CBN sets compliance deadline for banks, OFIs on new Shared Service Arrangement rules
The Central Bank has issued guidelines for shared services arrangement for players in the country’s financial sector, setting a deadline for full compliance to the rules
According to a circular signed May 26 by Kevin Amugo, Director of Finacial Policy and Regulatory Department at the apex bank, the absence of standards on shared services and transfer pricing arrangements in the Nigerian banking industry was evidenced on the uneven management of shared services.
He noted that this exerts attendant concerns on governance, financial and tax management practices.
Shared services is the provision of a service by one part of an organization or group, where that service had previously been found, in more than one part of the organization or group.
Thus the funding and resourcing of the service is shared and the providing department effectively becomes an internal service provider.
Amugo said, “The Central Bank of Nigeria (CBN) in response thereto, issued an Exposure Draft on November 18, 2019, to streamline the activities of institutions engaged in shared services and transfer pricing.”
The Exposure Draft also sought to harvest stakeholders’ opinions on the abuses including the use of shared services arrangements as a tax shield, he added.
“In consideration thereof, the following Guidelines on Shared Services Arrangements for Banks and Other Financial Institutions in Nigeria is hereby issued for compliance.
“The effective date for the full compliance with the provisions of the Guidelines shall be June 1, 2022,” according to Amugo.
Stating the objectives of the guidelines in an 11-page document sighted by Business Metrics, the apex banks the rules are meant to set out supervisory expectation in respect of shared services arrangements between a parent company and its subsidiary and ensure that the fees received or paid reflect the services rendered, taking into account the assets used and the risks assumed.
Other objectives, according to the CBN are to ensure that financial institutions comply with the extant transfer pricing regulation in Nigeria; and to reduce operational cost of benefitting institutions.