The well over 2-year-long ‘crypto ban’ in Nigeria has now been lifted by the Central Bank of Nigeria (CBN). In a new ‘Guidelines on Operations of Bank Accounts for Virtual Assets Service Providers (VASPs)’ approved by the CBN on Friday 22 December 2023, the CBN directed all banks and other financial institutions to immediately comply with the provisions of the new regulatory framework.
The Guidelines is introduced through a circular (FPR/DIR/PUB/CIR/002/003). The circular is signed by the Director, Financial Policy and Regulation Department of the CBN, Haruna B. Mustafa. At the time of writing however, the circular is yet to be published on CBN’s website.
Major provisions of the new Guidelines include the following:
- VASPs will now require a license from the Securities and Exchange Commission (SEC).
- VASPS must meet other account/opening/documentation requirements of the CBN.
- A number of restrictions are now placed on the bank accounts of VASPs.
- Financial institutions who maintain banking relationship with VASPs will now be required to monitor their VASP customer accounts and make monthly returns to the CBN.
- Before any financial institution provides a designated account for settlements for VASPs purposes, it must obtain CBN’s authorization.
- Financial institutions must establish risk management systems in order to prevent money laundering and other illicit transactions involving VASPs.
- Financial institutions must ensure that it put consumer protection measures in place to efficiently handle customer complaints.
Under the Guidelines, the CBN has the power to sanction financial institutions, including their board, officers, or staff for failure to comply with the provisions of the Guidelines. Noticeably, the CBN’s supervisory approach appear to be focused more on the financial institutions who are under its purview as CBN-licensed institutions, not the VASPs whose products and services form the subject matter of the Guidelines. Apparently, the CBN expects that the SEC will be the regulator that directly regulates VASPs in Nigeria. The challenge with this approach however is that it assumes that all VASPs will fall under the regulatory purview of the SEC.
Effectively, the CBN’s (controversial) circular of 5 February 2021 restricting banks and other financial institutions from operating bank accounts for cryptocurrency service providers is no longer in force, if it was ever legally in force. On 5 February 2021, the CBN issued a circular to deposit money banks (DMBs), non-bank financial institutions (NBFIs), and other financial institutions (OFIs) in Nigeria to stop facilitating cryptocurrency transactions.
In the circular introducing the new Guidelines, the CBN acknowledged that “current trends globally have shown that there is need to regulate the activities of virtual assets service providers (VASPs) which include cryptocurrencies and crypto assets”. Further, the CBN mentioned the need to prevent misuse of virtual assets for money laundering, terrorism financing, and financing the proliferation of weapons of mass destruction. The banking relationship between financial institutions under CBN’s purview and VASPs is of concern to the CBN.
Notably, the CBN recognized the Rules on Issuance, Offering and Custody of Digital Assets and VASPs which was issued in May 2022 by the Securities and Exchange Commission (SEC). Until now, the SEC Rules suffered from lack of implementation and enforcement, due to the CBN’s former stance on virtual assets since February 2021.
However, banks and other financial institutions remain prohibited from holding, trading, and/or transacting in virtual currencies on their own account.
Under the leadership of former CBN Governor Godwin Emefiele, cryptocurrencies were forbidden to be used between banks and cryptocurrency exchanges.
This move resulted in fines totaling N1.31 billion for six banks involved in enabling crypto trading.
Despite initial restrictions, the CBN signaled a shift in approach in January 2023, hinting at the development of a regulatory framework for potential cryptocurrency implementation. This, along with the national blockchain policy passed in May of this year, also stresses the importance of embracing blockchain technology by all sectors of society. Another interesting development that happened this year was the introduction of the Finance Act 2023 which imposed a 10% tax on profits from disposal of various digital assets. Digital assets include cryptocurrencies.
However, these developments failed to translate into a healthier business and regulatory climate for digital assets-related businesses in the system largely due to the lingering CBN restrictions. The sustainable growth and development of the digital assets sector in the country across sectors became apparently stunted.
Before the General Elections in 2022, Presidential Tinubu expressed intentions to reform government policies around blockchain and cryptocurrency, aiming for a more efficient regulatory framework if elected.
Crypto Resilience in Nigeria
Despite the ban, a CoinGecko study in July 2023 revealed Nigeria’s unwavering curiosity about cryptocurrency. Topping the global list with a search score of 371, Nigerians showed the highest interest in phrases like ‘cryptocurrency’, ‘invest in crypto’, and ‘buy crypto’. The search for ‘Solana’ ranked third globally, underscoring the resilience of the Nigerian crypto community.
Opinions from Industry Players
In May 2022, Cryptocurrency Analyst Rume Ophi highlighted the demand for crypto-related careers, emphasizing there are various job opportunities within cryptocurrency and blockchain space, despite the ban at the time.
Former President of Stakeholders in Blockchain Technology Association of Nigeria (SiBAN) and the Lead Partner at Infusion Lawyers, Senator Ihenyen, had always maintained that the CBN should consider a risk-based approach to the adoption of cryptocurrencies in Nigeria in order to ensure a balance between innovation and regulation, rather than Nigeria ending up killing the goose that might lay the golden egg. He has also maintained since February 2021 that there is no “crypto ban” in Nigeria but a restriction against the facilitation of crypto-related transactions in Nigeria’s banking and financial system.
Stakeholders in the blockchain and FinTech sector called on the federal government to implement regulations aligning with the approved blockchain policy. Obinna Iwuno, the current SiBAN President, has emphasized the need for a forward-thinking regulatory framework to integrate blockchain into various sectors for economic growth and job creation.
Today, the CBN has commendably lifted the ‘crypto ban’. Excitement permeates the crypto space as enthusiasts and players anticipate the positive implications for Nigeria’s digital asset landscape. For the records, it is however worth mentioning that the ‘crypto ban’ has since been nullified by the Federal High Court since October 2021 when the questionable CBN circular was declared null and void. According to the court, the CBN does not have the power to create, with a mere circular, offences unsupported by written law.
For Nigerians, the lifted ‘crypto ban’ represents more than just a policy change. It signals a potential turning point for the nation’s position in the global crypto landscape. It is a welcome development, and big plus for Nigeria’s fledging virtual assets industry which is the leading market in Africa. The challenge now for VASPs, particularly local startups, is meeting the requirements under the new regulatory frameworks by the CBN and the SEC. Is this a win for innovation and regulation? Time will tell.
Credit: Solomon Victor is a Technical Analyst who is also knowledgeable about various aspects of blockchain and cryptocurrency.