CENTRAL BANK OF NIGERIA BANKS IN NIGERIA

1 CENTRAL bank OF NIGERIA . GUIDELINES FOR LICENSING AND. REGULATION OF PAYMENT SERVICE. BANKS IN NIGERIA . 1. AUGUST 2020. Classified as Confidential CONTENTS. 1 INTRODUCTION .. 4. 2. OBJECTIVE .. 5. 3. STRUCTURE OF PAYMENT SERVICE BANKS .. 5. 4. PERMISSIBLE AND NON-PERMISSIBLE ACTIVITIES .. 6. Permissible Activities .. 6. Non-Permissible Activities .. 7. 5. ELIGIBLE 7. 6. LICENSING REQUIREMENTS .. 8. Requirements for grant of Approval-In-Principle (AIP) .. 9. Requirements for Granting of Final License .. 13. Conduct of Pre-Licencing Inspection.

2 14. Requirements for commencement of operations .. 15. Post-commencement Requirements .. 15. Financial Requirements .. 16. 7. CORPORATE GOVERNANCE .. 16. 8. BUSINESS CONDUCT (FAIR COMPETITION).. 17. 9. PRUDENTIAL 18. Minimum Capital Requirement .. 18. Payment of Dividend .. 18. Capital Adequacy Ratio .. 19. Investment of Deposit Liabilities .. 19. Participation in Payment and Settlement System .. 19. Cash Reserve Requirement .. 19. Limit of Investment in Fixed Assets (Including Branch Expansion) .. 19. Revaluation of Fixed Assets .. 20. 10.

3 SUPERVISION OF PAYMENT SERVICE 20. 11. KNOW YOUR CUSTOMER (KYC) REQUIREMENTS .. 20. 12. CONSUMER PROTECTION .. 21. 13. RISK MANAGEMENT .. 21. 2. Classified as Confidential Credit Risk Management (Including credit concentration risk) .. 21. Capital Measurement Approach for Credit Risk .. 21. Management of other Risks .. 22. Internal Controls .. 22. 14. PAYMENT SYSTEM 22. 15. REVOCATION OF LICENSE .. 22. 16. GLOSSARY .. 23. 3. Classified as Confidential 1 INTRODUCTION. The CENTRAL bank of NIGERIA (CBN), in furtherance of its mandate to promote a sound financial system in NIGERIA and the need to enhance access to financial services for low income earners and unbanked segments of the society, continues to be innovative in deepening the financial services sector.

4 The National Financial Inclusion Strategy (NFIS) seeks to ensure that over 80 per cent of the bankable adults in NIGERIA have access to financial services by 2020. The CBN in collaboration with stakeholders launched the NFIS on 23rd October, 2012 with a view to reducing the exclusion rate to 20 per cent by 2020. Despite several initiatives including the Introduction of Microfinance banking, Agent Banking, Tiered Know-Your-Customer Requirements and Mobile Money Operation (MMO) in pursuit of this objective, the inclusion rate remains below expectation.

5 The CBN, in the circumstance and in collaboration with critical stakeholders in the digital financial ecosystem, such as the Nigerian Communication Commission, commercial BANKS , mobile money operators and telecommunication companies have conducted several study tours of other jurisdictions that have made significant progress in driving financial inclusion. In view of the challenges to effective outreach to rural communities as well as the need to complement the services provided by other licensed entities, the CBN. issues this regulation to provide for the licensing and operations of Payment Service BANKS (PSBs) in NIGERIA .

6 PSBs are expected to leverage on mobile and digital channels to enhance financial inclusion and stimulate economic activities at the grassroots through the provision of financial services. 4. Classified as Confidential Accordingly, PSBs are envisioned to facilitate high-volume low-value transactions in remittance services, micro-savings and withdrawal services in a secured technology-driven environment to further deepen financial inclusion and help in attaining the policy objective of 20 per cent exclusion rate by 2020. This Guidelines is issued pursuant to powers conferred on the CBN Governor by the CBN Act 2007 and BOFIA 1991 (as amended).

7 It covers the definition;. objectives; eligible promoters; licensing requirements; corporate governance;. business conduct; and permissible activities. The requirements for prudential regulation; supervision; Know Your Customer (KYC), consumer protection as well as Risk Management of the proposed Payment Service BANKS in NIGERIA are also covered. 2. OBJECTIVE. The key objective of setting up PSBs is to enhance financial inclusion by increasing access to deposit products and payment/remittance services to small businesses, low-income households and other financially excluded entities through high- volume low-value transactions in a secured technology-driven environment.

8 3. STRUCTURE OF PAYMENT SERVICE BANKS . Payment Service BANKS shall: i. Operate mostly in the rural areas and unbanked locations targeting financially excluded persons, with not less than 25% financial service touch points in such rural areas as defined by the CBN from time to time;. ii. Enter into direct partnership with card scheme operators. Such cards shall not be eligible for foreign currency transactions;. iii. Deploy ATMs in some of these areas;. iv. Deploy Point of Sale devices;. 5. Classified as Confidential v. Be at liberty to operate through banking agents (in line with the CBN's Guidelines for the Regulation of Agent Banking and Agent Banking Relationships in NIGERIA ).

9 Vi. Roll out agent networks with the prior approval of the CBN;. vii. Use other channels including electronic platforms to reach-out to its customers;. viii. Establish coordinating centres in clusters of outlets to superintend and control the activities of the various financial service touch points and banking agents;. ix. Be technology-driven and shall conform to best practices on data storage;. security and integrity; and x. Set up consumer help desks (physical and online) at its main office and coordinating centres. The Payment Service BANKS shall use the words Payment Service bank in its name to differentiate it from other BANKS .

10 Furthermore, the name of a PSB shall not include any word that links it to its parent company. 4. PERMISSIBLE AND NON-PERMISSIBLE ACTIVITIES. Permissible Activities Payment Service BANKS shall carry out the following activities: i. Accept deposits from individuals and small businesses, which shall be covered by the deposit insurance scheme;. ii. Carry out payments and remittances (including inbound cross-border personal remittances) services through various channels within NIGERIA ;. iii. Sale of foreign currencies realized from inbound cross-border personal remittances to authorized foreign exchange dealers.