09-46236441; 09-46236418 Tel:
E-mail: fprd@cbn.gov.ng CENTRAL
IK OF NIGERIA
Financial Policy & Regula tion Department Central Business District P.M.B. 0187 Garki, Abuja.

18th January, 2013 FPR/DIR/CIR/GEN/02/001 CIRCULAR TO ALL BANKS AND OTHER FINANCIAL INSTITUTIONS THREE-TIERED KNOW YOUR CUSTOMER (KYC) INTRODUCTION OF REQUIREMENTS Having recognized that access to basic banking facilities and other financial services is necessary in achieving the CBN policy on financial inclusion, the CBN has taken steps to ensure that the socially and financially disadvantaged persons should not be precluded from opening accounts or obtaining other financial services for lack of acceptable means of identification.

Given that the CBN AML/CFT Regulation, 2009 has made provision for this class of persons, it has become expedient to issue three-tiered KYC requirements for compliance by banks and other financial institutions in order to further promote financial inclusion. The three-tiered KYC regime seeks to implement a flexible account opening requirements for low-value and medium-value account holders subject to caps and transaction restrictions. Banks and other financial institutions are hereby required to adopt the provisions of the three-tiered KYC requirements as embodied in the attached guidelines in addition to the provisions of the CBN AML/CFT Regulation 2009 (as amended). Please note that this circular supersedes our circular referenced FPR/DIR/GEN/EXP/01/001 of 2200 May, 2012 on similar matter.

CHRIS O. CHUKWI
DIRECTOR, FINANCIAL POLICY AND REGULATION DEPARTMENT

Three-Tiered Know-Your-Customers (Kyc) Requirements

1.0 Introduction

l Available statistics indicate that about 64.1%2 of adult Nigerians (56.3 million) do not have access to financial services. Various factors that account for this level of financial exclusion include irregular income, unemployment, distance and low level of bank branches and cumbersome account opening requirements/procedures.

B lt is worthy to note that the enforcement of full account opening procedures often excludes some segments of the population from financial services. This keeps them out of the formal economy and indirectly promotes 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.

u 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 hitherto required, encourages prevalence of informal financial systems which in turn undermines the AML/CFT objective.

g 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:
V Allow a third party (such as clergymen, village/clan heads, headmasters, etc. with acceptable means of identification) to identify the socially disadvantaged persons; V 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 party identifiers; V Require financial institutions to adopt a risk based approach on the operation of this category of accounts and customers; and

1 Being recent survey carried out by Enhancing Financial Innovation and Access published by Punch Newspapers at http://www.punchng.com/business/56-million-adults-have-no-bank-account-survey/ as at 26" November, 2012. > Require financial institutions to conduct enhanced monitoring of such accounts, customers and third parties that identified them and render monthly returns to CBN and NFIU on their operations.

l Recommendations 1 and 10 of the revised FATF 40 Recommendations permit 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 within which our target groups fall.

l Consequently, in furtherance of the objective of enhancing financial inclusion and access, the CBN has developed the tiered KYC requirements for compliance by banks and other financial institutions under its regulatory purview.

2.0 Objective

The "tiered" KYC requirements regime will ensure application of flexible account opening requirements for low-value and medium value accounts and these are subject to caps and restrictions as the amounts of transactions increase. 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.

3.0 Structure

The structure ensures that the accounts remain attractive to customers of different socio-economic levels while close watch is kept on the risk involved. The table below shows the caps on deposits on the low-value and medium-value accounts as follows:

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THREE TIERED KNOW YOUR CUSTOMER (KYC) REQUIREMENTS
	Amount	/Threshold	Customer	Identification
Description and characteristics	Limitation	requirements
Low-Value Accounts
LEVEL 1	It is limited to a maximum	i. Basic customer information
subject to	close	single deposit amount	required	to be provided
i.	They are
monitoring	by the financial	of	N20,000	and	are:
institutions and less scrutiny by	maximum	cumulative	.	Passport photograph;
Bank Examiners.	balance of N200,000 at
	any point in time.	.	Name, place and date of
ii.	The accounts can be opened at	birth;
branches	of	financial
institutions by the prospective	-	Gender, address, telephone
customer or through banking	number, etc.
agents.	ii. This information may be
	sent
iii.	No amount is required for	electronically	or
opening of accounts.	Mobile Banking Products	submitted onsite in bank's
	branches or agent's office.
	Level One Mobile Banking
iv.	Such accounts cover Mobile	ii.	Evidence	of information
	Products Are Allowed:	provided by customer or
Banking products (issued in
accordance with	the	CBN	verification of same is not
Regulatory	Framework	for	required.
	.	Maximum	transaction
Mobile Payments Services in	limit of N3, 000 and
Nigeria).	daily limit of N30, 000.
Main characteristics:	.	Such products are subject
i.	Deposits can be made	by	to the CBN Regulatory
account holder and 3rd parties	Framework for Mobile
while withdrawal is restricted	Payments Services	in
to account holder only.	Nigeria.
ii.	Be linked to mobile phone
accounts.
Operation valid only in Nigeria.
lii.	ATM transactions are allowed.
iv.
v.	International funds transfer is
prohibited.
Accounts are strictly savings.
vi.

	single	i.	Evidence of basic customer
LEVEL 2	Medium-Value Accounts	i.	Maximum
deposit of N50, 000	information
i.	These accounts can be opened	(such	as
face to face at any branch of a	and	a	maximum	passport	photograph,
bank by agents for enterprises	cumulative balance of	name, place and date of
(used for mass payroll) or by the	N400, 000 are allowed	birth, gender, address, etc)
account holder.	at any time.	is required.
ii.	Evidence	of basic customer	ii. Where	cross-checking	ii.	These may be forwarded
information is required at this	of	client's	ID	electronically	or
information	is
level.	ID	verification	and	not	submitted	on-site	in
completed at the point
monitoring	by	financial	banks'	branches	or
institutions are required also.	of account opening,	agents' offices.
withdrawal should be
iii. Accounts can be contracted by	denied.	iii.	Customer	information
phone or at the institution's	obtained are to be verified
website.	against similar information
Mobile Banking Products	contained in the official
iv. Accounts may be linked to a	data-bases e.g. National
mobile phone.	Level Two Mobile Banking	Identity	Management
v.	They may be used for funds	Products Are Allowed:	Commission	(NIMC),
transfers within Nigeria only.	Independent	National
.	Maximum transaction	Electoral	Commission
strictly
vi. The	accounts are	limit of N10, 000 and	(INEC)	Voters Register,
savings.	Federal	Road	Safety
daily limit of N100,	Commission (FSRC) etc.
000.
vii. No amount is required	for
opening of the accounts.	.	Such	products	are
subject	to	the	CBN
Regulatory Framework
for Mobile Payments
Services in Nigeria.
High-Value Accounts
LEVEL 3	No	Limit	is placed	on	Customers are required to
i.	Banks are required to obtain,	cumulative balance.	comply	with	the	KYC
verify and maintain copies of	requirements contained in CBN
all the required documents	AML/CFT Regulation, 2009 (as
for opening of accounts.	amended).
Mobile Banking Products
ii.	Account is to be opened at the	Level	Three	Mobile
bank	branches by physical	Banking	Products	Are
presence of the prospective	Allowed:
customer.
iii. These accounts could be both	o	Maximum	transaction
savings and current.	limit of N100, 000 and
daily	limit	of	N1,
000,000.
iv. No amount is required for	.	Such	products	are
opening of accounts.	subject	to	the	CBN
Regulatory Framework
for	Mobile	Payments
Services in Nigeria.

4.0 About The Proposed Requirements

It is important to note that maximum deposits and balances are specified only for the low-value and medium-value 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 all the levels.

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 transactions. 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 robust, effective and efficient AML/CFT solutions with screening tools 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 which will determine when incremental KYC requirements need to be provided by the customers. To this end, financial institutions are required to designate and dedicate monitoring officers in their Compliance Departments for consistent and regular monitoring of all transactions.

To facilitate the effective implementation of the regime and achievement of the objective of financial inclusion, the tiered KYC requirements regime envisages the use of banks' 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 the best practice. The definition of a "banking agent" is as contained in the "CBN Guidelines for the Regulation of Agent Banking Relationship in Nigeria".

The Central Bank of Nigeria shall ensure the establishment of appropriate processes and procedures for the purpose of monitoring compliance with this regulatory framework.

Non-compliant financial institutions would, however, be sanctioned in line with the provisions of extant laws and regulations.

5.0 Conclusion

In conclusion, the above Tiered KYC Requirements regime:
√ Is a practical example of implementing risk-based approach to CDD in compliance with FATF revised Recommendations 1 and 10.

✓ 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.