Anaylsıng CBN's Guıdelınes For Lıcensıng And Regulatıng Payment Servıce Holdıng Companıes

INTRODUCTION

On 3^rd August 2021, the Central Bank of Nigeria (CBN) issued the Guidelines for Licensing and Regulation of Payments Service Holding Companies in Nigeria¹ (the "Guidelines") which sets out the requirements for the operation of payment service holding companies in Nigeria.

The Guidelines are issued further to the CBN's circular of 9 December 2020 outlining new licence categorisations for the Nigerian payments system² which requires companies desirous of operating more than one licence category to set up a Payments Service Holding Company with subsidiaries clearly delineated. This arrangement, according to the CBN would prevent commingling of activities, facilitate management of risks and enable the CBN exercise adequate regulatory oversight on all the companies operating within the Group.

In this article, we analyse the Guidelines and set out key considerations to be borne in mind by persons who intend to operate in more than one payment licence category.

WHAT IS A PAYMENTS SERVICE HOLDING COMPANY?

As defined in the Guidelines, a Payments Service Holding Company (PSHC) is a holding company set up for the purpose of making and managing equity investment in two or more companies, being its subsidiaries, which are payments service providers in the following categories:

1. Mobile Money Operations
2. Switching and Processing
3. Payment Solution Services

A PSHC must:

1. be non-operating - formed solely to hold equity investment in its separate subsidiaries in a "parent-subsidiary" arrangement;
2. have, at the minimum, two subsidiaries including a mobile money operator and a switching company;
3. have a board size of between 5 and 10 members including, at least, an individual with requisite experience in the business(es) of the subsidiary payments service.

KEY PROVISIONS OF THE GUIDELINES

Permissible Activities

A PSHC may carry out the following activities:

1. Holding of equities in financial and technological subsidiaries that facilitate and/or enhance innovative digital financial services.
2. Provision of broad policy direction, shared services and/or entering into technical or management service contract with any of its subsidiaries, on an arm's length basis and with the prior written approval of the CBN, in respect of the following areas:
3. 1. Human Resources services;
   2. Risk Management services;
   3. Internal Control services;
   4. Compliance services;
   5. Information and Communication Technology;
   6. Legal services; and
   7. Facilities (office accommodation including electricity, security, cleaning services in that accommodation).

Non-permissible Activities

A PSHC is prohibited from undertaking the following activities:

1. Establishment, divestment and closure of subsidiaries, without the prior written approval of the CBN;
2. Deriving or receiving income from sources other than the following:
3. 1. Dividend income from its subsidiaries/associates;
   2. Income from shared services, where applicable;
   3. Interest earned from idle funds invested in government securities or placement with licensed financial institutions;
   4. Patents, royalties and copyrights;
   5. Profit on divestment from subsidiaries/associates; and
   6. Any other source as may be approved by the CBN.

Licensing Requirements

The promoters of a PSHC are required to submit a formal application for the grant of a licence. However, a financial holding company³, with a payment service provider as a subsidiary, that has been licensed prior to the issuance of the Guidelines is not required to apply for a PSHC licence.

The Licensing process for PSHCs is in two phases - Approval in Principle and the Final Licence phase.

• Approval-in-Principle(AIP)
• A PSHC is not to be incorporated unless an AIP has been obtained from the CBN, a copy of which is to be presented to the Corporate Affairs Commission.
• It is important to note that an AIP does not authorise the promoters to commence operations or perform any of the permissible activities of a PSHC. Upon obtaining an AIP, the promoters may however proceed to carry out the activities that are permitted at this stage.
• Final Licence
• No later than six (6) months after obtaining an AIP, the promoters of a proposed PSHC are required to apply to the CBN for the grant of a final licence. The CBN shall issue the final licence where it is satisfied with the promoters'status of compliance with the conditions stated in the Guidelines, as well as their organisational, security, infrastructural, risk management and internal control arrangements.
• PSHC licences are granted for an indefinite period or such period as the CBN deems necessary and are not transferable.