Global Courant
In another effort to fight financial crimes, the Central Bank of Nigeria (CBN) recently released her Regulation customer survey 2023. These regulations apply to all financial institutions under CBN’s regulatory authority, marking a firm and determined approach to financial crimes. The CBN claims that this policy will improve compliance with anti-money laundering (AML) and counter-terrorist financing (CFT) regulations.
The regulation requires financial institutions to establish internal protocols and practices to conduct due diligence on potential, current and occasional customers. This means that banks are required to identify customers, whether natural or legal persons, and collect essential information such as legal names, addresses, contact details, identification documents, account types, nature of banking relationships and signatures. In addition, reviews of customer files will be carried out on a regular basis, taking into account their risk categorization. High risk, medium risk and low risk clients would have their records reviewed after 12 months, 18 months and three years respectively.
But an 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 subject to CBN regulatory oversight are now required to 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 regulation reflects CBN’s commitment to empowering financial institutions to gain a comprehensive understanding of their customers, leading to enhanced due diligence and risk management. According to the regulatory document, by obtaining this additional information, financial institutions can gain valuable insights into customers’ online presence and activities, enabling a better assessment of potential risks related to money laundering, terrorist financing and the financing of proliferation.
Social media platforms can provide valuable information about customers’ financial behavior, social connections and lifestyle preferences. This information can assist financial institutions in validating the legitimacy of customer identities and identifying potential suspicious activity. Nigeria loses $600 million annually to money laundering and $18 billion in financial crimes. So there is a real problem that needs to be addressed. But is this the right approach?
A solution or a problem?
A primary concern is that the CBN wants to have its cake and eat it in different ways. Under its regulations, it asks banks to collect customers’ social media handles as proof of identity. She also expects the institutions to monitor the online behavior of customers, especially if they conduct the majority of their transactions online. However, the same body wants to reach 85% financial inclusion this year. And chasing such ambitious numbers, in the Nigerian context, requires fewer barriers, not more.
Poverty in Nigeria has been one of the biggest barriers to financial inclusion. When the top bank issued anti-money laundering rules in 2009 that required banks to know their customers, it realized that many people did not have formal IDs because they were too poor to afford them. So it came up with a smart solution in 2013: a Three level KYC system allowing low and middle income customers to open accounts with minimal requirements and only ask for more information as they spend more money.
But the CBN pays little attention 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 different levels of customers or how it will protect their privacy and rights. What’s more, there are no clear guidelines on how banks should implement this requirement. So the CBN just focuses on the desired result without paying much attention to the process.
It also states 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 for clients in Nigeria including Birth Certificate, National Identification Number, Driver’s License, International Passport, Bank Verification Number and telephone registration.
A social media KYC policy doesn’t necessarily make the verification process more credible. Instead, customers’ online identities are assumed to be 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 accounts, delete their accounts or create new ones. People also use pseudonyms, aliases or fake names to protect their identity or to express themselves. And that’s just the beginning. Nigerians also have a deep-seated distrust of their governments.
Moreover, it is important to consider that the reach of social media in Nigeria is not all-encompassing. Despite a significant increase in social media use, particularly among young people, data indicates that only a small portion of the country’s population. Nigeria was home to 31.60 million social media users in January 2023, which amounts to approximately 14.3 percent of the total population. That poetically leaves out more than 85 percent of Nigerians.
Young Nigerians are also concerned about the policy’s potential for political censorship. Over the past decade, social media has firmly established itself as an indispensable part of Nigerian society and serves as a crucial platform for political discussions, activism and awareness raising on various issues. So it is not surprising that many Nigerians have turned to social media platforms such as Twitter as a means of scrutinizing governance and advocating for accountability, often resulting in public criticism of government officials. However, it is important to note that while freedom of expression is allowed, the security of freedom after expressing oneself is not always guaranteed.
The End SARS protest serves as an example, where several influencers supporters of the protest had their bank accounts frozen, only to have them thaw weeks or even months later. Given such cases, it is not unfounded to raise legitimate concerns that the new regulation may be motivated by an intent to impose censorship. This could have a draconian effect on Nigerians’ effective enjoyment of their right to freedom of expression and privacy online.
At the time of reporting, the process by which banks obtain customers’ social media data remains unclear. And it’s unlikely to get off the ground 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 impact of this regulation. This assessment should give priority to upholding the principles of freedom of expression and ensuring that the Regulation enhances citizens’ ability to engage in constructive dialogue, hold leaders accountable or promote the inclusion of more individuals in the financial sector is not unnecessarily hindered.
Banks also have a tough job of retaining their young customers, who make up the majority of social media users. Traditional banks are currently engaged in a steaming battle with neobanks and fintechs for young users. How will all this unfold? Time will tell.
This article was written in collaboration with Oluwatosin Ogunjuyigbe
