Fraud: CBN directs Banks and fintechs to deploy anti-money laundering tools

The Central Bank of Nigeria (CBN) has directed banks and fintechs to deploy an anti-money laundering tool that detects suspicious transactions and financial fraud in real-time. 

This is contained in a circular released on Tuesday by the Apex Bank titled Issuance of Baseline Standards for Automated Anti-Money Laundering (AML) Solution for Financial Institutions in Nigeria. 

CBN explained that the framework forms part of the process to combat financial terrorism, fraudulent activities and the susceptibility of the ecosystem to financial crime. Also, the initiative is an opportunity for institutions to use emerging technologies in combating financial crime risk management.

In addition, the move becomes necessary following the advancement of technology and the increasing complexity of the industry’s operation. CBN noted that the manual monitoring methods are inadequate, making it ineffective to tackle the growing threat of AML and other financial crimes. 

“As financial services become increasingly digitised and complex, manual AML/CFT/CPF controls are no longer sufficient to manage evolving risks. Financial institutions are expected to deploy automated AML Solutions,” the regulator said. 

As stipulated in the framework, banks and fintechs are expected to start deploying the measures immediately. Deposit money banks (DMBs) are expected to achieve full compliance within 18 months from the date of issuance, while other financial institutions will have 24 months to comply.

What the CBN’s framework says

The framework set out minimum technical and operational standards for Automated systems used by banks, fintechs and other financial institutions to alleviate money laundering, proliferation financing and terrorism nationwide. 

Below are seven key guidelines to note from the framework 

1. Any AML deployed must diligently support risk-based customers, enable timely detection of suspicious activity, and facilitate accurate, complete, and timely reporting to the CBN, Nigerian Financial Intelligence Unit (NFIU) and other relevant authorities.

2. The framework stipulates minimum capabilities that an AML solution system must possess. This includes customer identification and verification, transaction monitoring, and sanctions screening. Such tools must also maintain data integrity and ensure secure data transmission.

3. Financial institutions are permitted to deploy emerging technologies such as AI and other machine learning models to improve the detection of fraudulent activities and suspicious movements. However, such technologies must operate under strict human control.

4. The CBN’s framework noted that such institutions using AI-based AML tools will be required to conduct frequent validation to ensure accuracy, reliability and fairness in the detection of suspicious financial transactions.

5. As part of the compliance with Nigeria’s data protection regulations, banks, fintechs and others are to implement secure data protection controls. This includes using encryption, role-based access and multi-factor authentication.

6. Financial institutions must also solidify their identity verification processes by onboarding systems with national databases such as the Bank Verification Number (BVN) and National Identification Number (NIN) platforms to support their identity checks.

7. Subject to the CBN’s approval, financial institutions can operate AML Solutions under shared services or centralised arrangements. This means that two or more institutions can share AML resources while responsibilities for compliance, data protection, and performance must be clearly allocated and documented.

While the standards apply to all institutions operating under the CBN’s regulation, the depth of implementation depends on each institution’s size, transaction volumes, operational scale and risk exposure.

With the implementation period set, CBN noted that institutions that fail to implement the standards may face regulatory sanctions under existing banking and financial crime laws. 

Also, compliance with the framework will be monitored using off-site surveillance, on-site examinations and thematic reviews, according to the Apex Bank. 

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