CBN 3-Tier Know-Your-Customer (KYC) Framework, Modalities on IMTOs/ Diaspora Remittances in Nigeria

The CBN 3-tiered KYC requirements were issued on the 18th of January, 2013 and remain one of the most effective benchmarks for Banking and Finance compliance services in Nigeria.

These requirements are aimed at ensuring socially and financially disadvantaged persons do not get precluded from opening banking accounts or financial services due to a lack of valid identification brought about by existing CBN Anti-Money-laundering & Combating the Financing of Terrorism (AML/ CFT) regulations.

These requirements remain necessary considering that at the time of their publication by the CBN, about 56.3 million Nigerians had zero access to financial services as a result of irregular income sources, unemployment, long distances from accessible banking & financial services and problematic account opening requirements.

This article will be looking at the following topics:-

– The rationale behind the 3-tiered CBN KYC system.

– The characteristics of each KYC category or tier.

– The limitations of each KYC category or tier.

What is the rationale behind the 3-tiered KYC regime?

The CBN 3-tiered KYC system aims to implement flexible account opening requirements for low-value & medium value account holders subject to caps & transaction restrictions.

As a result & in recognition of the wide disparity in socio-economic circumstances among various segments of the Nigerian population as well as the relevant provisions of CBN AML/CFT regulations, the KYC requirements were thus created to address this problem by :-

– Allowing 3rd parties with valid means of identification to identify or guarantee socio-economically disadvantaged persons.

– Requiring Financial Institutions to adopt a risk-based approach in the operation of accounts owned by such disadvantaged persons.

– Requiring Financial Institutions to create written policies on financially disadvantaged customers and prescribe the type of documentation acceptable for the identification to be provided by 3rd party identifiers.

– Requiring higher monitoring standards for such accounts and their 3rd party identifiers as well as ensuring the rendering of AML monthly returns.

The KYC requirements were created with the aim of implementing risk-based approaches to Customer Due Diligence (CDD) in compliance with relevant FATF recommendations as well as having the aim or reducing administration costs for Financial Institutions via digital account opening processes.

What are the KYC categories and their characteristics?

The categories in the CBN 3-tier KYC system and their characteristics are :-

Level 1 (Low-level) Accounts

Description 

– Subject to close monitoring by Financial Institutions and less scrutiny by bank examiners.

– Can be opened by customers at branches of Financial Institutions or banking agents.

– Require no amount for account opening.

– Such accounts cover mobile banking products issued in accordance with the CBN Regulatory Framework for mobile payment services in Nigeria.

– Deposits can be made by account holders and 3rd parties while withdrawal is restricted to account holders only.

– Can be linked to mobile phone accounts.

– Can only be operated in Nigeria.

– ATM transactions are allowed for accounts in this category.

– No International fund transfers allowed on accounts on this level.

– Strictly savings accounts.

Amount Limitation

– Maximum single deposit amounts of 20 Thousand Naira & maximum cumulative balances of 200 Thousand Naira at any point in time.

Mobile Banking

Maximum transaction limits of 3 Thousand Naira and daily limits of 30 Thousand Naira subject to the CBN Regulatory Framework For Mobile Payment Services in Nigeria.

Customer Identification Requirements

– Passport photographs.

– Bio-data (name, gender, place & date of birth).

– Contact details.

– Evidence of information provided by the customer or the verification of same is not required.

This information may be sent electronically or submitted inside  a bank’s branch or a banking agent’s office.

Level 2 (Medium-Value Accounts)

Characteristics

– Can be opened face-to-face at any branch of a bank by agents of enterprises (used for mass payroll purposes) or by the account holder.

– Evidence of basic customer information is required at this level as well as identification and monitoring by Financial Institutions are required also.

– Accounts can be contracted by phone or at the Financial institution’s website.

– Can be linked to a mobile phone.

– For fund transfers within Nigeria only.

– Strictly savings accounts.

– No amount required for opening accounts in this KYC category.

Threshold/Amount Limit

– A maximum single deposit of 50 Thousand Naira and a minimum cumulative balance of 400 Thousand are allowed at any time.

– Where cross-checking of client’s identification information is not completed at the point of account opening, withdrawals should be denied.

Mobile Banking Products

– Maximum transaction limits of 10 Thousand Naira and daily limits of 100 Thousand Naira.

– Subject to the CBN Regulatory Framework for Mobile Payments in Nigeria.

Account Opening Requirements

– Passport photographs.

– Bio-data (name,place and date of birth, gender, address).

– This information may be forwarded electronically or submitted on-site in bank branches or in the offices of banking agents. 

– Customer information obtained is to be verified against similar information contained in official databases e.g. the National Identity Management Commission (NIMC).

Level 3 (High-Value Accounts)

Characteristics

– Banks are required to obtain, verify and maintain copies of all the required documents for opening of accounts.

– Accounts are to be opened at the bank branches by the physical presence of the prospective customer.

– These accounts could be savings or current accounts.

– No amount is required for the opening of accounts in this category.

Threshold/Amount Limits

– No limit on cumulative balance.

Mobile Banking Products

– Maximum transaction limits of 100 Thousand Naira and daily limits of 1 Million Naira.

– Such products are subject to the CBN Regulatory Framework for Mobile Payment in Nigeria. 

Account Opening Requirements

– Customers are required to comply with KYC requirements contained in the CBN AML/CFT Regulations.

The CBN is to ensure the establishment of appropriate processes and procedures for the purpose of monitoring compliance with this Regulatory Framework.

Analysis of the CBN Modalities on IMTOs/ Diaspora Remittances into Nigeria

The CBN modalities on payments of diaspora remittances were released on 22nd of January, 2021 as a follow-up to the CBN circular on the receipt of diaspora remittances – additional operational guidelines.

This article will be looking at the provisions of these modalities and their effects on the licensing framework for International Money Transfer Operations (IMTO) in Nigeria.

What are the most important provisions of the CBN modalities on diaspora remittances in Nigeria?

The modalities provide that :-

– Diaspora remittances must be received by beneficiaries in foreign currencies and not in Naira.

– Only licensed IMTO firms are allowed to carry on the business of facilitating diaspora remittances into Nigeria.

– IMTO firms are not permitted to disburse diaspora remittances in Naira (cash or transfer) either through Naira remittance settlement accounts or via any other payment platforms within or outside Nigeria.

What do these CBN directives mean for the Nigerian Fintech sector going forward, especially for Start-ups?

What the CBN directives mean is that Start-ups in Fintech, especially diaspora remittances will have to seek ways of securing CBN licensing and avoiding remittance disbursements in Naira.

This also means that going forward, 3rd party remittance transactions may no longer be possible without risking sanctions of some sort.

However, legal alternatives still exist without contravening the CBN directives. Any Fintech start-up desirous of engaging in the facilitation of diaspora remittances into Nigeria will need to consult a lawyer on these available legal alternatives.

What are the consequences for flouting these CBN directives if any?

Flouting these directives open offenders to a number of sanction risks that include :-

– License withdrawals for IMTO firms.

– For unlicensed operators, the CBN can authorize the closure of their accounts and barring them from accessing banking services in Nigeria.