CBN reviews settlement banking arrangement, sets new rules

The Central Bank of Nigeria (CBN) has reviewed the settlement banking arrangements for banks and merchant banks.

The CBN’s Monetary, Credit, Foreign Trade and Exchange Guideline says it can only maintain a Settlement Account for a commercial bank that provides clearing collateral of not less than N15 billion worth of treasury bills.

The apex bank said achieving the benchmark gives a bank the right to engage in clearing and settlements operations in the country.

In a circular to all banks and the Nigeria Interbank Settlement System (NIBSS), CBN Director, Banking and Payments System Department, ‘Dipo Fatoku, said it had become imperative for the banks to extend the settlement banking arrangement to all the clearing sessions, with effect from January 1, 2018.

ALSO SEE: FG to inaugurate 10 more new coaches on Kaduna – Abuja rail

Specifically, he said the settlement of net clearing obligations from Central Securities Clearing System (CSCS), cheques, cards Automated Clearing House (ACH), NIBSS Instant Payment (NIP), National Electronic Funds Transfer (NEFT) and other clearing instruments shall be through the account of settlement banks only.

Besides, such a Settlement Bank will have the ability to offer agency facilities to other banks and settle on their behalf, nationwide. It will equally have a branch network in all the CBN locations.

It said that banks that meet the specified criteria will continue to be designated as “Settlement Banks”. This implies that non-settlement banks, called “Clearing Banks” will continue to carry out clearing operations through the settlement banks under agency arrangement.

In the circular titled: Extension of Settlement Banking Arrangement to all Clearing Sessions’, Fatokun recalled that the CBN introduced settlement banking framework on April 1, 2014.

“The framework categorised deposit money banks into settlement and non-settlement banks. The settlement banks settle their net settlement obligations and that of their non-settlement banks arising from cheque clearing and other instruments during sessions 1 and 2.”

He said non-settlement banks should going forward, enter into agency agreement with settlement banks and pledge appropriate collaterals accordingly. “The aforementioned framework has been working well and contributed to the relative stability in the net settlement operations for settlement of clearing sessions 1 and 2 on the Real-time Gross Settlement System (RTGS),” he said.

The CBN advised settlement banks to update the agency agreements with their non-settlement banks. “Merchant banks that do not have settlement banks should appoint a settlement bank and inform the CBN on or before December 15,” it said.