An 'exposure draft' of guidelines for the operation of financial holding companies in Nigeria was released by the Central Bank of Nigeria (CBN) in June, prompted by the need "to address observed gaps and align with evolving regulatory and market developments", according to Rita Sike, the central bank's director of financial policy and regulation. The industry and all others concerned have six months to mull over the draft before it solidifies into law.
A critical measure contemplated in the draft regulation is to raise the minimum capital requirements of the financial holding companies to enhance their resilience, the CBN said in the statement. Regulators are also concerned about the use of 'shared services' by such entities, their potential abuse and the undue advantages that may accrue to them as a result.
The document also sets new eligibility rules for running financial holding companies. This includes a requirement for holding companies to have a capital base that is, at least 20% more than the combined capital requirements of its subsidiaries. They must also have direct ownership of all the subsidiaries, with a minimum 51% stake, a condition that rules out proxy ownership using another company unit.
"At first glance, this may appear to be another regulatory update, but it is more than that," said Oluwatosin Akanle, who teaches law at Crescent University, Abeokuta, north of Nigeria's biggest city, Lagos. "The draft signals a clear move towards tighter supervision of financial groups, especially those that operate through holding company structures."
Originally published by African Business.