To curb fraud in the financial services sector, Nigeria’s Central Bank has directed the Nigeria Inter-Bank Settlement System (NIBSS) to debit the settlement accounts of commercial banks that receive fraud proceeds. The directive, effective January 2025, signals a shift towards greater accountability for banks, compelling them to tighten their fraud detection measures.
According to multiple sources familiar with the matter, the new rule is part of the CBN’s efforts to hold banks and fintechs accountable for lapses in their transaction monitoring systems.
Banks that fail to vet incoming transactions or detect fraudulent activity adequately will face instant debits once that activity is reported. This move is designed to encourage financial institutions to improve their Know Your Customer (KYC) and due diligence—areas the CBN has repeatedly highlighted as critical to safeguarding Nigeria’s financial ecosystem.
“What this means is that banks and fintechs are now responsible for the money that comes to them,” said Adedeji Olowe, founder of Lendsqr. “This has always been the foundation of KYC, not just in Nigeria, but in every financial jurisdiction in the world.”
The new directive has unofficially been in effect since December 2024 when a major bank lost ₦7 billion to fraud. NIBSS reportedly debited the settlement accounts of the fintech that received some of the proceeds of the funds without explanation, according to two fintech executives familiar with the matter who asked not to be named discussing the regulator’s actions. This comes as the CBN increased its scrutiny of fintechs over compliance issues in early 2024.
NIBSS did not respond to a request for comments.
The CBN did not respond to a request for comments.
“The CBN is holding them [banks and fintechs] accountable this time around. If a bank allows a fraudulent transaction to pass through its system, it has to bear the consequences,” said one banker who asked not to be named due to the sensitive nature of the matter.
Nigerian banks lost ₦42.6 billion to fraud in Q2 2024, according to a report by the Financial Institutions Training Centre (FITC). However, most financial institutions avoid reporting fraud incidents for fear of suffering reputational harm in a low-trust market. Only 60 of 163 financial institutions in Nigeria reported fraud cases in 2023, according to a NIBSS report.
The new CBN directive is expected to generate significant ripples within Nigeria’s financial sector, with commercial banks likely to respond by implementing more rigorous controls on transactions. At least two commercial banks have tightened their monitoring of large or unusual transactions, according to people familiar with the matter who asked not to be named to speak freely.
As the directive takes effect, its impact on reducing fraud in Nigeria’s financial sector will serve as a critical test for the CBN.
