Understanding CBN guidelines on dormant accounts and unclaimed assets

BY VANESSA KELECHI

Nigeria is navigating a critical juncture where socio-economic tensions are palpable. The nation is polarised between pro-protest and anti-protest factions, each confronting economic realities and government performance from starkly contrasting perspectives. This climate of unrest underscores the need to analyse regulatory frameworks created to address emerging financial and administrative challenges. The dichotomy in public opinion reflects a broader societal struggle exacerbated by domestic factors.

In a similar context, the Central Bank of Nigeria (CBN) introduced the ‘2024 Guidelines on the Management of Dormant Accounts, Unclaimed Balances, and Assets in Financial Institutions’ on July 19, 2024. These guidelines aim to address the perennial issue of dormant accounts and unclaimed assets, which have significant implications for financial institutions and their clients. However, their implementation presents a complex compliance challenge.

The CBN’s revised guidelines: An overview

The CBN’s revised guidelines, operationalising Section 72 of the Banks and Other Financial Institutions Act (BOFIA) 2020, signify a comprehensive overhaul of the 2015 guidelines on dormant accounts and unclaimed balances. Issued following extensive stakeholder consultations, these new directives aim to standardise the management of dormant accounts and financial assets, addressing potential abuses and ensuring greater accountability in the financial sector. The revised guidelines apply to all financial institutions under the CBN’s purview including commercial banks, microfinance banks, and other financial service providers.

They seek to:
1. Identify and reunite dormant accounts and unclaimed balances with their rightful owners.
2. Manage these funds in trust for the owners.
3. Standardise the procedures for handling and reclaiming unclaimed assets.

Eligible accounts and exemptions

Dormant accounts and unclaimed balances include a variety of financial assets, such as current and savings accounts, domiciliary accounts, prepaid cards, and government-owned accounts, among others. The guidelines provide clear definitions for dormant accounts, unclaimed balances, and assets. Dormant accounts are those with no customer-initiated transactions for a specified period, typically one year for current accounts and two years for savings accounts.

Unclaimed balances include funds in accounts that have remained dormant beyond the defined period4, as well as unclaimed dividends, insurance benefits, and other financial assets.

However, certain accounts are exempted from these regulations, including those under litigation, ongoing regulatory investigations, or encumbered by collateral.
The CBN is tasked with maintaining the unclaimed balances trust fund (UBTF) pool account, issuing regulations, and ensuring compliance with the guidelines.

The CBN will also handle the investment of these funds and manage the reclaim process. Banks and other financial entities must monitor inactive accounts, notify customers, and ensure records are maintained. They are responsible for transferring unclaimed balances to the CBN and must publish details of dormant accounts in national newspapers and their websites. Individuals and corporate entities must update their details with financial institutions and provide proof of ownership to reclaim any unclaimed balances.

Compliance and monitoring

Financial institutions [FIs] are required to adhere strictly to the new guidelines, with responsibilities falling on their executive compliance officers and chief information technology officers. The CBN will enforce compliance through routine examinations and off-site surveillance. Disputes and consumer complaints will initially be handled by the FIs but can be escalated to the CBN’s consumer protection department if unresolved.

Financial institutions are required to notify account holders of impending dormancy before the account reaches dormant status. The guidelines mandate procedures for reactivating dormant accounts, which include proper identification and verification processes to ensure the rightful owner reclaims the account. The guidelines also require periodic publication of unclaimed balances and efforts made to contact the account holders or their beneficiaries.

After a specified period of dormancy, unclaimed balances are to be transferred to a dormant account fund (DAF) managed by the CBN. This fund aims to centralise the management of dormant accounts and ensure proper utilisation of the funds.

Compliance challenges

The implementation of the 2024 guidelines presents several complexities for financial institutions.

Legal and ethical considerations: Handling unclaimed balances raises legal and ethical questions, particularly regarding the privacy and rights of account holders. Financial institutions must navigate these issues carefully to maintain customer trust.

Operational overhaul: Financial institutions must revamp their existing systems to identify, track, and manage dormant accounts and unclaimed balances, reporting, and transfer requirements. This includes upgrading IT systems to track dormancy periods and automating the notification process.

Customer communication on status of their accounts and the steps required for reactivation: This is particularly challenging in a country with diverse linguistic and literacy levels. Institutions must also handle a potential influx of customer inquiries and claims efficiently6.

Continuous reporting and auditing: The guidelines impose stringent reporting obligations, requiring financial institutions to maintain detailed records and submit regular reports to the CBN to avoid regulatory penalties.

The case studies illustrate some of the complexities and practical issues that institutions may face, highlighting the need for a broad-based compliance framework:

Scenario 1: Handling dormant accounts with multiple ownership structures

A digital bank G discovered that a significant portion of its dormant accounts involved complex ownership structures, including joint accounts and corporate accounts with multiple authorised signatories. The complexity arose from the need to ensure proper notification to all account holders and authorized representatives, adhering to the new requirements of notifying and transferring balances. The bank faced challenges in ensuring accurate identification of all parties involved and complying with the revised reporting requirements.

How can financial institutions mitigate these KYC risks?

Scenario 2: Transfer of unclaimed balances from government-owned accounts

Government-owned accounts often have unique attributes, such as special authorisations and exemptions. A payment service holding company struggled with transferring unclaimed balances from such accounts due to the additional layers of approval and documentation required.
Are there best practices or examples from other countries that can be adopted to manage these complexities? What bureaucratic hurdles do banks face in identifying the status of government-owned accounts?

Scenario 3: Reclaiming unclaimed salaries and wages

A tier 2 bank faced difficulties with the reclamation process for unclaimed salaries and wages, particularly when beneficiaries had changed addresses or were difficult to locate. The new guidelines required the bank to publish lists and maintain accurate records of these unclaimed balances. The process of updating contact information and managing the reclamation requests from dispersed or unreachable individuals posed logistical and administrative challenges.
How can financial institutions ensure that they have up-to-date and accurate customer information to facilitate smoother reactivation?

Scenario 4: Managing prepaid card accounts and wallets

Prepaid card accounts and digital wallets presented unique challenges for compliance. These accounts often involve smaller balances but are numerous, making it complex to track and manage dormant balances. The financial institution had to develop new procedures for tracking and reporting these accounts in accordance with the revised guidelines. Ensuring accurate transfer of these balances to the UBTF Pool Account and addressing potential issues with digital transactions added another layer of complexity.

Can utilising technology such machine learning help in accurate identification and categorisation thereby reducing manual errors? Should Banks/FIs invest in advanced IT systems that can handle large volumes of data reducing administrative burdens?

Conclusively, the guidelines contribute to broader financial inclusion efforts offering institutions the opportunity to re-engage with dormant customers, potentially expanding their active customer base. Equally, the reallocation of dormant funds into the economy through the Dormant Account Fund (DAF) can provide a stimulus for economic activities which is crucial in ensuring financial stability and protecting consumer interests.

Vanessa Kelechi, a corporate/finance lawyer, can be reached via [email protected]