In another effort to combat financial crimes, the Central Bank of Nigeria (CBN) recently issued its Customer Due Diligence Regulations 2023. These regulations apply to all financial institutions under the purview of CBN’s regulatory authority, marking a firm and resolute approach against financial crimes. The CBN claims this policy will increase compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) provisions.
The regulation requires financial institutions to establish internal protocols and practices to carry out due diligence for prospective, current and occasional customers. This means banks are obligated to identify customers, regardless of whether they are individuals or legal entities, and gather essential information such as legal names, addresses, contact details, identification documents, account types, nature of banking relationships, and signatures. In addition, regular reviews of customer records will be conducted, taking into account their risk categorization. High-risk, medium-risk and low-risk customers would have their records reviewed in 12 months, 18 months and three years respectively.
But, one interesting aspect of the new regulation is the requirement for Nigerians to provide their social media handles. Under section 6 (IV) of the regulation, financial institutions that fall under the regulatory oversight of the CBN must now collect and authenticate customers’ social media handles as part of their Know Your Customer (KYC) procedures. This obligation applies to both individual customers and legal entities.
The inclusion of digital footprints in its regulations reflects CBNs commitment to enabling financial institutions to gain a comprehensive understanding of their customers, fostering improved due diligence and risk management. Per the regulation document, by obtaining this additional information, financial institutions can gain valuable insights into customers’ online presence and activities, enabling better assessment of potential risks associated with money laundering, terrorism financing, and proliferation financing.
Social media platforms can offer valuable information about customers’ financial behaviours, social connections, and lifestyle preferences. This information can be instrumental for financial institutions in validating the legitimacy of customer identities and identifying potential suspicious activities. Nigeria loses $600 million annually to money laundering and $18 billion to financial crimes. So there’s a genuine problem to tackle. But is this the right approach?
A solution or a problem?
A primary concern is that the CBN, in several ways, wants to have its cake and eat it too. Per its regulation, it’s asking banks to collect customers’ social media handles as proof of identity. It also expects the institutions to monitor customers’ online behaviour, especially if they do most of their transactions online. However, the same body wants to achieve 85% financial inclusion this year. And chasing such ambitious numbers, in the Nigerian context, requires fewer barriers, not more.
Nigeria’s poverty has been one of the biggest hindrances to financial inclusion. In 2009, when the apex bank issued anti-money laundering rules that required banks to know their customers, it realized that many people had no formal IDs because they were too poor to afford them. So in 2013, it came up with a clever solution: a three-tiered KYC system that allowed low-income and middle-income customers to open accounts with minimal requirements and only asked for more information as they spent more money.
But the CBN gives little regard to this system in its new regulation. It only mentions it in passing —in a cryptic section that refers to some old circulars and regulations. It does not explain how the new social media KYC requirement will affect the different tiers of customers or how it will protect their privacy and rights. More so, there are no clear guidelines on how banks should execute this requirement. So the CBN is simply focusing on the outcome it wants without giving much attention to the process.
It also says that social media information will be used alongside other KYC data, such as legal names, addresses, contact details, and identification documents, to create a comprehensive profile of the customer. Indeed, there are numerous KYC requirements in place for customers in Nigeria, which include a birth certificate, National Identification Number, driver’s license, international passport, Bank Verification Number, and phone registration.
A social media KYC policy does not necessarily make the verification process more credible. Instead, it assumes that customers’ online identities are consistent, reliable, and verifiable when this is not the case. People use multiple social media platforms, often with different usernames, profiles, and purposes. They change their social media handles, delete their accounts, or create new ones. People also use pseudonyms, aliases, or fake names to protect their identity or express themselves. And that’s only the beginning. Nigerians also have a deep-seated distrust for their governments.
Moreover, it is important to consider that the reach of social media in Nigeria is not all-encompassing. Despite a significant uptake of social media usage, particularly among the youth, data indicates that only a small fraction of the country’s population. Nigeria was home to 31.60 million social media users in January 2023, equating to about 14.3 per cent of the total population. That, in poetic fashion, leaves out over 85 per cent of Nigerians.
Young Nigerians are also concerned about the policy’s potential towards political censorship. Over the past decade, social media has firmly established itself as an indispensable component of Nigerian society, serving as a crucial platform for political discussions, activism, and raising awareness on various issues. So it is not surprising that numerous Nigerians have turned to social media platforms like Twitter as a means to scrutinize governance and advocate for accountability, often resulting in public criticism of public officials. However, it is important to note that while freedom of speech is permitted, the assurance of freedom after expressing oneself is not always guaranteed.
The End SARS protest serves as an example, where several influencers who supported the protest had their bank accounts frozen, only to have them unfrozen weeks or even months later. Given such instances, it is not unfounded to express valid concerns that the new regulation may be driven by an intention to impose censorship. This can have a draconian effect on the effective enjoyment by Nigerians of their rights to freedom of expression and privacy online.
As of report time, the process by which banks will obtain customers’ social media data remains unclear. And it’s unlikely that it will take off on a whim because it’s up to the banks to figure out what works for them. But, before then, it is crucial to thoroughly assess the potential consequences of this regulation. This assessment should prioritize upholding the principles of freedom of expression and ensuring that the regulation does not unduly impede citizens’ capacity to engage in constructive dialogue, hold leaders accountable, or hinder the inclusion of more individuals into the financial sector.
Also, banks have a tricky job of keeping their young customers, who account for the majority of social media users. Traditional banks are currently in a gradually steaming battle with neobanks and fintechs for young users. How will all of this unfold? Time will tell.
This article is written in collaboration with Oluwatosin Ogunjuyigbe
