The Central Bank of Nigeria CBN increased the bar on know your customer (KYC) protocols and charged financial institutions (FIs) with implementations with the release of two new policy documents over the weekend.
The directives issued to financial institutions (FIs), who have frequently been accused of supporting financial crimes, with the titles “Guidance Note on Politically Exposed Persons” (PEPs) and “CBN Customer Due Diligence (CDD) Regulations 2023,” contain specific calls to action that banks should carry out to stop financial crimes.
With the Socio-Economic Rights and Accountability Project (SERAP) already giving the acting governor of the Central Bank of Nigeria (CBN), Mr. Folashodun Shonubi, a three-day ultimatum to “immediately delete the patentially unlawful provisions” of the customer due diligence regulation asking banks to obtain information on customers’ social media handles for identification purposes, the regulation may have raised questions about the line between KYC and the right to privacy.
“The CBN Regulations and directive to banks to obtain details of customers’ social media addresses violate Nigerians’ rights to freedom of expression and privacy. It is inconsistent and incompatible with the rule of law. The CBN ought to contribute to the advancement of respect for the rule of law and human rights in the discharge of its statutory functions, and not undermine or violate these fundamental legal requirements and standards. The purported mandatory requirement would inhibit Nigerians from freely exercising their human rights online. If obtained, such information may also be misused for political and other unlawful purposes,” SERAP argued in a letter to the apex bank.
Money deposit banks (MDBs) were instructed by the apex bank to collect complete data on consumers, including social media handles, as part of measures “designed to improve the ability of financial institutions to identify and monitor potential risks linked to customer activities.”
“By including social media handles as part of the customer identification process, banks seek to gain further insights into customers’ online presence and activities, helping to assess potential risks and monitor for suspicious behaviour.”
“For individuals, the CDD process now encompasses gathering information such as legal name, addresses (permanent and residential), contact details (telephone, email, and social media handles), date and place of birth, Bank Verification Number (BVN), Tax Identification Number (TIN), nationality, occupation, public position held, name of employer, official personal identification number and a unique identifier contained in a valid government-issued document bearing the customer’s name, photograph and signature,” the CDD guidelines stated.
The second document outlines the steps that banks are required to take in order to prevent money laundering, financing of terrorism, and proliferation financing (ML/FT/PF), as it is possible that certain people “may misuse their power and influence for personal gain or advantage to themselves, close family members, and/or associates.”
Nigeria was classified as a high-risk nation for money laundering and terrorism funding by the Basel Institute on Governance last year. The nation received a 6.77 out of 10 rating, placing it 17th out of 128 nations evaluated.
The CBN’s action is praised for lowering the vulnerability of the nation. However, there are also worries about excessive regulation, which experts claim has detrimental effects on the bank’s quest to increase financial inclusion.
