The term KYC has become commonly used in the world of financial institutions today. Know Your Customer (KYC) norms, was first introduced in 2002 by the Reserve Bank of India. The goal was to compel all banks and financial institutions to establish policies and frameworks that allowed them gather and maintain basic information about their customers before establishing a relationship or opening an account for them.
KYC has always had one goal which is to prevent the banks and FI’s from being used intentionally or unintentionally by criminals for money laundering, terrorist financing, sex or human trafficking or other related activities. When banks maintain an effective KYC system, customer activities are easily understood and patterns are drawn therefore helping the banks flag unusual transactions and/ or activities that are unexpected, this in the end protects the banks from large scams and also protects its customers from fraud and loss of funds.
In Nigeria, the CBN released a circular dated January 18th 2013, in which it mandated all banks in Nigeria to maintain a level of KYC due diligence for all of its customers. This directive allows for a three tier profiling as such giving financial institutions the ease of banking vast majority of individuals with varying level of financial literacy and buoyancy.
“Terror is what happens when good people keep quiet”
As a once upon a time banker in Nigeria, my curiosity has always been to evaluate and understand to what extent are the financial institutions dedicated to KYC and Customer Due Diligence.
Most banks in Nigeria would show progress in adhering to CBN’s KYC requirement, but what is not certain is what level of continuous due diligence is done post onboarding.
Some of the questions that comes to mind are:
- What is the PEP policy? A good and effective PEP Policy would be a major step in combating money laundering as the nation suffers a lot from political theft and misuse of fund.
- Another question is – what is the thoroughness of the banks Customer Identification Program (CIP)
- What kind of directory is used to maintain client’s documentation and are the documents reviewed for authenticity, renewed, and updated as at when due.
- Are customer’s properly profiled such that their behavior is predictable
- Is there a form of KYB i.e. CIP gathering for the controllers and UBO’s of their corporate customers?
This is barely a tip of iceberg of all the many questions that comes to mind when we think about KYC in Nigeria. The overall journey of where we are coming from, where we are, and where we are going to if at all we have a vision for the future.
Please leave your questions and comments in the discussion board and thank you for reading.
Good write up.
I’m also curious to know what directory or software the Nigerian banks use to maintain its clients documentation and how often they’re been updated.
Per due deligence post onboarding, what are the current metrics for determining strict adherence to CBN’s requirements? I’d like to see a framework that checks current requirements, this will imo ensure the requirements are constantly updated and tested for efficiency.
All together a great read, well done! 👏🏽👏🏽👏🏽