The Central Bank of Nigeria (CBN) , issued a circular permitting financial institutions (FIs) in the West African country to offer services to digital asset entities. This comes nearly three years after the bank banned FIs from dealing with cryptocurrency and its service providers.
- In a Dec. 22 circular, the CBN cited “current trends globally,” an update to the Financial Action Task Force’s (FATF) Recommendation 15, and a 2022 update to the Money Laundering Act as reasons it is looking to regulate the activities of digital asset service providers.
- “In view of the foregoing, the CBN hereby issues [these] guidelines to provide guidance to financial institutions under its regulatory purview in respect of their banking relationship with [virtual asset service providers] VASPs in Nigeria,” the bank wrote in the circular, published alongside the guidelines.
The Guidelines supersedes the CBN’s circulars referenced FPR/DIR/GEN/CIR/06/010 of January 12, 2017 and BSD/DIR/PUB/LAB/014/001 of February 5, 2021 on the subject. However, banks and other financial institutions are still prohibited from holding, trading and/or transacting in virtual currencies on their own account.
Accordingly, all banks and other financial institutions are hereby required to immediately comply with the provisions of the Guidelines.
- The latest CBN guidelines effectively introduce some level of regulatory oversight to the activities of digital asset companies in Nigeria. However, that responsibility has been placed on the Securities and Exchange Commission (SEC.)
- The number one requirement for crypto companies looking to open bank accounts is a license from the SEC.
- Even then, the financial institution’s senior management must first approve the account.
- The CBN also requires FIs to submit monthly reports relating to the activities of the accounts of crypto companies. The apex bank is interested in learning about the number of accounts opened for crypto entities, the value and volume of transactions conducted monthly, and incidents of theft, fraud, and customer complaints.
- Depending on the accountholders’ risk assessment and volume of cash moved, there must also be transitional limits on the accounts.
Oluwaseun’s thought bubble
My initial thoughts while reading the guidelines were that of hostility. It reads like the CBN is saying, “We don’t trust you.”
- However, context matters. These guidelines are coming after nearly three years of telling banks they cannot open accounts for crypto companies.
- Also, the world of crypto remains esoteric, and while industry players have actively engaged and educated the bank regulator, the CBN would want to take a cautious approach to understanding the market for itself.
- All things considered, my final assessment is that the central bank is now genuinely interested in understanding how crypto works and the full range of risks involved. Therefore, it is taking a gradual approach to regulate the space tacitly. So I suspect the initial guidelines will be revisited as the CBN gains a more holistic understanding of the space.
However, questions should be asked if these guidelines do enough to promote innovation or if they limit access to a few deep-pocketed crypto companies.
- The SEC, which crypto companies must first deal with before approaching banks, requires crypto companies to have a minimum paid-up capital of N500 million (roughly $550,000). The paid-up capital can be in fixed assets, bank balances and investments in quoted securities.
- When the SEC released its guidelines last year, many crypto players scoffed, saying it was unrealistic.
- There are two possible ways forward: First, a revision of the SEC guidelines to accommodate the realities of the crypto industry. Second, the SEC expanding its sandbox program to accommodate crypto companies, many of whom don’t have the luxury of locking up $550,000 in paid-up capital.