The Central Bank of Nigeria (CBN) has reversed its earlier decision to ban banks and financial institutions from transacting in cryptocurrencies, acknowledging the global trend towards regulating digital assets. The bank issued a new circular on December 22, outlining the rules and requirements for firms dealing in crypto assets.
The CBN imposed a ban on crypto transactions in February 2021, citing concerns over money laundering and terrorism financing. The ban was met with criticism and resistance from Nigeria’s crypto community, which resorted to peer-to-peer trading to bypass the financial sector. Nigeria is one of the largest markets for cryptocurrencies in Africa, with a young and tech-savvy population that has embraced digital innovation.
The Nigerian Securities and Exchange Commission (SEC) also published regulations for digital assets in May last year, indicating that the country was seeking a balanced approach between prohibiting and permitting cryptographic activities. The SEC recognised crypto assets as securities and required registration and licencing for crypto firms.
The new CBN circular states that there is a need to regulate the activities of virtual asset service providers (VASPs), which include cryptocurrencies and crypto assets. The circular defines VASPs as “any person or entity that provides services related to the exchange, transfer, storage, or issuance of virtual/digital assets.”
The circular also specifies how banks and financial institutions (FIs) should interact with VASPs. FIs are allowed to open accounts for VASPs, provide designated settlement accounts and settlement services, and act as channels for forex inflows and trade for firms transacting in crypto assets. However, FIs are still prohibited from trading, holding, or transacting cryptocurrencies themselves.
The circular also requires VASPs to be licensed by the SEC and comply with the anti-money laundering and counter-terrorism financing regulations. VASPs are also expected to report any suspicious transactions to the relevant authorities.
“From the commencement of these Regulations, Fl shall not open or permit the operation of any account by any person or entity to conduct the business of virtual/digital assets unless that account is designated for that purpose and opened in line with the requirements of these Guidelines,” the CBN said in the circular.
The new regulations are seen as a positive step for Nigeria’s crypto industry, as they provide more clarity and legitimacy for crypto firms and users. However, some challenges and uncertainties remain, such as the enforcement and implementation of the rules, the coordination between the CBN and the SEC, and the impact on the existing peer-to-peer market.