Nigerian banks spend billions of naira annually to implement the Know Your Customer (KYC), which is a compulsory regulatory tool used to reduce the menace of money laundering, terrorist financing and corruption, especially in managing public finance, a report by KPMG has shown.
The report seen by ThisDay stated that its survey showed that individual banks could spend between N50 million and N400 million per annum on KYC requirement depending on the customer base of the bank.
The report also stated that on average, between 15 to 30 per cent of customers who start the KYC process do not complete it, because the process is too manual, information required would be difficult to obtain and time consuming and could last for more than four weeks in some cases.
It also noted that the KYC requirement could also be an inhibitor to the attainment of financial inclusion policy in Nigeria that did not have centralised identity management systems.
The report, which is titled “KPMG 2021 Know Your Customer (KYC) Survey: KYC Challenges and Opportunities in Nigeria,” revealed that 85 per cent of the banks that responded to its survey stated that KYC process constituted a significant cost to their operations, with 71 per cent anticipating that the cost of KYC would continue to increase.
In addition, more than 70 per cent of the responding banks, according to the KPMG, spend about N10,000 as direct cost for identity and address verification of a customer while others spend as much as N40,000 on the KYC of a customer.
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, 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 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 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.”