The Central Bank of Nigeria on the 24th of February , 2023 carried out a regulatory review of requirements governing the tenure of executive management & non-executive directors of Deposit Money Banks (DMBs) & Financial Holding Companies (FHCs) as contained in the Code of Corporate Governance for Banks & Discount Houses.

This review was carried out with the aim of improving on governance practices and standards within the banking and financial sector in Nigeria.

This article will be looking at the notable provisions on this regulatory review which are as follows :-

Executive Directors

– The tenure of Executive Directors (EDs), Deputy Managing Directors (Deputy MDs) & Managing Directors shall be in accordance with the terms of their engagement approved by the board of directors of banks, subject to a maximum tenure of 10 years.

– Where an executive who is a DMD becomes the MD or Chief Executive Officer of a bank or any other DMB before the end of his maximum tenure, the cumulative tenure of such an executive shall not exceed a period of 12 years. 

– The cumulative tenure of an executive director who becomes a DMD of a bank shall not exceed 10 years.

– Executive Directors, DMDs & MDs who exit from the board of a bank either upon or prior to the expiration of their maximum tenure of 12 years (calculated as 3 terms of 4 years each) shall serve out a cooling off period of 1(One) year before being eligible for appointment as a non-executive directors to the board of directors.

– The cumulative tenure limit of EDs/DMDs, & MDs across the banking industry is 20 years.

Non-Executive Directors

– Non-Executive Directors (NEDs) who exit from the board of directors of a bank either upon or prior to the expiration of their maximum tenures which is 12 years (calculated as 3 terms of 4 years each) shall serve out a cooling off period of 1 year before being eligible for appointment to the board of directors of any other DMB.

– The cumulative tenure limit for NEDs across the banking industry is also 20 years.

The Central Bank of Nigeria on the 26th of May, 2021, introduced its guidelines for shared service arrangements aimed at streamlining the activities of institutions engaged in shared services and transfer pricing.

This article will thus be looking at the following topics :-

– The applicability scope of these guidelines.

– The objectives of these guidelines.

– The general principles behind the CBN Guidelines.

– The approved shared services under the Guidelines.

– Provisions of the Guidelines on governance requirements.

– Some of the important component requirements of a Shared Services Agreement.

What is the applicability scope of the guidelines?

The CBN Guidelines on Shared Services Agreements are applicable to :-

– Commercial Banks

– Merchant Banks

– Financial Holding Companies

– Other Financial Institutions (OFIs) like bureau de change

– Payment Service Banks (PSBs)

– Other  payment services as licensed by the CBN

What are the objectives of the guidelines?

The objectives of the CBN guidelines are :-

– Laying out a defined set of supervisory expectations in respect of shared services arrangements between a parent company and its subsidiaries.

– Ensuring that the fees received or paid reflect the services rendered, taking into account the assets used & the risks assumed.

– To ensure that Financial Institutions (FIs) comply with extant transfer pricing regulations in Nigeria. 

– To reduce operational costs of benefiting institutions.

What are the general principles behind the CBN Guidelines?

FIs are expected to establish policies and procedures aimed at ensuring shared services are conducted at a distance. 

Moreso, FIs are expected to submit their shared service policies as approved by their management boards to the CBN , these policies expected to at the minimum;

– State in detail, the services to be shared.

– Indicate how the services would be shared, including the roles and responsibilities of the parties involved.

– Indicate the methodology for pricing shared services, including standards for timely settlement.

– Specify the governance structure for reporting exceptions to policy.

– Be reviewed annually.?

What are the types of services approved for sharing under the Guidelines?

Under the CBN Guidelines, an FI may with the approval of the CBN, enter into shared services agreements with its parent company in respect of :-

– Human Resources (HR) services

– Risk Management services

– Internal Control services

– Compliance services

– Marketing & Corporate Communications

– Legal services

– Information & Communication technology

– Facilities (office accommodation including electricity, security and cleaning services)

These services are approved provided that the recipient entity does not have the expertise & capacity to carry these services. Also, any other service provided outside the services mentioned above shall not be charged to the recipient (?).

What are the provisions of the Guidelines on governance?

Under the Guidelines, it is the responsibility of the board of the relevant FI to ensure that:-

– Approved shared services agreements are in line with extant laws and regulations .

– The FIs have institutions have appropriate governance structure and policies in place for shared services agreements.

What are the required validating components of a shared service agreement under the CBN Guidelines?

A shared services agreement shall be executed between a recipient company and the provider company and at the minimum should include:-

– A Commencement clause.

– Scope of services.

– An Applicable costing methods clause.

– A Compensation & Cost sharing clause.

– A reporting and timing of payments clause.

– A clause on access to employees and information.

– A confidentiality clause.

– An Indemnification clause.

– A Compliance clause