Regulatory Alerts2014-08-29 | FPR/DIR/CIR/04/011Circular to All Banks and Other Financial Institutions: Release of Guidelines for Licensing and Regulation of Financial Holding Companies in Nigeria
The Central Bank of Nigeria (CBN) has issued a set of guidelines on financial holding companies, which are organizations licensed and regulated by the CBN to make and manage equity investments in companies engaged in the provision of financial services. According to the guidelines: - A license for an FHC is granted for an indefinite period or as per the need of the bank. - An affiliate is an organization, business entity, or individual related and often controlled by another entity. - The concept of "Control" has been incorporated into the definition of a financial holding company (FHC). As defined by IFRS 10, it comprises three essential elements: Power over the investee; Exposure; and the Current Ability to Use Control over the investee to affect its own returns. - Financial Services, according to these guidelines, are activities carried out by financial institutions under the purview of the CBN, SEC (with an exception for the business of a Registrar)), NAICOM, and PENCOM. - The concept of "Intra Group Transactions" has also been incorporated into these guidelines. In simple terms, this refers to claims that entities within the financial conglomerate hold on each other, such as lines of credit. - Free funds are defined as shareholders' funds less investment in fixed assets, equities in other financial institutions, and unaudited losses. - This set of guidelines supersedes previous circulars, particularly the circular on "Definition and Structure of Holding Companies in Pursuance of the New Banking Model" dated December 30, 2011.