‍Contributors: Rodiyyah Bashir and Temitope Ogundare

  Introduction  

On September 4, 2025, the Central Bank of Nigeria (CBN) issued a circular to all banks, payment service banks, and other financial institutions (the "Regulated Entities") formally announcing the establishment of its Compliance Department (the "Department") to specifically have regulatory oversight of non-prudential risk. This significant development signifies the CBN’s commitment to strengthening Nigeria’s financial system by embedding stricter regulatory oversight, clarifying supervisory roles, and addressing emerging risks in the sector.

Non-prudential risks refer to regulatory and operational risks faced by financial institutions that do not directly threaten their financial stability or solvency but still impact some aspect such as their broader operational, conduct, and compliance exposures that can still have a significant impact on a Regulated Entities’ reputation, customer trust and ability to operate.

Traditionally, the CBN has supervised banks through its prudential and monetary functions. However, with the growth of fintech, digital banking, and complex financial products, non prudential risks such as financial crime, market conduct, cybersecurity, and corporate governance have become equally critical. Recognising this, the CBN has formally shifted oversight of these areas to the newly formed Department. This development aligns with global best practices, where central banks and regulators dedicate specialised units to compliance, risk management, and market conduct supervision.

Why the Compliance Department was Established  

According to the circular, the Department was set up in the first quarter of 2025 and commenced full operations in the second quarter of 2025 when it assumed responsibility for non-prudential supervisory oversight.    The goal of this structural reform is to:

1. Consolidate and embed regulatory effectiveness across financial institutions.
2. Clarify institutional responsibilities, thus removing overlaps in supervision.
3. Maintain focused oversight of non prudential and emerging risks.
4. Safeguard financial system integrity by addressing gaps not fully covered under prudential supervision.

In summary, the CBN is moving from a purely financial stability focus to a holistic supervisory model that balances prudential regulation with compliance, governance, and conduct standards.

The Four Key Mandates of the CBN's Regulatory Compliance Department

The Department’s mandate reflects the CBN’s growing focus on emerging and non-prudential risks that directly impact the stability, integrity, and reputation of Nigeria’s financial system. Its responsibilities cover:

1. Financial Crime Supervision: This focuses on Anti-Money Laundering (AML), Counter-Financing of Terrorism (CFT), Counter-Proliferation Financing (CPF), and sanctions compliance. With increasing cross-border transactions and the risk of illicit financial flows, this mandate strengthens Nigeria’s ability to meet global anti-financial crime standards.
2. Market Conduct Supervision: The department will oversee disclosure practices, complaint management frameworks, and advertising standards. This ensures that banks and fintechs treat customers fairly, communicate transparently, and avoid misleading practices.
3. Enterprise Security Supervision: This covers cybersecurity, data protection, and third-party risk management. In an era of digital banking and AI-driven platforms, the CBN is placing security and consumer data protection at the centre of its regulatory agenda.
4. Corporate Governance and ESG Supervision: This focuses on board effectiveness, governance culture, and Environmental, Social, and Governance (ESG) practices. By elevating ESG oversight, the CBN signals its commitment to sustainable finance and ethical corporate practices.

What This Regulatory Oversight Means for Financial Institutions  

For the Regulated Entities, this reform introduces stricter compliance expectations. They are now expected to:

1. Review Compliance Frameworks: Ensure AML/CFT/CPF and sanctions compliance, market conduct, cybersecurity, and ESG practices are aligned with regulatory expectations as set in the applicable laws and guidelines.
2. Enhance Board Oversight and Governance Structures:  Boards and senior management will be expected to demonstrate proactive involvement in compliance and risk governance. Therefore, institutions should reassess board committee mandates, improve reporting lines, and ensure directors are trained to oversee non-prudential risks effectively.
3. Update Communication Protocols: File and re-route regulatory correspondence on the affected areas to the new Department.
4. Prepare for Increased Scrutiny:  Expect more targeted engagement from the CBN on non-prudential risks and ensure readiness for supervisory reviews.
5. Improve Customer-Centric Practices: Regulated Entities must refine complaints management frameworks, improve disclosure and transparency in customer dealings, and ensure that advertising and promotional practices meet regulatory standards.

The CBN has also committed to issuing further guidance on points of contact and submission procedures, ensuring smooth communication between institutions and the new Department.

Broader Implications for Nigeria’s Financial System  

This development is more than just a bureaucratic reshuffling. It also has broader implications for Nigeria’s financial landscape, including:

1. Global Credibility: By strengthening AML/CFT supervision, Nigeria improves its standing with international bodies such as the Financial Action Task Force (FATF).
2. Consumer Protection: Tighter oversight of market conduct ensures fair treatment of customers and builds trust in the banking system.
3. Resilience Against Cyber Risks: With dedicated enterprise security supervision, Nigeria’s financial system will be better equipped to withstand growing cyber threats.
4. Sustainable Finance Push: Incorporating ESG oversight reflects Nigeria’s alignment with global sustainability goals.

Conclusion  

The establishment of the CBN’s Compliance Department represents a strategic milestone in Nigeria’s regulatory evolution. It signals a proactive approach by the apex bank to address the complexities of modern finance, where risks are no longer limited to solvency and liquidity but extend to conduct, governance, security, and sustainability.

For financial institutions, this circular is a call to action and a framework for accountability. Compliance is no longer a peripheral obligation but a central pillar of supervision. By embedding this culture, the CBN aims to safeguard financial integrity, protect consumers, and position Nigeria’s financial system for sustainable growth in the global economy.

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This explainer was put together by our Regulatory Intelligence team. If you require any further information or advisory support, please don’t hesitate to get in touch with us at contact@techhiveadvisory.org.ng

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