CEM REPORT, BANKING| A recent decision by the Federal High Court in Lagos is bound to ignite discussion regarding the evolving landscape of Know-Your-Customer (KYC) practices in Nigeria. The court upheld a Central Bank of Nigeria (CBN) regulation that empowers financial institutions to collect social media handles from their customers.
The CBN faced a legal challenge concerning a newly introduced regulation outlined in Section 6(a)(iv) of the Central Bank of Nigeria (Customer Due Diligence) Regulations, 2023. This regulation mandated the collection of social media handles from customers as part of standard KYC procedures. The stated objective was to enhance customer identification and potentially mitigate financial crime.
Lagos-based lawyer, Chris Eke, contested the regulation, arguing that it infringed upon the privacy rights guaranteed by Section 37 of the Nigerian Constitution. Eke sought a court injunction to prevent the CBN from enforcing the regulation.
The CBN, however, countered this argument, asserting that collecting social media handles did not constitute a privacy violation. They equated it to the standard practice of collecting contact information such as email addresses and phone numbers during KYC procedures.
Court Upholding the Regulation
Justice Nnamdi Dimgba, presiding over the case, ruled in favour of the CBN, dismissing Eke’s lawsuit based on the bank’s preliminary objection.
Justice Dimgba’s reasoning centred on the concept of inherent public visibility associated with social media accounts. He argued that given the primarily public communication nature of social media platforms, collecting handles wouldn’t constitute an invasion of privacy.
Additionally, he drew a parallel between social media handles and traditional contact information, suggesting they serve a similar purpose within KYC processes.
Background
Recall that CEM reported in July 2023, that the CBN issued revised guidelines on its Customer Due Diligence Regulations 2023 for financial institutions under its regulatory purview.
The revised guidelines include collecting customers’ social media handles as a component of banks’ know-your-customer (KYC) procedures.
The CBN said the move is to deter financial crimes and terrorism while improving the accuracy and comprehensiveness of customer identification.
Also, this policy was to reflect CBN’s commitment to keeping pace with technological advancements and evolving risks in the financial sector.
Background
Recall a CEM report in July, 2023, where the CBN issued revised guidelines on its Customer Due Diligence Regulations 2023 for financial institutions under its regulatory purview.
The revised guidelines include collecting customers’ social media handles as a component of banks’ know-your-customer (KYC) procedures.
The CBN said the move is to deter financial crimes and terrorism while improving the accuracy and comprehensiveness of customer identification.
Also, this policy was to reflect CBN’s commitment to keeping pace with technological advancements and evolving risks in the financial sector.
Recommended: The Legality and Challenges of CBN’s Social Media KYC Directive
Impact on Customers and Potential Concerns
This court decision has significant ramifications for Nigerian bank customers. They are now required to provide their social media handles when opening accounts or engaging in specific transactions. This raises several concerns:
Privacy Considerations: Critics argue that social media profiles often contain a wealth of personal data, including political views, religious affiliations, and social circles. This information might not be directly relevant to banking activities and could potentially be misused.
Potential for Misuse: There’s a concern that banks might utilize social media data to unfairly discriminate against certain groups or target customers with inappropriate marketing campaigns.
Security Risks: Social media accounts are vulnerable to hacking and data breaches. If compromised, this could expose sensitive customer information collected by banks.
If You Ask Me
The CBN maintains that the regulation is crucial for combating financial crimes like money laundering and terrorist financing. They argue that social media analysis can assist in identifying suspicious activity and preventing criminals from exploiting the financial system.
Striking a balance between security requirements and privacy rights is an ongoing challenge in the digital age. While the CBN’s justification for the regulation is understandable, ensuring robust safeguards are implemented to protect customer data remains paramount.
This court decision is likely to prompt further debate. From my table, the CBN will need to answer key questions:
Will there be limitations on the type of social media information accessible to banks?
What data security measures will banks implement to safeguard customer information collected from social media?
Will there be a mechanism for customers to opt-out of providing their social media handles?
The Nigerian government and financial institutions must collaborate to address these questions and ensure that the new regulation is implemented in a way that safeguards both customer privacy and the integrity of the financial system.
It’s important to note that this is a recent development, and further legal challenges or revisions to the regulation are a possibility.
CEM continue to monitor the situation and provide updates as they become available.
