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.
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– 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