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CBN unveils rules on shared services for banks, OFIs

The Central Bank of Nigeria (CBN) yesterday released guidelines on shared services arrangement for banks and other financial institutions (OFIs  Details of the guidelines show that the regulations also apply to Payment Services Banks (PSBs) and other payment services licensed by the apex bank.

 

The CBN stated: “Nigerian banks with foreign parents and banks within the non-operating financial holding company (HoldCo) structure participate in centralized or shared services arrangements with their parent companies and other entities in the group.

 

 

 

“The main drivers for sharing of services among group entities are the need to ensure cost efficiencies, leverage existing expertise and maintain consistency throughout the group. An intra-group charge is billed  to the benefitting group members, in consideration of the services provided to them.”

 

According to the apex bank, the guidelines are necessary because “the absence of standards for  the application of costs related to shared services and ensuing pricing arrangements has resulted in uneven management of shared services in the banking industry and has been a source of concern for regulators, especially in view of its governance, financial and tax implications.”

 

Specifically, it stated the objectives of the guidelines to include setting “out supervisory expectation in respect of shared services arrangements between a parent company and its subsidiary; to ensure that the fees received or paid reflect the services rendered, taking into account the assets used and the risks assumed; to ensure that financial institutions comply with the extant transfer pricing regulation in Nigeria and to reduce operational cost of benefitting institutions.”

 

The guidelines also show that financial institutions are expected to establish policies and procedures to ensure, “that shared services are conducted at arm’s length.”

 

In addition, the institutions should submit their shared services policies to the CBN. In addition, the guidelines stated that shared services agreement must be submitted to the CBN for approval

 

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