Financial Crime World

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Nigerian Financial Institutions Must Comply with Customer Due Diligence Regulations

The Central Bank of Nigeria (CBN) and the Nigerian Financial Intelligence Unit (NFIU) have issued a new regulation requiring all financial institutions in Nigeria to conduct thorough due diligence on their customers. The regulation, which aims to prevent money laundering and terrorist financing, applies to various types of financial institutions, including:

  • Banks
  • Insurance companies
  • Other designated non-financial businesses and professions

Exemptions

The regulation does not apply to certain financial institutions, such as those that are subject to similar requirements in their home country or are supervised for compliance with anti-money laundering and counter-terrorism financing (AML/CFT) regulations. Additionally, life insurance policies with annual premiums or single monthly premiums below a certain threshold set by the National Insurance Commission of Nigeria (NAICOM) are exempt from the regulation.

Customer Due Diligence Measures

Financial institutions must conduct customer due diligence measures on all new customers, including:

  • Beneficial owners
  • Occasional customers

The measures include:

  • Verifying the identity of the customer
  • Obtaining information about their source of wealth and occupation
  • Assessing their risk level based on factors such as:
    • Their country of residence
    • Business activity

Risk-Based Approach

The regulation requires financial institutions to adopt a risk-based approach when conducting customer due diligence. This means that they must assess the risks associated with each customer and tailor their due diligence measures accordingly. For example:

  • Customers from high-risk countries or those engaged in high-risk activities may require more stringent due diligence measures.

Failure to Complete Customer Due Diligence

Financial institutions that fail to comply with the regulation will face severe consequences, including:

  • Being denied permission to open an account
  • Commence business relations
  • Perform a transaction
  • Rendering a suspicious transaction report to the CBN and NFIU

Existing Customers

The regulation also applies to existing customers of financial institutions. These institutions are required to conduct due diligence on their existing customers on a regular basis, including:

  • When a significant transaction takes place
  • When there is a material change in the customer’s circumstances

Politically Exposed Persons (PEPs)

Financial institutions must also identify and assess the risks associated with Politically Exposed Persons (PEPs), who are individuals entrusted with prominent public functions. Examples of PEPs include:

  • Heads of state
  • Senior government officials
  • Members of royal families

Financial institutions must obtain senior management approval before establishing business relationships with PEPs and render monthly returns on their transactions with PEPs to the CBN and NFIU.

Conclusion

The regulation aims to ensure that financial institutions in Nigeria conduct thorough due diligence on their customers and identify potential risks associated with money laundering and terrorist financing. By complying with this regulation, financial institutions can help maintain the integrity of the Nigerian financial system and prevent illicit activities.