Regulatory Shift: Banks Instructed to Disconnect Non-Deposit Financial Institutions from Transfer Lists

Regulatory Shift: Banks Instructed to Disconnect Non-Deposit Financial Institutions from Transfer Lists
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Banks Instructed to Disconnect Non-Deposit Financial Institutions from Transfer Lists

In a notable regulatory development, banks in Nigeria have received a directive to disconnect Switches, Payment Solution Service Providers (PSSPs), and Super Agents from the Nigeria Inter-Bank Settlement System Instant Payment Outwards System. The directive, issued by the Nigeria Inter-Bank Settlement System (NIBSS), comes in response to concerns about the listing of non-deposit financial institutions as beneficiaries, which the NIBSS believes contradicts the Central Bank of Nigeria’s guidelines on electronic payments.

NIBSS Circular Highlights Contravention of CBN Guidelines

The NIBSS, in a circular dated December 5, 2023, emphasized that including non-deposit-taking financial institutions, such as Switching Companies, Payment Solution Service Providers, and Super Agents, as beneficiary institutions on the National Inter-Bank Settlement System Instant Payment (NIP) funds transfer channels is not in compliance with the Central Bank of Nigeria’s guidelines issued in February 2014.

The circular, with the reference NIBSS/BD/NI/PO/005/051223, points out that while these entities may process outward transfers as inflows to banks, they are not authorized to receive inflows as their licenses do not permit them to hold customers’ funds.

Regulatory Landscape and Licensing Requirements

To operate in Nigeria’s payment ecosystem, entities must obtain specific licenses from the Central Bank of Nigeria. The applicable licenses include Switching and Processing, Mobile Money Operations, Payment Solution Services, and Regulatory Sandbox. It’s crucial to note that only Mobile Money Operators (MMOs) are permitted to hold customer funds, according to the regulations outlined by the CBN.

The circular also refers to a regulatory advisory dated May 11, 2018, titled “Permissible Services and Products of PSSP Operation in Nigeria” (Ref: BPD/DIR/GEN/CIR/05/004), emphasizing the need for compliance with the stipulated guidelines.

Implications and Bank Compliance

Banks are now required to delist Switches, PSSPs, and Super Agents from their NIP Outward Transfer channels, while maintaining their presence in the inward transfer channels. This regulatory shift aims to ensure that electronic payments adhere to the established guidelines, safeguarding the integrity of the financial system.

Conclusion: Navigating Compliance in the Financial Landscape

As the banking sector adjusts to this regulatory directive, the focus on compliance becomes paramount. Adhering to the guidelines set by the Central Bank of Nigeria is not only a regulatory requirement but also a fundamental step toward maintaining transparency, accountability, and the overall stability of the financial ecosystem.

In summary, the directive from NIBSS underscores the evolving nature of regulations in the financial sector, urging banks and financial institutions to align their operations with the established guidelines for electronic payments in Nigeria.

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