The Central Bank of Nigeria, CBN, conscious of the abuses being perpetrated by some operators within the nation’s financial system by flouting regulatory guidelines, is set to wiled the big stick on erring entities as part of its efforts sanitise the system.
The move by the apex bank, many market watchers have observed, may not be unconnected with increasing rate of fraud in the financial sector. For instance the Nigerian Deposit Insurance Corporation, NDIC, in its 2014 annual report said Banks recorded N25.61bn fraud in 2014.
According to the report the rate of fraud in the banking sector rose by 182.77 per cent from 3,786 cases in 2013 to 10,612 cases as of December 2014 and the amount involved within the period under review increased by N3.81bn or 17.5 per cent from N21.8bn to N25.61bn. The report said that as a result of the increase in the level of the fraud in the industry, the expected/actual loss rose from N5.76bn in 2013 to N6.19bn in 2014.
It attributed the fraud rate increase to the astronomical rise in online banking transactions including fraudulent transfers and withdrawals.
“The Deposit Money Banks reported 10,612 fraud cases in 2014 compared with 3,786 cases reported in 2013, representing an increase of 182.77 per cent.
“In the same vein, the amount involved increased by 3.81bn or 17.5 per cent from 21.80bn in 2013 to 25.61bn in 2014. “Also the expected/actual loss increased from 5.76bn in 2013 to 6.19bn in 2014.
The increase of 7.57 per cent in expected/actual loss in fraud and forgeries was mainly due to the astronomical increase in the incidence of web-based, online banking, Automated Teller Machine and fraudulent transfer/ withdrawal of deposit frauds,” the report said.
Corroborating the rising cases of fraud in the sector, Chairman of Nigeria Electronic Fraud Forum, NeFF, Dipo Fatokun, who is also Director of Banking and Payments System, CBN, the number and size of frauds against organisations are increasing just as the volume and size of transactions are equally on the increase.
Also, Head, Information System Security, Nigeria Inter Bank Settlement Systems, NIBSS, Olufemi Fadairo, said that 2014 was quite alarming in terms of fraud as it recorded very high volume of fraudulent transactions, noting that the unreported cases were far higher than the reported cases of frauds perpetuated in the system.
Therefore to curtail this ugly trend the CBN in a circular dated July 29 and signed by Fatokun to all Deposit Money Banks, Microfinance Banks, MFBs, Primary Mortgage Institutions, Mobile Money Operators, Switches and other payments system service providers said it would sanction erring banks/e- payment service providers for infractions of payments system rules and regulation.
“Further to the provisions of section 47(3) of the CBN Act 2007, requiring the CBN to ‘prescribe rules and regulation for the efficient operations of clearing and settlement system’, the bank hereby stipulates the following applicable sanctions to erring banks and payments system service providers for infringements of extant guidelines, circulars, rules and regulation issued by the bank on all forms of electronic payments system”, the circular said.
According to the circular, for the ATM some of the infractions and penalties include; non compliance with payment card industry data security standard, PCIDSS, attracts a fine of N250,000 and a penalty charge of N50,000 per week for as long as non compliance persists.
Others are non compliance of ATM terminals with EMV levels 1 and 2 attracts fine and penalty as PCIDSS non compliance. “Failure to provide audit trails and journals for ATM transactions attract fine of N50, 000 with full refund to the customer. Downtime of ATM for more than 72 hours without cogent reasons attracts fine of N100, 000. Non availability or non functional help desk contacts attracts fine of 100,000 and penalty charge of N50, 000 per week for as long as non-compliance exists and Failure to respond to the customer/ CBN on ATM complaints within 72 hoursattracts fine of 100, 000 per day”, the circular stated.
The CBN said in case of Transaction Switching Services any infraction of the guideline attracts initial fine of N100, 000 and full liability for compromise due to noncompliance. It also said for bulk payments and ACH, any infraction attracts penalty stipulated on the guidelines on Electronic Payments of salaries, pensions, suppliers and taxes in Nigeria. On the issue of card issuance, stored value/ prepaid cards and debit cards, the CBN said banks are to be fully liable for any fraud arising from the use of the card. And that disciplinary action would be taken on bank staff found culpable.
“On Point-of –Sale, PoS fraud arising from non-compliance with transaction value limit, the scheme operator is liable for amount above set limit. Lack of inter operability and inter connectivity to other systems would attract directive to operator to disable the PoS.
“On rendition of returns and late submission of monthly returns attracts fine of N50, 000m per day of delay”, it said. The apex bank further said promoters of companies that engage in e- payment operations without obtaining CBN approval would be prosecuted and the companies closed down, “ adding that non compliance with any other CBN e- payment directive or circular shall attract fine of N50, 000 per week of non compliance and full liability for any fraud arising from non compliance.”
Also the circular said that the CBN would apply name and shame of responsible officers and entity, blacklisting of operator or service providers and removal from office of principal officers of operators and service providers in some cases. However, as part of efforts to nip the menace in the bud, Fatokun had said early this year that the NeFF forum has created an avenue for information exchange and knowledge sharing on fraud issues among key stakeholders to foster collaborative and proactive approach to tackling the challenge and limiting occurrences and losses.
According to him, this will proffer solutions that restore public confidence on card usage and electronic payments in general. Fadairo, however disclosed that internet and ATMs remain the most popular channels for e-fraud while Point of Sales (PoS) terminals have been discovered to be the preferred channel of cash out for fraudsters.
Taking polls on the last two years’ data of NIBSS, it appeared that in 2014 there was 1,461 e- fraud volume, with attempted value of N7.8bn and actual loss value of N6.216bn. For the previous year, the fraud volume recorded was 855 with attempted value of N19.149bn, while actual loss value was N485.194m. Giving further analysis on the reported cases of frauds in the past two years, Fadairo explained that while there was a significant rise of up to 78 per cent in the volume of fraudulent cases in 2014, the value of attempted fraudulent transactions reduced, noting that there was a huge increase in the moneys that were actually lost to fraudsters. He said further analysis show that the percentage of actually lost value as against attempted fraud value increased up to 77 per cent from 35 to 80 per cent within one year.
According to him, the fraudulent cases help to emphasize the need for more security measures in handling payment cards as individuals, and improved security practices as corporate bodies to help minimize fraud rates.
Fadairo hinted that financial fraudsters were increasingly adopting sophisticated techniques in the approach and that stakeholders in the industry have to collaborate more and think ahead and creatively if efraud must be successfully tackled.