of BDC operators’ participation in the NFEM, the CBN, on July 15, 2026, issued the Guidance on the Purchase of Foreign Exchange by Bureau De Change Operators Through Authorized Dealer Banks in the Nigerian Foreign Exchange Market (the “Guidance Notice”). The Guidance Notice establishes the procedures governing the purchase of foreign exchange by BDC operators through authorized dealer banks and outlines the obligations of dealer banks in facilitating such transactions.

In this newsletter, we provide insights on the obligations of BDC operators and authorized dealer banks.

What Are the Obligations of Dealer Banks and BDC Operators Under the Guidance Notice?

Under the Guidance Notice, dealer banks and BDC operators are required to undertake the following:

  1. Due Diligence Processes
    Under the Guidance Notice, dealer banks are required to conduct Know Your Customer (KYC) and Customer Due Diligence (CDD) checks  before engaging in any foreign exchange transaction with a BDC operator. As part of this process, dealer banks must obtain and verify the BDC operator’s incorporation documents, valid operating license, as well as beneficial ownership information. Where a BDC operator is identified as presenting a higher risk following the due diligence assessment, the dealer bank is required to apply Enhanced Due Diligence (EDD) measures before proceeding with the transaction. 
  2. Fulfilment of Foreign Exchange Purchase Requests
    Requests by BDC operators to purchase foreign exchange must be submitted through the CBN’s Foreign Exchange Purchase Tracker Portal (the “Portal”) to the preferred authorized dealer BDC operators are required to register on the Portal and provide real-time updates of all foreign exchange purchase transactions. . Upon receipt of the BDC’s purchase request, the dealer bank may either approve or reject the request through the Portal. Where a request is rejected, the dealer bank must state the reason for the rejection on the Portal.The Guidance Notice also permits BDC operators to submit multiple foreign exchange purchase requests within a week, provided that the value of the purchases does not exceed the prescribed weekly purchase limit of US$150,000.

     

  3. Disbursement of Funds to BDC Operators
    In processing and fulfilling a foreign exchange purchase request, dealer banks are required to disburse foreign exchange only into foreign exchange settlement accounts maintained by the BDC operators with licensed financial institutions. Dealer banks must ensure that all disbursements are made solely to the BDC operator’s designated settlement account and not to the account of any third party. Any disbursement of foreign exchange to a third-party account constitutes a breach of the Guidance Notice and may attract sanctions against the dealer bank by the CBN. 
  4. Retention of Purchased Foreign Exchange
    BDC operators are required to sell all foreign exchange purchased through the NFEM within 24 hours. Any outstanding balance must be sold within 24 hours. Failure to comply may result in regulatory sanctions, including the forfeiture of the outstanding balance to the CBN or the suspension of the BDC operator’s license. In addition, BDC operators are required to disclose any outstanding balance in their foreign exchange purchase request for the following week. 

What Are the Penalties for Non-Compliance?

The CBN has prescribed sanctions for breach of its circular on the Participation of Licensed Bureau De Change Operators in the Nigerian Foreign Exchange Market and the Guidance Notice. BDC operators that fail to comply with these directives may be subject to monetary penalties, suspension or revocation of their operating license, or suspension of their access to the NFEM.

Similarly, dealer banks that fail to comply with the CBN’s directives when transacting with BDC operators may have their status as authorized dealer banks revoked. Where a breach involves suspected criminal conduct, the CBN may also refer the matter for criminal investigation and prosecution to the appropriate authorities

Conclusion

The CBN’s objective in permitting BDC operators to purchase foreign exchange through authorized dealer banks in the Nigerian Foreign Exchange Market (NFEM) is to improve liquidity within the formal foreign exchange market. The framework is also intended to curb abuses and arbitrage in the foreign exchange market. If properly implemented therefore, it is expected that these policies will sustain the current stability in the market.

For more information on the participation of BDC operators in NFEM, please see our previous newsletter.

 

NIGERIA’S FINANCIAL MARKETS REFORM – THE VIRTUAL ASSETS COORDINATION EXECUTIVE ORDER 2026 AND SEC’S PROPOSED CROSS-BORDER TRADING RULES

/0 Comments/in , /by

BY SEUN TIMI-KOLEOLU & ENIOLA SOGBESAN

Introduction

Nigeria continues to take significant steps towards modernizing its financial markets by creating a more transparent, innovative and globally competitive investment ecosystem. Two recent developments reflect this direction: the Presidential Executive Order on Virtual Assets Coordination 2026 (the “Executive Order”) and the Securities and Exchange Commission’s (SEC) Proposed Rules on Cross-Border Securities Trading and Custody (the “Proposed Rules”). Although they address different segments of the financial market, both initiatives are aimed at strengthening Nigeria’s regulatory framework, inter-agency coordination, and supporting responsible innovation.

In this newsletter, we examine the key highlights of these developments and their implications for investors, capital market operators, fintech companies and other stakeholders. We also consider how these reforms fit into Nigeria’s broader efforts to align its financial/capital markets with international best practices while encouraging growth, protecting investors and enhancing regulatory coordination.

  1. The Presidential Executive Order on Virtual Assets Coordination 2026
    President Bola Ahmed Tinubu on July 17, 2026 signed the Presidential Executive Order on Virtual Assets Coordination, 2026 (the “Executive Order”). The Order which takes effect immediately, is a response to a largely fragmented regulatory landscape that has exposed Nigerians to unchecked losses from unregulated operators. The Executive Order aims to protect investors while promoting responsible innovation and preserving financial system integrity.Key Highlights of the Executive OrderIt is important to note that the Executive Order does not establish a new regulator but rather establishes a mechanism for coordination amongst existing regulators such as SEC, Central Bank of Nigeria (CBN), Nigeria Revenue Service (NRS), Nigerian Financial Intelligence Unit (NFIU) and Office of the National Security Adviser (ONSA). The key highlights of the Executive Order include-
  • the establishment of a Virtual Asset Council (the “Council”) chaired by the CBN Governor, with the Director-General of the SEC and the Chairman of the Nigeria Revenue Service serving as Vice-Chairs;
  • the establishment of a Virtual Asset Office (VAO) to serve as the operational arm and secretariat of the Council;
  • a functional allocation of regulatory responsibilities among regulators –
      1. SEC – regulation of virtual assets that constitute securities and investment products;
      2. CBN – supervision of payment, settlement, custody and other non-security virtual asset activities within its statutory mandate;
      3. NRS – issue a specialized tax policy for the taxation of virtual assets;
      4. NFIU – oversight for AML/CFT compliance
      5. ONSA – coordination of national security and intelligence.
  • the establishment of a dedicated CBN regulatory sandbox for virtual asset and blockchain-based innovation.Implications and Opportunities for Virtual Asset Service ProvidersThe Executive Order signals a more coordinated regulatory framework for virtual assets, with clearer allocation of responsibilities among regulators and stricter oversight of anti-money laundering and counter-terrorism financing (AML/CFT) standards. Virtual Asset Service Providers (VASPs) should also monitor opportunities to participate in the CBN’s proposed regulatory sandbox, as well as anticipated tax guidance from the Nigeria Revenue Service (NRS). Collectively, these developments are expected to provide greater regulatory certainty for compliant operators while potentially increasing enforcement against operators that do not meet the applicable regulatory requirements.

    As of the date of this newsletter, we note that the official text of the Executive Order has not been publicly released, and we expect it to be released shortly. Once published, a detailed review of its provisions will be necessary to assess its implications for VASP’s and other participants in Nigeria’s digital asset ecosystem.

B. Proposed Rules On Cross-Border Securities Trading and Custody
The Securities and Exchange Commission (SEC) on July 2, 2026 published a draft of its “Proposed Rules on Cross-Border Securities Trading and Custody” (the “Proposed Rules”). The Proposed Rules represent a significant step by the SEC towards establishing a comprehensive regulatory framework for Nigerian investors’ wishing to invest in foreign securities. The Proposed Rules seek to regulate the provision of cross-border securities trading services by SEC-registered brokers, while strengthening investor protection, enhancing regulatory oversight, and promoting the integrity of cross-border investment activities.

  1. Scope/Applicability
    The Proposed Rules are applicable to every broker licensed by the SEC that provides Nigerian investors access to foreign securities listed or traded on a foreign securities exchange. More specifically, the Proposed Rules applies to the following services –
    1. trading in foreign securities on behalf of Nigerian investors;
    2. execution of cross-border securities transactions through foreign intermediaries;
    3. custody and safekeeping of foreign securities belonging to Nigerian investors;
    4. maintenance of records of beneficial ownership of foreign securities; and
    5. the protection of investor rights and assets within indirect holding structures.
  1. Licensing Requirements
    Under the Proposed Rules, a broker is prohibited from providing cross-border securities trading services without first obtaining a prior “No Objection” from the SEC.To obtain a No Objection from the SEC, a broker must submit an application which include but not limited to the following documents –
    1. detailed description of the proposed cross-border trading services;
    2. identification of foreign exchanges to which access shall be provided;
    3. details of foreign brokers and custodians to be engaged;
    4. description of custody and settlement arrangements; and
    5. policies governing safeguarding of client assets.

The Proposed Rules clearly prohibit a broker from facilitating foreign securities trading, unless it maintains a minimum net liquid capital of not less than ₦2 billion.

  1. Approval Requirements for Foreign Brokers?
    Prior to engaging in foreign securities transaction through a foreign broker, a Nigerian broker shall ensure that the foreign broker satisfies the following conditions –
    1. the foreign broker must be licensed and supervised by a securities regulator;
    2. it must operate within jurisdictions that are members of the International Organization of Securities Commissions (IOSCO) and whose regulator is a signatory to the IOSCO Multilateral Memorandum of Understanding or any other cooperation arrangement with the SEC;
    3. it must maintain adequate financial resources, operational capacity, custody safeguards, and client asset protection mechanisms;
    4. where applicable, it is a participant in recognized clearing and settlement systems; and
    5. the foreign broker is not subject to any material regulatory sanction, restrictions, suspension, or enforcement action that may impair its operations or expose investors to undue risk.
  1. Regulatory Assessment and Recognition of Foreign Brokers
    Under the Proposed Rules, a broker shall not enter any arrangement or any other business relationship with a foreign broker for the purpose of providing cross-border securities trading without the prior approval or a “No Objection” of the SEC.An application for approval to engage a foreign broker shall be accompanied by the following:
    1. the proposed agreement between the foreign and Nigerian broker;
    2. details of the services to be provided by the foreign broker;
    3. details of custody, clearing, settlement, and operational arrangements;
    4. evidence of the foreign broker’s licensing and regulatory authorization status;
    5. a status report, letter of good standing, or fit and proper confirmation issued by the foreign broker’s regulator and
    6. such other information as the SEC may require.
  1. Investor Protection
    The Proposed Rules require every foreign security purchased on behalf of a Nigerian investor to be held by a regulated foreign custodian or clearing participant. Also, all securities purchased by an investor must be segregated from the assets of the broker or custodian.Under the Proposed Rules, every broker is required to ensure that –
    1. proper books and records are maintained to clearly distinguish the assets of each investor from the assets of the broker;
    2. no investor asset is utilized for the benefit of the broker or any other investor without the prior written authorization of the affected investor client and the approval of the SEC, where applicable; and
    3. adequate systems and controls are established to ensure the continuous protection, reconciliation, and traceability of client assets.
  1. What are the reporting obligations of Brokers under the Proposed Rules?The Proposed Rules require a broker to submit quarterly reports to the SEC. The details of the report shall include the following –

      1. aggregate value of foreign securities held by Nigerian investors;
      2. custody locations of such securities; and
      3. reconciliation statements.
  2. Fees and Sanctions.The SEC shall be entitled to a fee 0.35% on the purchase of every foreign security by a Nigerian investor and this fee may be reviewed by the SEC from time to time. Upon collecting the fee, the Broker shall submit monthly transaction returns and fee remittance reports to the SEC in the form and manner prescribed by the SEC including reconciliations of transactions executed through foreign intermediaries.Where a broker fails to comply with the Proposed Rules, such broker shall be subject to sanctions such as suspension, monetary penalties, revocation of registration and any other sanction that the SEC may impose.

    Conclusion

    The Virtual Assets Coordination Executive Order 2026 and SEC’s Proposed Rules on Cross-Border Trading of Foreign Securities and Custody, represent important milestones in Nigeria’s efforts to strengthen the regulatory architecture of its financial markets. While the Proposed Rules is still in its draft form, it seeks to provide a structured framework for access to foreign securities, and the Executive Order enhances regulatory coordination for virtual assets. Together, these developments reflect a broader policy objective of positioning Nigeria’s financial markets to support innovation while aligning with international regulatory standards.

NAICOM’S GUIDELINES FOR FOREIGN HEALTH INSURANCE PROVIDERS: KEY COMPLIANCE CONSIDERATIONS FOR INSURERS AND POLICYHOLDERS IN NIGERIA

/in , /by

BY ADERONKE ALEX-ADEDIPE & OLUWAYEMI IBIRINDE

Introduction

On 31 March 2026, the National Insurance Commission (“NAICOM”) issued the Guidelines for the Operation of Foreign or International Health Insurance Providers (the “Guidelines”) pursuant to the Nigerian Insurance Industry Reform Act, 2025 (“NIIRA 2025”). The Guidelines establish, for the first time, a comprehensive regulatory framework governing foreign or international private medical insurers and reinsurers (“IPMI-R Providers”) seeking to provide health insurance services to entities registered or individuals who are resident in Nigeria.

Historically, international health insurance products were commonly procured directly from offshore insurers by multinational corporations, expatriates and high-net-worth individuals without any comprehensive regulatory framework governing such activities in Nigeria. Industry reports estimated that this resulted in approximately US$2 billion in annual premium outflows, while limiting regulatory oversight and the participation of domestic insurers. The Guidelines seek to address these gaps by requiring foreign health insurers to obtain NAICOM’s approval before operating in Nigeria, establishing approved local partnerships and complying with specified consumer protection, reporting and governance obligations.

In this newsletter, we examine the key provisions of the Guidelines and highlight some of the legal and commercial considerations for insurers and policyholders.

Who Do the Guidelines Apply To?

The Guidelines apply to all International Private Medical Insurers or Reinsurers (IPMI-R Providers) seeking to transact, market, underwrite or otherwise engage in health insurance business emanating from Nigeria.

Specifically, they apply to:

  1. foreign health insurers and reinsurers offering products to entities registered in Nigeria;
  2. foreign providers offering health insurance to persons residing in Nigeria; and
  3. intermediaries and authorised representatives acting on behalf of foreign health insurers.

Accordingly, the regulatory focus is not the location of incorporation of the insurer but whether the health insurance business or clientele originates from Nigeria.

What are the Key Compliance Requirements?

  1. Prior NAICOM Approval

The most significant change introduced by the Guidelines is that no foreign health insurer may transact, market or underwrite health insurance business originating from Nigeria without obtaining the prior written approval of NAICOM.

Similarly, no Nigerian entity or individual may transfer health insurance risks to an IPMI-R Provider unless that provider has received NAICOM’s approval.

The Guidelines further provide that where NAICOM does not communicate its approval or rejection within ten (10) working days after receiving complete documentation, the application shall be deemed approved.

  1. Mandatory Local Partnership Model

Unlike the previous regulatory position, the Guidelines prohibit foreign insurers from directly issuing health insurance policies to Nigerian entities or persons residing in Nigeria except through an authorised representative domiciled in Nigeria.

Every approved IPMI-R Provider must adopt one of the following operational models:

  • Model 1: Domestic Insurer Partnership;
  • Model 2: Domestic Administrator or Intermediary Partnership; or
  • Model 3: Health Maintenance Organisation (HMO) Partnership.

These partnership models ensure that licensed Nigerian entities participate in premium administration, claims support, regulatory reporting and other operational functions.

To obtain approval, an IPMI-R Provider must submit comprehensive documentation including:

  1. evidence of incorporation in its home jurisdiction;
  2. proof of regulatory licensing in its home jurisdiction;
  3. detailed product descriptions;
  4. a business plan;
  5. premium worksheets;
  6. proposed Nigerian intermediaries;
  7. its preferred operational model; and
  8. any additional information requested by NAICOM.
  1. Consumer Protection Requirements

The Guidelines introduce several customer protection obligations designed to improve accountability and transparency.

Approved providers are required to:

  1. provide clear information regarding policy terms and exclusions;
  2. ensure products meet customers’ needs;
  3. establish effective complaints management procedures;
  4. include claims settlement procedures within policy documentation; and
  5. ensure complaints are handled fairly through their Nigerian representatives or intermediaries.

These obligations significantly strengthen the position of Nigerian policyholders.

  1. Reporting and Ongoing Regulatory Obligations

Approved providers are required to submit quarterly production returns to NAICOM and pay the prescribed Insurance Supervisory Service (ISS) Levy.

The Guidelines therefore establish continuing regulatory oversight rather than a one-time approval process.

Compliance Considerations

Pending further regulatory guidance, organisations that utilise international health insurance arrangements should consider the following.

a. Review Existing Insurance Arrangements

Multinational companies should determine whether their current international health insurance programmes involve IPMI-R Providers that have obtained, or intend to obtain, NAICOM approval.

b. Assess Existing Partnership Structures

Foreign insurers should evaluate whether their existing operating model aligns with one of the three partnership structures prescribed under the Guidelines and identify any restructuring that may be required.

c. Review Distribution and Intermediary Arrangements

Insurers, brokers, HMOs and third-party administrators should assess whether their contractual arrangements adequately reflect the roles and reporting obligations contemplated under the Guidelines.

d. Strengthen Compliance Frameworks

Organisations should establish internal governance procedures to monitor ongoing compliance with NAICOM’s approval requirements, reporting obligations and customer protection standards.

e. Review Existing Policies

The Guidelines permit policies issued before the effective date to continue until expiry. However, organisations should review renewal arrangements to ensure that future policies comply with the new regulatory framework.

Penalties for Non-Compliance

The Guidelines introduce significant sanctions for non-compliance.

  1. Any entity registered in Nigeria or person residing in Nigeria that transacts health insurance business with an unapproved IPMI-R Provider may be liable to a penalty of not less than the total premium involved.
  2. The Guidelines also required providers to regularise their operations within the prescribed ninety-day transitional period. Failure to satisfy the approval requirements may result in rejection of the application and suspension of the issuance of new policies and renewals.

Conclusion

With the Guidelines having taken effect on 31 March 2026, multinational employers, foreign insurers, HMOs, brokers and other intermediaries, should immediately prioritize assessing existing operational structures and contractual arrangements to ensure continued compliance with the new regulatory framework. Organisations that undertake this assessment proactively will be better positioned to navigate future regulatory developments while minimising compliance risks.

ONE AFRICA, ONE CLICK: WHAT THE AFCFTA DIGITAL TRADE PROTOCOL MEANS FOR AFRICA

/in , /by

BY SEUN TIMI-KOLEOLU & EFE OKPARAVERO

Introduction

Last week, Lagos hosted the AfCFTA Digital Trade Forum 2026, bringing together policymakers, regulators, financial institutions, technology companies, legal practitioners, and other stakeholders from across Africa and beyond under the theme, “Digital Trade for a Connected African Market.”

The Forum underscored the growing momentum behind the AfCFTA Protocol on Digital Trade. This Protocol seeks to govern the cross-border exchange of goods, services and other tradeable items that are facilitated by digital platforms and technologies. For more information on this, see our article here.

In light of the discussions and developments emerging from the Lagos Forum, this is an opportune moment to revisit the Protocol, assess the progress made to date, and consider the practical steps African countries and businesses should take to prepare for its implementation.

Changes Since the Adoption of the Protocol by the African Union on 18 February 2024

The most significant development has been the adoption of eight supplementary Annexes on 16 February 2025, transforming the Protocol from a mere framework into a more operational instrument setting out detailed rules for implementation.

Three notable annexes include:

  1. Annex on Rules of Origin: The Rules of Origin (ROO) Annex was introduced to provide clarity on the ‘African origin requirements’ for digital products (mentioned in Article 5 of the Protocol) by introducing a two-tier test. Under these new rules, both the supplying enterprise or platform must be African-owned and operated, and the digital content itself must qualify as African content to enjoy preferential treatment under AfCFTA.
  2. Annex on Cross-Border Digital Payments: This Annex sets out practical measures (improving on Article 15 of the Protocol) to promote secure and efficient digital payment systems across the African market. Such measures include requirements and guidance on interoperable payment infrastructure; electronic know-your-customer (e-KYC) processes; open application programming interfaces (APIs); fraud prevention mechanisms; and regulatory cooperation on anti-money laundering and counter-terrorist financing (AML/CFT).
  3. Annex on Cross-Border Data Transfer: This Annex (mentioned in Article 20 of the Protocol) now creates an adequacy-based system for the free flow of data between countries engaging in digital trade. To fulfill the adequacy requirement, countries are required to maintain a domestic data protection framework which at a minimum meets the standards set out in Articles 5 to 14 of this Annex, such as Personal Data Protection by Design and Default; Data Minimisation; and Competent Data Protection Authorities etc.

Beyond the regulatory framework, there have been continent-wide initiatives such as:

  1. AfCFTA Digital Inclusion and Entrepreneurship Programme (ADIEP): Delivered in partnership with Google, ADIEP is reported to have trained more than 7,500 SMEs across 19 African countries through 25 cohorts between November 2025 and June 2026, equipping businesses with skills in artificial intelligence, cross-border e-commerce and cloud technologies.
  2. Pan-African Payment and Settlement System (PAPSS): PAPSS is expected to reduce the cost, complexity and settlement time of cross-border transactions, supporting one of the Protocol’s central objectives of seamless digital trade across Africa. For more on PAPSS, see here.
  3. Africa Digital Access and Public Infrastructure for Trade (ADAPT): An implementation initiative, launched in November 2025 by the AfCFTA Secretariat, ADAPT designated Nigeria, Kenya and Morocco as its pilot countries. This initiative focuses on strengthening digital public infrastructure through digital identity systems; payment integration; and the digitisation of trade documentation.

What This Means Commercially

Africa’s digital economy is projected to grow from approximately US$180 billion today to US$712 billion by 2050, hence the stakes are quite high. For businesses, the Protocol is expected to deliver:

  1. Greater market access: Harmonised rules will make it easier for businesses to reach customers across Africa without establishing a physical presence in every market, reducing regulatory fragmentation and expansion costs.
  2. Stronger compliance obligations: Businesses will need to enhance data governance, privacy frameworks and cross-border transfer arrangements as digital trade rules become more aligned across jurisdictions.
  3. Improved digital payments: Interoperable payment systems, supported by initiatives such as PAPSS, could reduce transaction costs and improve settlement efficiency, while requiring stronger AML/CFT/KYC compliance from financial institutions and Fintechs.

Ratification Status

Adoption is distinct from entry into force. Under Article 47 of the Protocol and Article 23 of the AfCFTA Agreement, the Protocol enters into force 30 days after the 22nd State Party deposits its instrument of ratification. That threshold has not yet been met, meaning the Protocol remains a framework for future implementation rather than an enforceable regime.

Nigeria has advanced its implementation efforts as a Co-Champion of the Protocol, with the Federal Executive Council approving Nigeria’s ratification on 6 November 2025.

The Protocol, however, does not yet have the force of law within Nigeria, as treaties require domestication by the National Assembly pursuant to Section 12 of the Constitution of the Federal Republic of Nigeria 1999 (as amended).

Recommendations

Going forward, we recommend the following:

A. State Parties should:

  1. Identify gaps or discrepancies between their domestic legal frameworks and the Protocol, take steps to align their laws with the provisions of the Protocol.
  2. Accelerate ratification of the Protocol and incorporate it into their domestic legal frameworks to ensure effective implementation.
  3. Promote regulatory cooperation with other State Parties by working towards greater harmonisation of digital trade regulations, particularly in areas such as data protection, cybersecurity, digital identity, electronic transactions and consumer protection.

B. Businesses should:

  1. Prepare ahead of the Protocol’s entry into force by monitoring ratification and regulatory developments,
  2. Review contracts and data governance practices to align them with the Protocol
  3. Strengthen cybersecurity, AML/CFT/KYC frameworks and digital payment capabilities to meet emerging cross-border digital trade requirements.

Conclusion

The AfCFTA Digital Trade Protocol represents a significant step towards building a better connected and competitive African digital economy. Whilst the Protocol is not yet operational, ongoing implementation initiatives signal a clear shift towards greater digital integration. Governments and businesses that begin preparations now will be better positioned to take advantage of the opportunities created by a single African digital market.

CBN’S DATA LOCALISATION DIRECTIVE – COMPLIANCE CONSIDERATIONS FOR PAYMENT SYSTEM PARTICIPANTS

/in , /by

BY ADERONKE ALEX-ADEDIPE & PROMISE ITAH

Introduction

On June 15, 2026, the Central Bank of Nigeria (“CBN“) issued a Circular on Introduction of Market Structure Requirements, Data Localisation, Ultimate Beneficial Ownership Disclosure, and Systemic Oversight Measures in the Nigeria Payments System (the “Circular“). Among other regulatory reforms, the Circular introduces a significant data localisation requirement directing all financial institutions and participants facilitating payments within Nigeria—including banks, payment service providers, mobile money operators and other payment participants— (collectively “Payment System Participants”) to ensure that data generated in relation to payment transactions in Nigeria is stored and managed in Nigeria by January 1, 2027.

In this newsletter, we examine the scope of the CBN’s data localisation requirements, their interaction with existing data protection obligations, and some of the key legal, contractual and operational considerations which Payment System Participants should consider in preparation for compliance.

  1. Who does the Circular Apply to?
    The Circular applies to payment transaction data generated through Nigeria’s payments system. Although the Circular does not define the term “payment transaction data”, it intuitively includes information generated in connection with a payment transaction, including the payer’s and beneficiary’s payment details, transaction amounts, payment references, authentication records, settlement and routing information, transaction logs and other related technical data required to process, verify or record a payment.

    The Circular also appears to frame the localisation requirement by reference to payment transaction data generated within Nigeria, rather than the location in which the business is principally domiciled. On this basis, therefore any Payment System Participant processing payment transaction data generated within Nigeria may be expected to comply with this requirement, regardless of their country of domicile.

  1. What are the Key Compliance Requirements?

    a. Local Processing and Storage
    Payment System Participants must ensure that payment transaction data is both stored and managed within Nigeria. This extends beyond maintaining a local copy of data and requires that the primary processing environment, databases, backups and operational control remain on infrastructure located within Nigeria.

    The requirement for payment transaction data to be “managed” in Nigeria may also have implications for administrative activities such as access management, database administration, encryption key management and audit logging, particularly where these functions are performed through offshore infrastructure or personnel.

    b. Technology and Infrastructure
    The Circular is likely to require many Payment System Participants to review their technology infrastructure, particularly where payment services rely on foreign cloud service providers or systems hosted outside Nigeria. Given the requirement for payment transaction data generated within Nigeria to be stored and managed locally, organisations should assess whether their existing technology architecture involves the storage, processing or replication of payment transaction data outside Nigeria. Areas that may require review include:

    • cloud hosting arrangements and the location of servers;
    • disaster recovery and backup systems;
    • analytics and monitoring platforms that process payment data;
    • testing and development environments that use live or production payment data; and
    • third-party APIs and other technology integrations that may transfer payment data outside Nigeria.

Payment System Participants operating hybrid or multiple cloud environments should assess whether payment data is stored, replicated or processed outside Nigeria and, where necessary, implement appropriate technical or operational changes before the compliance deadline.

c. Vendor and Outsourcing Arrangements

Whilst it is commonplace for Payments System Participants to assign data processing and storage activities to third parties, the Circular does not appear to transfer the obligations from Payment System Participants to service providers in such instance. Accordingly, organisations should review their contractual arrangements with cloud service providers, payment processors, application programming interface (API) providers and other technology vendors to assess whether those arrangements support compliance with the localisation requirement. In particular, organisations should consider whether their contracts adequately address:

    • the requirements for payment data to be stored and managed within Nigeria;
    • restrictions on processing payment data outside Nigeria;
    • rights to conduct audits and facilitate regulatory inspections;
    • controls over the use of subcontractors that may have access to payment data;
    • obligations to promptly notify the Payment System Participant of any data breaches or incidents; and
    • termination rights where a vendor is unable to comply with the localisation requirements.
  1. How does the Circular Interact with the Nigeria Data Protection Act (NDPA)?

The Circular complements rather than replaces the NDPA. While the NDPA regulates the processing and international transfer of personal data through recognised transfer mechanisms and safeguards, the CBN Circular imposes an additional regulatory obligation applicable specifically to payment transaction data. Accordingly, compliance with the NDPA alone will not satisfy the CBN’s localisation requirements.

  1. Practical Compliance Steps

Pending any further guidance from the CBN, Payment System Participants should consider taking the following steps to prepare for implementation:

    1. conducting a comprehensive data mapping exercise to identify where payment data is stored, processed and transmitted;
    2. assessing existing cloud and infrastructure arrangements for localisation risks;
    3. reviewing third-party vendor relationships and contractual provisions;
    4. updating internal data governance, outsourcing and information security policies;
    5. establishing board and management oversight of the implementation programme; and
    6. maintaining adequate documentation to demonstrate compliance during regulatory inspections.

Conclusion

The CBN’s payment data localisation requirements represent a significant development in the regulation of Nigeria’s payments ecosystem. By requiring payment transaction data generated within Nigeria to be stored and managed in Nigeria, the Circular appears intended to strengthen regulatory oversight, enhance operational resilience and support the security of Nigeria’s payments infrastructure. For Payment System Participants, the immediate priority will be to assess whether existing technology infrastructure, data governance frameworks and third-party vendor arrangements are consistent with the new localisation requirement. Given the breadth of the obligation and the absence of detailed implementation guidance, organisations that begin assessing their compliance position ahead of the January 2027 implementation date will be better positioned to address any legal, operational or contractual gaps as further guidance emerges.

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

/in /by

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

/in , /by

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

/in , /by

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