Regulatory Alerts2019-04-12 | BSD/DIR/GEN/LAB/12/011/4Guidelines on the Practice of Smoothing the Profit Payout to Investment Account Holders for Non-Interest Financial Institutions in Nigeria
The Central Bank of Nigeria (CBN) has issued guidelines for non-interest financial institutions (NIFIs) to standardize the practice of income smoothing, which aims to level out profit payouts to investment account holders. NIFIs face challenges in managing funds from Investment Account Holders (IAHs) due to limited liquidity management instruments and inefficient markets. To prevent IAHs from withdrawing funds due to low returns, NIFIs may use income smoothing techniques, such as Profit Equalization Reserve (PER) and Investment Risk Reserve (IRR), which have legal and governance implications. The guidelines outline the types of investors and investment accounts, permissible smoothing techniques, and specific requirements for disclosure and transparency.