In a global economy marred by financial crimes, money laundering, and terrorist financing activities, regulatory frameworks to curb illicit activities have become paramount.
The Central Bank of Nigeria (CBN) has therefore recently introduced the Customer Due Diligence Regulations (the “Regulations”) 2023 to support Financial Institutions (FIs) in implementation and compliance with effective customer due diligence practices which are required by extant Anti-Money Laundering (AML), Combating the Financing of Terrorism (CFT) and Countering Proliferation Financing of Mass Destruction (CPF) laws and regulations in Nigeria.
This newsletter highlights some of the key provisions of the Regulations and the potential implications for FIs in Nigeria as described below;
1. What is the scope of the Regulations?
The Regulations generally apply to all Banks and other Financial Institutions as described under the Banks and Other Financial Institutions Act regulated by the CBN.
2. What are the Key Provisions in the Regulations?
a. Opening Anonymous Accounts: The Regulation prohibits FIs from opening, operating, or maintaining anonymous accounts or accounts identified with numbers, or fictitious names.
b. Customer Due Diligence Measures: In the course of conducting customer due diligence, FIs are required to undertake the following processes;
- customer identification and verification identity.
- identification and verification of beneficiary owners of accounts (if any).
- understanding the sources of customers’ funds.
- conducting ongoing due diligence on the business relationship and monitoring for suspicious activities.
The Regulation also mandates FIs to conduct the above due diligence procedures when:
- FIs are establishing business relationships with third parties;
- carrying out occasional transactions above the applicable and designated threshold of $1000 or it’s equivalent in other currencies as may be determined by the CBN.
- carrying out occasional electronic money transfers, including cross-border and domestic transfers between FLs and when credit or debit cards are used as a means of payment
- there are doubts about a customer’s identity ; or
- there is suspicion of a financial crime in respect of a transaction.
In addition, the Regulation permits FIs to dispense with certain due diligence measures if doing so would potentially tip off a customer. In such cases, however, the FI must file a suspicious transactions report with the Nigeria Financial Intelligence Unit (NFIU).
3. Customer Information: The Regulations expand the nature of information which FIs must obtain from individuals, corporate entities or legal arrangements under extant legislations, to include, social media handles, corporate constitutional documents, legal documents indicating persons with significant control, identification documents of the persons with significant control and persons occupying senior management positions. The Regulations also provide detailed guidance on how to verify the identity of customers and beneficial owners using reliable, independent source documents and data to verify the information provided by individuals and legal entities.
4. Trust Arrangement: The Regulation prohibits FIs from opening accounts involving a foreign or blind trust where information regarding the trust or foundation is unclear or information about the legal arrangement cannot be provided because it is incorporated in a jurisdiction where it is impractical to obtain information on the parties (such as tax havens and offshore financial centers). Additionally, in the case of blind trusts, FIs are required to understand who the parties to the trust are, as well as obtain information about the agreements concerning the trust. In the event that the beneficial owner of a customer is a politically exposed person, FIs are required to apply enhanced due diligence measures and identify the ultimate beneficial owner.
5. Disclosure of Nominee Shareholder and Director: FIs are now required to enquire from customers who are legal persons to disclose details of nominee directors and shareholders if any.FIs are also required to verify the identification of the nominee director and shareholder and obtain the status of the nominee.
6. Employee Benefits: Where a trust scheme has been established for the purpose of employee stock options, retirement benefits, and other employee benefits, and an account is to be established for the purpose of the employees, the trustees, and persons who have control over the account shall be considered as the holders of the account. In such instances, the customary due diligence exercise shall be conducted by the FI in respect of the account controllers/ managers/operators.
The analysis of the impact of Nigeria’s Customer Due Diligence Regulation 2023 reveals an opportunity to address present-day challenges in the nation’s financial sector. The Regulation has paved the way for a more transparent, secure, and accountable financial ecosystem. By addressing the aims and implications of these measures head-on, Nigeria not only safeguards its own financial stability but also contributes to the global fight against illicit financial activities.