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CBN unveils guidelines for operating HoldCo

By BusinessNews Staff on April 19, 2014

As part of efforts to sustain the growth of the banking sector, the Central Bank of Nigeria (CBN) yesterday unveiled guidelines for operating a Holding Company (HoldCo).

The HoldCo structure, which was introduced in 2010, permits banks or banking groups to retain non-core banking businesses by evolving into a non-operating structure.

Under this model, a non-operating HoldCo is expected to hold equity investment in banks and non-core banking businesses in a subsidiary arrangement.

The central bank explained in a circular posted on its website that the provisions were designed to strengthen governance structure of HoldCos.
Part of the guidelines stated that the board of a HoldCo shall include at least an individual who is well-versed in the practice and theory of each segment of the companies within the Group.

Furthermore, it stated that appointment to the board and management positions would be in line with the requirements of the Approved Persons Regime or any other regulation issued by the CBN from time to time.

Also, it stated that regulations on the disqualification of board and management currently applicable to banks would be applied to HoldCos.

In terms of ownership and control, the 22-page document stated that changes in ownership and control of a financial holding company would be subject to the prior approval of the CBN as well as any conditions incidental to such approval.

“Prior approval of the CBN shall be obtained for any shareholding of five per cent and above in a financial holding company. Subsidiaries of a financial holding company or their partners shall be prohibited from acquiring shares in the financial holding company.

“Subsidiaries are prohibited from acquiring shares of other subsidiaries of their parent holding company.

Where a financial holding company loses its controlling interest in the only banking subsidiary in the group, for a period that exceeds six consecutive months, the financial holding company shall cease to be a financial holding company and will be required to return its licence to the CBN,” it added.

Furthermore, it pointed out that a HoldCo may, with the prior written approval of the CBN, provide shared services to its subsidiaries within the group in respect of human resources policy, risk management policy, internal control policy, compliance policy, among others.

Continuing, it stated: “Transactions in respect of such services shall require the consent of the board of directors of the subsidiary.

“No financial holding company shall arrogate to itself any of the powers or functions of the board of directors, or internal management responsibilities and obligations of any of its subsidiaries or associates of any such subsidiary and interfere in the day-to-day activities of the subsidiaries.

“Be involved in credit administration and approval process of its subsidiaries; require its subsidiaries (including any organ, servant, employee, staff, manager, officer or director thereof) to take directives or act on the instructions of the financial holding company in its decision making process, or in relation to the conduct of its business in any way whatsoever.”

[This Day]

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