CBN Releases Guidelines for Financial Holding Company (HoldCo)

Regulators
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August 29th, 2014 6.55PM/CBN

1.0 INTRODUCTION

The Central Bank of Nigeria (CBN) repealed the Universal Banking Guidelines and introduced a New Banking Model in 2010 as part of strategic initiatives to reposition the Nigerian banking system on the path of sustainable viability.

The New Banking Model permits banks/banking groups to retain non-core banking businesses by evolving into a non-operating Holding Company (HoldCo) 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. This arrangement seeks to ring-fence depositors' funds from risks inherent in non-core banking businesses.

A financial holding company shall be a source of financial strength to the subsidiaries. In serving as a source of financial strength to its subsidiaries, a financial holding company shall maintain financial flexibility and capital-raising capabilities for supporting its subsidiaries. It shall also stand ready to use available resources to augment capital funds of its subsidiaries in periods of financial stress or adversity.

This Guidelines, issued in exercise of the powers conferred on the CBN under the Central Bank of Nigeria Act, 2007(CBN Act) and the Banks and Other Financial Institutions Act, Cap B3, Laws of the Federation of Nigeria, 2004 (BOFIA), complements CBN Regulation on the Scope of Banking Activities and Ancillary Matters, No 3, 2010 and is intended to facilitate understanding of the requirements for the adoption and operations of a financial holding company in Nigeria. It covers the definition and structure of a financial holding company, licensing requirements, ownership and control, corporate governance, permissible and non-permissible activities, prudential regulation, as well as supervision.

The Guidelines shall be read in conjunction with the provisions of the CBN Act, the BOFIA, other subsidiary legislations made under the Acts, as well as written directives, notices, circulars, frameworks and other guidelines that the CBN and other regulators in the financial services sector have issued or may issue from time to time.

2.0 DEFINITION AND STRUCTURE OF FINANCIAL HOLDING COMPANY

2.1 Definition
Pursuant to Extraordinary Gazette No. 38 of December 29, 2011, a financial holding company is a company whose principal object includes the business of a holding company set up for the purpose of making and managing (for its own account) equity investment in two or more companies, being its subsidiaries, engaged in the provision of financial services, one of which must be a bank.

For the purpose of this Guidelines, “bank‟ means commercial, merchant or specialized bank.

2.2 Non-Operating

A financial holding company is non-operating where it exists solely to carry out investment in approved subsidiaries without engaging in the day-to-day management of same.

2.2.1 A financial holding company shall be a body corporate registered with the Corporate Affairs Commission (CAC) as a company and licensed by the Central Bank of Nigeria. It shall have a board size of between 7 and 12 directors.

2.3 Structure
 
2.3.1 For any financial holding company structure to emerge, there shall be at least, two subsidiaries and the focus of the conglomerate shall be in the financial services sector.

2.3.2 The type of HoldCo permitted under the new banking model is the financial holding company (FHC) structure as defined in Section 2.1 of this Guidelines.

2.3.3 A financial holding company is permitted to have only two hierarchies (parent and intermediate financial holding companies). Given the permissible level of hierarchies, a Nigerian financial holding company may have a subsidiary which is a parent to another subsidiary (intermediate financial holding company). 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.

2.3.4 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.

2.3.5 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.

2.3.6 A financial holding company that elects to change to mono-line commercial or merchant banking shall seek the prior approval of the CBN.

Such financial holding company shall submit along with its request for approval the following:
•Annual audited financial statements of the immediate past three years under the arrangement/structure it seeks to discontinue;
•Divestment plan from subsidiaries; and

•Any other requirements as may be determined by the CBN from time to time.

2.3.7 Where an institution elects to adopt a financial holding company or any other structure under the new Banking Model, such a structure shall not be reversible until that institution has operated under the approved structure for a minimum of three years.

2.4 Excise of a Banking Subsidiary from a financial holding company Group

The CBN may, by order, direct a financial holding company to divest from its banking subsidiary where, in the opinion of the CBN, the financial holding company is being run in a manner that is detrimental to the interest of depositors and/or other stakeholders of the banking subsidiary.

3.0 LICENSING REQUIREMENTS
The promoters of financial holding company shall be required to submit a formal application for the grant of a financial holding company licence addressed to the Governor of the Central Bank of Nigeria. Licensing process shall be in two phases: Approval-in-Principle and Final Licence.

Financial Holding Companies that had been licensed prior to the issuance of this Guidelines need not apply for a new licence.

3.1 Requirements for grant of Approval-In-Principle (AIP)

The application shall be accompanied with the following:
3.1.1 A non-refundable application fee of N2,000,000 (Two Million Naira Only)or such other amount that the CBN may specify from time to time; payable to the Central Bank of Nigeria by bank draft or through electronic transfer;

3.1.2 Evidence of meeting the prescribed minimum paid-up capital as defined in Section 7.1 of the Guidelines subject to the satisfaction of the CBN;

3.1.3 Detailed business plan or feasibility report which shall, at a minimum, include:
a. Objectives of the financial holding company and those of the subsidiaries it intends to establish/acquire;
b. Justification for applying for the financial holding company;
c. Ownership structure in a tabular form indicating the name of proposed investor(s), profession/business and their percentage shareholdings;
d. Bio-data/resume of proposed investors;
e. Indication of sources of funding of the proposed equity contribution for each investor;
f. Where the source of funding the equity contribution is a loan, it shall be a long-term facility of, at least, a 7-year tenor, and shall not be obtained from the Nigerian banking system;
g. Corporate Governance Charter of the financial holding company stating the roles and responsibilities of the board and its sub-committees, among other things;
h. Criteria for selecting board membership;
i. Detailed resumes of directors and Board composition;
j. Fit and Propriety Questionnaire and Declaration executed by the prospective investors, directors and management personnel;

k. List of identified top/senior management staff (AGM and above) and detailed resumes stating their qualifications, experiences, records of accomplishment, amongst others;

l. A schedule of services to be rendered by the financial holding company;
m. Five-year financial projection on the operations of the financial holding company indicating expected growth and profitability, and details of the assumptions that form the basis of the financial projection;

n. Details of Information Technology (IT) facilities proposed to be deployed; and

o. A corporate group structure with shareholding percentage by the financial holding company in each of the subsidiaries and their principal businesses and registered Head offices.

3.1.4 A written and duly executed undertaking by the promoters that the financial holding company will be adequately capitalized for the volume and character of its business at all times, and that the financial holding company shall always submit itself to the supervisory authority of the CBN as an OFI.

3.1.5 For regulated foreign institutional investors, the CBN shall require a „no objection letter‟ from the regulatory body of the home country.

3.1.6 Shareholders agreement providing for disposal/transfer of shares as well as authorization, amendments, waivers, reimbursement of expenses, etc.

3.1.7 Statement of intent to invest in the financial holding company.

3.1.8 Technical Services Agreement (TSA), where applicable.

3.1.9 Draft copy of the company‟s Memorandum and Articles of Association (MEMART). At a minimum, the MEMART shall contain the following information:

a) Proposed name of the financial holding company

b) Object clause

c) Subscribers to the MEMART

d) Procedure for amendment

e) Procedure for share transfer or disposal

f) Appointment of directors

3.1.10 Where the promoters of a financial holding company are corporate investors, the CBN shall require them to forward the following additional documents:
a) Certificate of Incorporation;

b) Board resolution supporting the company's decision to invest in the equity shares of the proposed financial holding company;
c) Names and addresses (business and residential) of owners, directors and their related companies, if any;

d) Audited financial statements & reports of the company and Tax Clearance Certificate for the immediate past 3 years; and

e) Certified true copies of the company‟s forms CAC2 and CAC7.

3.1.11 Any other document/information that the CBN may require from time to time.

If satisfied with the application of the promoter(s), the CBN shall grant an Approval in Principle (A.I.P)

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