This study examined the effect of banks’ compliance with Anti-Money Laundering (AML) regulations on financial stability in Nigeria. The study specifically investigated the influence of Customer Due Diligence and Know Your Customer (CDD/KYC) compliance, Transaction Monitoring and Suspicious Transaction Reporting (TMSTR), and Internal Controls and Governance (ICG) on financial stability proxied by Return on Assets (ROA) and Non-Performing Loans (NPL). The study was anchored on Regulatory Compliance Theory by Braithwaite (1992). An explanatory research design with a quantitative approach was adopted using secondary data obtained from five selected Nigerian deposit money banks over the period 2016–2025. Data were analyzed using descriptive statistics, Pearson correlation, and multiple regression analysis.The findings revealed that AML compliance variables jointly exert a significant effect on financial stability. Transaction Monitoring and Suspicious Transaction Reporting demonstrated a positive and statistically significant effect on ROA, while AML compliance variables showed negative relationships with NPL, indicating their potential role in reducing credit risk. The study further revealed the presence of severe multicollinearity among AML variables, suggesting overlapping compliance dimensions. The study concludes that effective AML compliance enhances profitability, strengthens risk management, and contributes to the stability of the Nigerian banking sector. The study recommends stronger regulatory enforcement, improved compliance technologies, and integrated AML frameworks within banks.
Keywords: KYC compliance, Non-Performing Loans, Return on Assets, anti-money laundering regulations, internal controls & governance, transaction monitoring
