The Central Bank of Nigeria (CBN) has unleashed heavy penalties on three commercial banks in Nigeria for breaching the Bank’s directive of 5 February 2021 to all banks and other financial institutions to stop facilitating cryptocurrency transactions. The affected banks are Access Bank, Stanbic-IBTC, and United Bank for Africa (UBA). A year ago, banks and other financial institutions in Nigeria were directed to close the accounts of defaulters. This is the first time CBN is imposing fines in this regard.
The three affected banks were fined the sum of eight hundred million naira (N800m), which amounts to one million, nine hundred United States dollars ($1.9min). The biggest fine is five hundred million naira (N500m or about $1.2million) against Access Bank Plc, Nigeria’s largest assets lender, for its failure to close customers’ cryptocurrency accounts, according to a filing with the Nigerian Exchange Ltd. Next is the fine of two hundred million naira (N200m or about $480,000) against Stanbic IBTC Bank for failing to flag two customers’ accounts which were allegedly used for cryptocurrency transactions. Lastly, a fine of one hundred million naira (N100m or about $240,000) against United Bank for Africa (UBA) Plc for facilitating a cryptocurrency transaction by a customer.
At the time of writing this report, there is no publicly available information regarding the value of the cryptocurrency transactions involved.
One of the pertinent questions being asked is how the alleged cryptocurrency transactions may have come to the CBN’s knowledge, given the banker-customer relationship between the banks and their customers.
According to Wole Adeniyi, the Chief Executive Officer (CEO), Stanbic-IBTC Bank, the CBN was able to detect the relevant transactions using an “advanced capability” which Nigerian lenders do not have access to. Concerning the fine cryptocurrency transactions flagged, Mr. Adeniyi claimed that his bank had followed the CBN directive but the transactions it was sanctioned for “may have passed through its system undetected”. Mr. Adeniyi believes it is unlikely that the CBN would entertain a refund, but said that the CBN is “now sharing intelligence with [Stanbic-IBTC Bank] to be able to kind of deter clients”.
The CBN’s prohibitory approach to cryptocurrencies is not surprising. It is consistent with its position on cryptocurrency transactions in the past, particularly since the central Bank’s directive over a year ago. In November 2021, after the launch of the eNaira, the CBN ordered banks and other financial institutions to immediately close the bank accounts of persons suspected to be using their bank accounts to trade cryptocurrency and place their funds in what the CBN described as “suspense accounts”. CBN’s efforts are therefore a means to ensure compliance with the directive.
While the unlawfulness or otherwise of CBN’s 5 February 2021 directive has been a subject of debate—and has in fact been recently described by a Federal High Court, Abuja Division, as a mere circular that cannot validly illegalize cryptocurrency transactions—nothing has changed as far as the prohibition of cryptocurrency transactions in Nigeria’s banking and financial system is concerned. Will Access Bank, Stanbic-IBTC Bank, and UBA approach the Federal High Court for redress or pay the fines without any questions asked? Many believe that since these banks and other financial institutions are licensed by the CBN, they may have no other option than to continue to pay the CBN fines, and continue to comply with the questionable 5 February 2021 directive. But will VASPs seek legal redress? So far, engagement, however fruitless it may be or seem so far, appears to be generally preferred by players.
Interestingly, the CBN imposition of fines against banks over cryptocurrency transactions is coming at a time when some other relevant agencies are making efforts to introduce crypto regulation. Last month, the Securities and Exchange Commission (SEC) circulated draft rules for virtual assets after initially suspending regulatory action on this. Similarly, the Nigerian Financial Intelligence Unit (NFIU) and some other relevant agencies been been making efforts to engage the VASPs sector in Nigeria for the purpose of ensuring that Nigeria is not penalized by the Financial Action Task Force (FATF) over failure to meet up with the global standards on AML-CFT regulations.
Considering that the CBN posture on cryptocurrency transactions may actually have become a threat to Nigeria’s AML-CFT health from a Financial Action Task Force (FATF) perspective, will CBN review its posture on cryptocurrency soon?