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Business News of Wednesday, 2 June 2021

Source: www.mynigeria.com

Nigerian banks spend billions yearly on KYCs – KPMG

Nigerian banks spend between N50 million and N400 million each year on KYC requirements Nigerian banks spend between N50 million and N400 million each year on KYC requirements

According to a report by KPMG, Nigerian banks spend billions of naira each year to implement the Know Your Customer (KYC) program, which is a mandatory regulatory instrument used to decrease the threat of money laundering, terrorist funding, and corruption, particularly in the management of public funds.

According to the research reviewed by ThisDay, individual banks might spend between N50 million and N400 million each year on KYC requirements, depending on the size of their customer base.

According to the survey, 15 to 30 percent of consumers who begin the KYC process do not finish it since the process is too laborious, the information required is difficult to collect, and the process is time-intensive, taking up to four weeks in some situations.

It was also underlined that the KYC requirement could be a barrier to the implementation of financial inclusion policies in Nigeria, which lacked centralized identity management systems.

According to the research, titled "KPMG 2021 Know Your Customer (KYC) Study: KYC Challenges and Opportunities in Nigeria," 85 percent of banks that answered to the survey said the KYC procedure was a substantial cost to their operations, with 71% expecting the cost of KYC to continue to rise.

Furthermore, according to KPMG, more than 70% of responding banks spend about N10,000 as a direct cost for client identity and address verification, while others spend as much as N40,000 on customer KYC.

The key drivers of the continual increase in the cost, according to the report, included frequent changes in regulatory requirements, financial inclusion programs, increase in customer base, the initial cost of acquiring technology needed to implement KYC, more complex ownership structures of some businesses operating bank accounts and increase in the number of employees required to administer the KYC unit in a bank.

The survey findings added: “Our analysis of the data reveals that for many banks, the direct cost of KYC is below N50 million per annum, but depending on the size of the bank it can rise to as much as N400 million per annum, which do not include the indirect cost of KYC.

“Banks also incur significant indirect cost in performing KYC that include cost incurred in staffing the compliance office/sanctions screening desk, purchasing, installing and implementing technology, storing and managing customer KYC data, cost incurred due to regulatory reporting, fines incurred as a result of failure to report, opportunity cost incurred as a result of customers who are discouraged from opening accounts due to inefficient or cumbersome KYC systems.”

KPMG also highlighted that some of the topmost challenges banks encountered while implementing KYC in Nigeria include identifying complex legal structures, verifying addresses and identities, identifying and verifying politically exposed persons (PEPs), as well as remediating rather high-volume of legacy accounts.

It added: “Due to the current manual nature of searches at the Corporate Affairs Commission (CAC) as well as the continued existence of jurisdictions designated as tax/secret havens – it is difficult for banks to unravel complex legal structures, especially where these complex legal structures are employed to mask true or ultimate beneficial owners.”

The report also noted that address verification is expensive and cumbersome in Nigeria and might not be effective in ascertaining the true location of potential money launderers or terrorist financiers during investigations.

It acknowledged that the deployment of Biometric Verification Number (BVN) and the ongoing National Identification Number (NIN) registration would continue to contribute to addressing this challenge of disparate identity systems in Nigeria that made it difficult for banks to effectively and efficiently identify individuals.

Partner and Head of Forensic Services, KPMG in Nigeria, Mr. Saheed Olawuyi, explained: “It is important for regulators and banks to continuously develop ways to address the KYC challenges, while not compromising the integrity of the financial systems.”

The report recommended that banks should continue to explore technology as a way of tackling the challenges of KYC in Nigeria and create opportunities to share the cost of KYC among them by maintaining common KYC utility facilities.

The KPMG report said: “We would like to encourage more investment in the deployment and adoption of artificial intelligence, machine learning, and robotics to automate certain segments of the KYC process, so as to build more efficiency, accuracy, and predictive capabilities in the KYC process.”

The report also urged the CAC to further enhance its recently launched digital platform to seamlessly enable users to carry out a search on the directors and shareholders of companies, in order to drive efficiency of corporate onboarding and identification of complex ownership structures.

It also called on the CBN and other relevant regulators and stakeholders to streamline the definition of PEPs and “create a collaborative environment where all parties come together and proffer solutions to common KYC issues.”