Financial Regulators Mull Review of Holdco Guidelines

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Goddy Egene

Strong indications have emerged that the guidelines for the operations of holding company (Holdco) may soon be reviewed so as to prevent abuses that may affect investors and other stakeholders in the Nigerian financial system.

The Holdco structure was introduced by the CBN to replace universal banking in 2010 as part of efforts to reform the banking sector and strengthen the financial industry.
Following the introduction of the holdco structure, the CBN released guidelines for banks operating such structure and how to relate with their subsidiaries.

Two years after the release of those guidelines, THISDAY checks revealed that regulators in the financial market, especially the CBN and Securities and Exchange Commission (SEC) have started moves to review the guidelines.

The moves, it was gathered followed some developments in some of institutions that adopted the structure. Apart from banks, some capital market operators are operating a holdco structure, having subsidiaries that carry out services which cut across various sectors of the financial industry.

Market sources told THISDAY on Monday that CBN and SEC have already conducted a joint inspection on one of the institutions operating a Holdco structure in the country.

“The final position to review the guidelines would be taken when the result of the inspection is out. Given the experience so far, there is the need to review some of the guidelines to further strengthen corporate governance and prevent any abuses that may lead to loss of investor confidence in the financial system. Besides, it has been discovered that some institutions operate Holdco structure without adhering to the laid down rules,” the source said.

The source added that the review of the guidelines would therefore ensure that other institutions other than banks that operate Holdco structure are well regulated and guided by rules in the market.

According to the guidelines released in 2014, the CBN said a financial holding company is permitted to have only two hierarchies (parent and intermediate financial holding companies). Given the permissible level of hierarchies, a financial holding company may have a subsidiary which is a parent to another subsidiary (intermediate financial holding company).

The CBN had said where such subsidiary is locally based, the relevant regulator shall have responsibility for its supervision. Where the subsidiary is overseas, the relevant regulator shall seek a Memorandum of Understanding (MoU) with the host regulator for its joint supervision.

It said a financial holding company may acquire controlling interest in any permissible financial institution, subject to prior approval of the CBN. Where the target company is outside the supervisory purview of CBN, the prior approval of the relevant regulator will also be required.

Still, where a subsidiary of the financial holding company outside the purview of the CBN is acquiring another subsidiary similarly outside the purview of the CBN, the Holdco shall notify the CBN before the acquisition is consummated. Evidence of prior approval of the relevant sector regulator shall accompany the notification.