Financial Policy & Regulation Department Central Business District P.M.B. 0187 Garki, Abuja.

Tel: 22ND May, 201 E-mail: fprd@cbn.gov FPR/DIR/GEN/EXP/01/001

Exposure Draft

THREE-TIERED KNOW YOUR CUSTOMERS (KYC) REQUIREMENT PROGRAM Access to basic banking facilities and other financial services is necessary for socioeconomic growth of Nigeria. It is important that the socially and financially disadvantaged persons should not be excluded from opening accounts or obtaining other financial services merely because they do not possess means to identify themselves.

The CBN has, however, developed a three-level tiered KYC regime for banks and other financial institutions, under its regulatory purview, to promote financial inclusion.

Please find attached the exposure draft of the proposed tiered KYC requirement for comments/inputs from stakeholders for CBN consideration. The exposure draft can be accessed at the CBN website at www.cbn.gov.ng.

Hard copies of responses on the document should be sent to the Director, Financial Policy and Regulation Department, Central Bank of Nigeria, Abuja, while soft copies should be e-mailed to uaobot@cbn.gov.ng and abisah@cbn.gov.ng within one month of the date of this document.

CHRIS O. CHUKW DIRECTOR, FINANCIAL POLICY AND REGULATION DEPARTMENT

Proposed Three-Tiered Kyc Requirement Approach

1.0

Introduction

g Available statistics indicate that about 46.3% of adult Nigerians do not have access to financial services. Various factors that account for this level of financial exclusion include low level of bank branches and cumbersome account opening requirements/procedures etc.

.

It is worthy to note that the enforcement of full account opening procedures often excludes some segments of the population from financial services and this keeps them out of the formal economy, indirectly promoting the informal sector. This is particularly so among the lower income earners, poor and socially disadvantaged segment of the population, majority of who live in the rural areas.

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It is trite to state that in Nigeria, many people lack formal means of identification.

Where they want to obtain such, the procedures to acquire them are too cumbersome and expensive, effectively out of their financial means. This inadvertently makes financial services go beyond the reach of the poor. Therefore, to continue to maintain the same level of KYC requirements for all segments of the population, as currently required, encourages prevalence of informal financial systems which in turn undermines the AML/CFT objective.

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It was in recognition of the inequality in social and economic circumstances of the various segments of the Nigerian population that Paragraphs 2.6.1.5.6-12 of CBN AML/CFT Regulation, 2009 (as amended) provide broad principles for addressing the challenge, thus: Allow a third party (such as clergymen, village/clan heads, headmasters, etc.

with acceptable means of identify) to identify the socially disadvantaged persons;

Require financial institutions to formulate written policies on financially disadvantaged customers and prescribe the type of documents acceptable for their identification to be provided by third parties; v Require financial institutions to adopt a risk based approach on the operation of this category of accounts and customers; and V Require financial institutions to conduct enhanced monitoring of such accounts, customers and the third parties that identified them and render monthly returns to CBN and NFIU on their operations.

Recommendation One of the revised FATF 40 Recommendations permits countries to .

allow financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs) to apply simplified customer due diligence (CDD) measures in respect of lower risk customer category.

Consequently, in furtherance of the objective of enhancing financial inclusion and .

access, the CBN has developed the proposed tiered KYC requirement regime for compliance by banks and other financial institutions under its regulatory purview.

2.0 Objective Of The Proposed Tiered Kyc Approach

The proposed "tiered" KYC approach is intended to be used to implement flexible account opening requirements for low-value and low-risk accounts that are subject to caps and restrictions as the amount of transactions increases. This means that account opening requirements will increase progressively as restrictions on transactions are eased. However, the main objective of the proposed approach is to promote and deepen financial inclusion.

3.0 Structure Of The Proposed Tiered Kyc Approach

The average monthly deposit cap in each account would be set in multiples of N18, 000 in the low-value and low-risk levels. This approach ensures that the accounts will remain attractive to customers of different socio-economic levels while keeping under close watch the risk involved. The table shows the caps on deposits on the low-value and low-risk accounts as follows:

PROPOSED THREE LEVELS TIERED KNOW YOUR CUSTOMER (KYC)
APPROACH
Description	and	Amount	/Threshold	Customer
characteristics	Limitation	Identification
requirements
LEVEL	Low Value Accounts	v It	is	limited	to	a	V Basic customer
ONE	maximum single deposit	information
V Non-face to face account	amount of N18, 000	such as name,
opening process	is	and	maximum	place and date
allowed.	cumulative balance of	of birth,

PROPOSED THREE LEVELS TIERED KNOW YOUR CUSTOMER (KYC)
	APPROACH
Description	and	Amount	/Threshold	Customer
characteristics	Limitation	Identification
	requirements
	N90, 000.	gender,
V They are subject to close	address, etc.
monitoring	by	the	may	be
financial institutions and	provided
less supervision by Bank	electronically.
Examiners.	v No	hard
√ The accounts can be	copies	are
opened at branches, the	required.
financial financial	institution's
websites and through	/ Customer
banking agents, etc.	information
	needs not be
V No minimum amount is	verified.
required for opening of
account.
Main characteristics:
/ Its use is restricted to
deposit and withdrawal
operations by account
holder.
√ Not linked to mobile
phone accounts (no fund
transfers are allowed).
V Operation valid only in
Nigeria.
/ Funds	cannot	be
transferred to other
accounts.

PROPOSED THREE LEVELS TIERED KNOW YOUR CUSTOMER (KYC)
APPROACH
Description	and	Amount	/Threshold	Customer
characteristics	Limitation	Identification
	requirements
LEVEL	Low-Risk Accounts	V	Maximum	single	>	Basic
TWO	deposit of N36, 000	customer
V These accounts can be	and a maximum	information
opened at any branch of	cumulative balance	such	as
a bank by agents for	of N108, 000 are	name, place
enterprises and used for	allowed.	and date of
mass payroll or by the	birth, gender,
account holder.	V Where cross-checking	address, etc.
	of	client's	ID	may	be
v Basic	customer	information	is	not	provided
information is required at	conducted within a	electronically.
this	level.	Account	12-month period, the
opening	can	be	maximum	single	√ No	hard
conducted	face-to-face	deposit allowed would	copies	of
(directly)	at	bank	be limited to N18, 000	documents
branches and by banking	and the use of the	may	be
agents.	account	restricted	required.
	within Nigeria only.	v	Customer
/ It can be contracted by	information
phone or at the banking	obtained must
institution website. It is	match similar
subject to further ID	information
verification	and	contained	in
monitoring by financial	the	official
institutions.	data-bases.
/ The accounts may be
linked to a mobile phone.
V They may be used for
funds transfers.
V Where	an account is
opened remotely, a 12-
month	grace	period	5

PROPOSED THREE LEVELS TIERED KNOW YOUR CUSTOMER (KYC)
	APPROACH
Description	and	Amount	/Threshold	Customer
characteristics	Limitation	Identification
	requirements
would	be	granted	to
customers/	financial
institutions to complete
KYC procedure.
√ No amount is required for
opening of accounts.
LEVEL	Ordinary Accounts	>	No Limit is placed on	>	The
THREE	cumulative balance.	customers
v	Banks are required to	must fulfill all
obtain, verify and maintain	KYC
copies of all the required	requirements
documents for opening of	as required by
accounts.	CBN AML/CFT
	Regulation,
>	Account is to	be	2009	(as
opened at the bank	amended).
branches by physical
presence	of of of	the
prospective customer or
the agent.
>	Minimum amount is
required to	open this
account.

4.0 About The Proposed Approach

It is important to note that only maximum deposits and balances are specified for the low-value and low-risk categories of accounts. In compliance with and in the spirit of the CBN monetary policy and financial inclusion, there shall be no minimum opening amount for accounts in levels 1-2 accounts.

In addition to the proposed limits and caps, the additional safeguards to further reduce the risk of money laundering & financing of terrorism include account monitoring by the financial institutions for suspicious transaction. To this end, financial institutions are required to report to the Nigerian Financial Intelligence Unit (NFIU) any suspicious transactions.

Also, financial institutions are required to have AML/CFT solutions in place 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 and to determine when incremental KYC requirements need to be provided by the customers.

To facilitate the effective implementation of the proposed regime and achievement of the objective of financial inclusion, the tiered KYC approach envisages the use of bank agents and mobile banking portals to reach a wider segment of the society that otherwise have no access to financial services. This concept, therefore, calls for the introduction of agent-banking in Nigeria as obtainable in other jurisdictions that practice the tiered KYC requirements.

5.0 Conclusion

In conclusion, the above tiered KYC requirement proposal: V Is a practical example to implementing risk-based approach to CDD in compliance with FATF revised Recommendation 1.

V The policy will have positive impact in the financial market by making account opening and operation more attractive and appealing to the masses in view of the simpler and fewer requirements involved.

/ Would reduce the administrative cost for banks as it involves online account opening, few paper filing and reporting.