In a strategic effort to combat money laundering and ensure compliance with relevant laws and regulations, the Central Bank of Nigeria (CBN) has introduced measures to support Financial Institutions (FIs) in implementing effective customer due diligence practices. These measures include Customer Due Diligence Regulation 2023 and the Guidance Notes on Politically Exposed Persons (PEPs). The legal basis for the formulation of these regulations are the Money Laundering (Prevention and Prohibition) Act 2022 and the Central Bank of Nigeria (CBN) AML/CFT/CPF Regulations 2022, aim to enhance transparency and integrity in the financial sector. In this editorial, we examine the aims of these measures and their implications for financial institutions in Nigeria.
CUSTOMER DUE DILIGENCE (CDD) REGULATION 2023
On 20th June 2023, the Customer Due Diligence (CDD) Regulation 2023 was formulated by the CBN, marking a significant milestone in bolstering the integrity of the financial sector. This regulation provides comprehensive guidelines and regulations to aid financial institutions, particularly banks, in implementing and ensuring compliance with customer due diligence practices. Customer due diligence is a crucial process through which financial institutions verify customer identities, assess risks, and gather vital information to mitigate the involvement of customers in illicit activities, such as money laundering and terrorist financing.
At its core, the CDD Regulation serves as a powerful tool to promote compliance and the adoption of best practices within financial institutions. It offers clear instructions and guidance on the effective execution of customer due diligence procedures, covering various stages of customer onboarding and ongoing monitoring.
Know-your-Customer (KYC) Requirements
The information required by Banks and other Financial Institutions for customer identification for individuals, to fulfil the KYC requirements are as follows:
Where the customers are corporate bodies, the details to be obtained to fulfil the KYC requirement include:
Providing these specific details enables FIs to identify and verify their customers’ identities. By collecting this data, institutions can ensure transparency, traceability, and accountability in their interactions with customers.
Other Obligations of Financial Institutions under the CDD Regulation
A key focus of the CDD Regulation 2023 lies in meticulous verification and validation of customer identities and an understanding of the nature and purpose of their business relationships. Through thorough identity verification and risk assessments, institutions can identify and mitigate potential risks associated with customers involved in illicit activities, ensuring the stability of the financial landscape. The regulation sets out stringent requirements for various aspects, including blind trusts, nominee directors and shareholders, refugees or asylum seekers, foreign students, minors, non-face-to-face customers, introductions from authorized financial intermediaries, corporate group introductions, acquisition of financial institutions and businesses, domiciliary accounts, safe custody and safety deposit boxes, retirement benefit programs, non-profit organizations (NPOs), and professional intermediaries. However, while the CDD Regulation 2023 represents progress in risk mitigation, it presents challenges for financial institutions. Compliance requires a significant allocation of resources, both in technology and manpower, to establish robust systems for identity verification, risk assessment, and ongoing monitoring. Striking the balance between regulatory compliance and operational efficiency continues to be a continuous test for financial institutions.
The CDD Regulation represents a significant milestone in enhancing the integrity of the financial sector and combating money laundering. The regulation provides comprehensive guidelines for FIs to implement effective customer due diligence practices, ensuring compliance with KYC requirements and promoting transparency in business relationships. By collecting detailed information about customers, conducting risk assessments, and adopting a risk-based approach to verification, FIs can mitigate the risks associated with illicit activities. However, compliance with the CDD Regulation poses challenges for institutions, necessitating substantial resources for technology, manpower, and operational efficiency. Despite these challenges, adherence to the regulation is crucial for maintaining a robust financial landscape and upholding regulatory standards in Nigeria.