To tackle fraud in the financial services sector, the Central Bank of Nigeria has instructed the Nigeria Inter-Bank Settlement System (NIBSS) to deduct funds from the settlement accounts of commercial banks that receive fraudulent proceeds. This directive, effective from January 2025, marks a shift towards increased accountability for banks, pushing them to enhance their fraud detection mechanisms.
As per sources familiar with the situation, the new rule is part of the CBN’s strategy to ensure that banks and fintech companies are held responsible for any deficiencies in their transaction monitoring systems.
Financial institutions that fail to properly screen incoming transactions or identify fraudulent activities will face immediate deductions once such activities are reported. This measure aims to prompt banks to strengthen their Know Your Customer (KYC) processes and due diligence, which the CBN has consistently emphasized as crucial for protecting Nigeria’s financial environment.
“This implies that banks and fintechs are now accountable for the funds they receive,” explained Adedeji Olowe, the founder of Lendsqr. “This principle underpins KYC not only in Nigeria but in financial jurisdictions worldwide.”
The new directive has been informally enforced since December 2024, following a significant fraud incident where a major bank lost ₦7 billion. NIBSS reportedly debited the settlement accounts of the fintech involved in receiving some of the fraudulent funds without providing a detailed explanation, according to two fintech executives familiar with the matter.
NIBSS did not provide any comments upon request.
The CBN also did not respond to a request for comments.
“This time, the CBN is holding banks and fintechs accountable. If a bank allows a fraudulent transaction to pass through its systems, it will bear the repercussions,” shared a banker familiar with the matter.
According to a report by the Financial Institutions Training Centre (FITC), Nigerian banks suffered ₦42.6 billion in fraud losses in Q2 of 2024. However, many financial institutions refrain from reporting fraud incidents to avoid damaging their reputation in a low-trust market. Only 60 out of 163 financial institutions in Nigeria reported fraud cases in 2023, as per a report by NIBSS.
The new directive from the CBN is anticipated to have a significant impact on Nigeria’s financial sector, with commercial banks likely to respond by implementing stricter controls on transactions. Some commercial banks have reportedly enhanced their monitoring of large or suspicious transactions in light of this directive.
As this directive becomes effective, its success in reducing fraud within Nigeria’s financial sector will be a crucial test for the CBN.