The Central Bank of Nigeria (CBN) has instituted a three-tier Know-Your-Customer (KYC) initiative to take banking to the grassroots. COLLINS NWEZE examines the implication of the policy and the growth of the financial system.
In most developing countries, a large population of low income earners has little or no access to financial services. As a result of this, many of them depend either on their own or informal sources of finance to get their businesses done. Lending to the economy is affected because a large portion of the funds are outside the banking system.
The CBN statistics show that about 64.1 per cent of adult Nigerians (56.3 million) do not have access to financial services. Various factors account for the high level of financial exclusion. These include irregular income, distance and low number of bank branches and cumbersome account opening requirements/procedures.
The CBN said the lowering of the KYC policy is to allow the unbanked access to the financial system. According to him, the regulator is interested in bringing small savers into the financial sector in line with its financial inclusion policy.
This is so because low income earners, poor and socially disadvantaged segments of the population, majority of who live in the rural areas, do not have access to financial services mainly because they also lacks means of identification which is a requirement in account opening.
It, therefore, came as a relief to most grassroots customers when, in furtherance of its objective of enhancing financial inclusion and access to finance, the CBN developed the tiered Know Your Customer (KYC) requirements for compliance by banks and other financial institutions under its regulatory purview.
The CBN had introduced three-tier KYC requirements for banks. The policy, categories bank customers into Low Value Accounts (Level One); Medium Value Accounts (Level two) and High Value Accounts (Level three).
A circular to all banks and other financial institutions (OFIs) signed by CBN Director, Financial Policy and Regulation, Chris Chukwu, explained that the policy became exigent after the CBN recognised that access to basic banking facilities and other financial services is necessary in achieving the policy on financial inclusion. He advised banks to adopt the new KYC requirement adding that the proposed deposit limits is meant to reduce the risk of money laundering and financing of terrorism.
He said the Low Value Accounts are subject to close monitoring by the financial institutions and less scrutiny by bank examiners.
The CBN director said the accounts can be opened at branches of banks by prospective customer or through banking agents and no amount is required for its opening. However, such accounts prohibit international funds transfer.
According to him, the Medium Value Accounts can be opened face to face at any branch of a bank by agents for enterprises or by the account holder but, the accounts are strictly savings within no amount required for its opening. Also, where cross-checking of client’s identity cards information is not completed at the point of account opening, withdrawal would be denied.
Chukwu added that for the High Value Accounts, banks are required to obtain, verify and maintain copies of all required documents for opening them. Account is to be opened at the bank branches by physical presence of the prospective customer and the accounts could be both savings and current. However, for mobile banking products, the account attracts a maximum transaction limit of N100, 000 and daily limit of N1 million while such products are subject to the CBN Regulatory Framework for Mobile Payments Services in Nigeria.
He said banks are required to have robust, effective and efficient anti-money laundering/combating the financial terrorism (AML/CFT) solutions with screening tools that will monitor the various thresholds. “All accounts, no matter how low the transaction or the risks, must be subjected to continuous suspicious transactions monitoring by financial institutions which will determine when incremental KYC requirements need to be provided by the customers,” he said.
KYC Vs money laundering
Inter -Governmental Action Group against Money Laundering in West Africa (GIABA) has advised banks to strengthen their enforcement of Know-Your-Customer (KYC) policy of the CBN.
GIABA Representative in Nigeria, Timothy Melaye, told The Nation that removing Nigeria from the list of countries identified as jurisdictions with significant deficiencies in their Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) regimes was good for the country.
He said banks should do more in ensuring that they understand their customers’ businesses better by adopting the new KYC rule. He said Nigeria has taken the right steps, including the establishment of legal and regulatory framework that will assist it meet its anti-money laundering initiatives, the Financial Action Task Force (FATF).
He said adopting an efficient KYC policy will ensure that Nigeria does not return to the list of non-compliant countries on money laundering going forward.
“The FATF welcomes Nigeria’s significant progress in improving its AML/CFT regime and notes that Nigeria has established the legal and regulatory framework to meet its commitments in its Action Plan regarding the strategic deficiencies that the FATF had identified in February 2010. Nigeria is, therefore, no longer subject to FATF’s monitoring process under its on-going global AML/CFT compliance process. Nigeria will work with GIABA as it continues to address the full range of issues identified in its Mutual Evaluation Report,” he said.
Other stakeholders speak
A bank customer, Moses Adigun, said the new KYC rule has made it possible for him to own bank account. “I think the policy has made it easier for most people to have bank accounts. Before now, banks were asking for all sorts of documents for simple account opening. But all that has changed,” he said.
Adigun said with this policy, more deposits would embrace banking, adding that this would boost lending to the productive sectors of the economy.
Deputy Managing Director, Diamond Bank Plc, Mr. Uzoma Dozie, stressed the need to continue to drive policies that will enhance access to finance to support economic growth. “There is need to focus more on financial inclusion and also to provide the enabling environment for small businesses to thrive. What we found out is that a lot of business starts, but they falter after some years.
“There is need for greater collaboration between the Central Bank and the Federal Government and agencies, such as the Federal Inland Revenue, the legal system, to reduce the burden of financial inclusion in the society because the more people we have included in the financial system, the better the effect of monetary policy transmission,” he said.
How the KYC rule works
The ‘tiered’ KYC requirements regime ensures application of flexible account opening requirement for low-value and medium value accounts. This means that account opening requirements will increase progressively with less restrictions on operations. However, the main objective of the proposed approach is to promote and deepen financial inclusion.
CBN Acting Director, Financial Policy and Regulation, Nwaoha I.T., said the tiered KYC is about financial inclusion. He explained that the KYC requirements were made in such a way to reduce the incidence of identity fraud.
According to him, “the requirements are such that if you don’t cascade it down and simplify it as the financial requirement becomes less, you will automatically rule out a large segment of Nigerians from the system. He explained further that the tiered KYC requirements were fashioned out to ensure that those who otherwise would not be qualified for an account relationship on account of the rigour associated with the detailed KYC requirements of the past are also given opportunity to open account and transact business to the extent of the amount of business that they do.
Nwaoha explained that there was need for proper implementation of the policy to ensure its success as an improved KYC regime would not only promote financial inclusion, but increase the effectiveness of its requirements. It will also improve the quality of KYC information obtained by the financial institutions from their customers.
“We have observed that the laudable policy would produce lasting result if it is properly implemented and monitored timely from its inception,” he said.
The CBN director said the strategy ensures that CBN carries out certain commitments to demonstrate its seriousness to the project while the financial institutions comply with the various provisions of the guidelines while putting in place the required infrastructure.
He said the financial institutions are expected to undertake a detailed evaluation of the policy to determine how best to implement it. Also, CBN and banks are expected to undertake mass public awareness campaign, particularly in the rural and sub-urban areas as such would promote wide acceptance of the policy.
KYC for DNFBPs
To ensure compliance by the Designated Non-Financial Businesses and Professions (DNFBPs) to the KYC policy, the CBN has extended the deadline for additional KYC for the subsector till this month. The apex bank had set December deadline for the plan, after initial postponement from April 30, last year.
In a statement, the CBN Acting Director, Financial Policy and Regulation, A. O. Ikem advised DNFBPs that have not registered with Special Control Unit Against Money Laundering (SCUML) will have to do same before the deadline ends, failing which they would not be allowed to operate such accounts. The CBN said the extension is meant to address some of the challenges encountered by SCUML as a result of the number of persons seeking to enjoy late compliance.
The CBN had earlier issued a circular, mandating DNFBPs on the need to provide additional KYC requirements to their banks and Other Financial Institutions (OFIs). It said compliance is in line with international best practice against adverse developments resulting from money laundering and financing of terrorism globally.
CBN Acting Director, Consumer & Financial Protection, Mrs Dutse Umma Aminu, said the overall strategy of the policy is to reduce adult exclusion rate from 46.3 per cent in 2010 to 20 per cent in 2020 as such feat would support the empowerment of many Nigerians and promotion of economic growth.
She said the CBN strategy defined clear objectives and sets specific targets across five primary products and services on payments, credits, savings, pensions and insurance. He said the priority is on transforming the KYC regulation into simplified risk-based tiered framework that allows individuals who do not meet formal identification requirements to enter the banking system.
She said the CBN is also pursuing the development and implementation of regulatory framework for agent banking to enable financial institutions deliver services through agents such as post offices in locations that will otherwise be unprofitable to open physical branches.
Aminu said the CBN has also developed and is implementing a National Financial Literacy Framework to guide delivery programmes that will increase the awareness and understanding of financial products and services with the ultimate goal of increasing sustainable users.
The banking watchdog, he added, is also implementing a comprehensive consumer protection framework to safeguard the interest of consumers of financial products and services and sustain confidence in the financial system.
