Nigeria has eased its stringent stance on cryptocurrency transactions, introducing guidelines to govern operations after two years.
The Central Bank of Nigeria (CBN) recently released comprehensive guidelines to govern the operations of bank accounts for Virtual Assets Service Providers (VASPs), signaling the end of a two-year ban on cryptocurrency transactions. This information is detailed in a circular titled Guidelines on Operations of Bank Accounts for Virtual Assets Service Providers, issued by Haruna B. Mustafa, Director of the Financial Policy and Regulation Department at the CBN.
While the ban lasted, Nigerians defied the odds with the volume of crypto transactions in Nigeria growing 9% year-over-year to $56.7 billion between July 2022 and June 2023, according to New York-based blockchain research firm Chainalysis in a September report. Nigeria is also reported to have the highest peer-to-peer (P2P) exchange volume, according to the 2023 Geography of Cryptocurrency Report. A recent study from KuCoin found that 35% of Nigerians aged between 18 and 60 are investing or trading bitcoin or other cryptocurrencies.
In February 2021, the CBN initially imposed restrictions on banks and financial institutions, preventing them from engaging with cryptocurrency service providers reportedly due to concerns related to money laundering and terrorism financing risks.
In the latest circular, the CBN acknowledges global trends indicating the need to regulate the activities of VASPs, including cryptocurrencies and crypto assets. “Following this development, the Financial Action Task Force (FATF) in 2018 also updated its Recommendation 15 to require VASPS to be regulated to prevent misuse of virtual assets for ML/TF/PF.”
“Furthermore, Section 30 of the Money Laundering (Prevention and Prohibition) Act, 2022 recognizes VASPs as part of the definition of a financial institution. In addition, the Securities and Exchange Commission (SEC) in May 2022 issued Rules on Issuance, Offering and Custody of Digital Assets and VASPS to provide a regulatory framework for their operations in Nigeria,” adds the CBN.
In response to these developments, the CBN explained that it issued the new guidelines to provide clear directives to financial institutions under its regulatory purview regarding their banking relationships with VASPs in Nigeria.
The guidelines supersede previous circulars. However, it emphasizes that “banks and other financial institutions are still prohibited from holding, trading, and/or transacting in virtual currencies on their own account”.
The directive concludes with a firm call to action, stating, “Accordingly, all banks and other financial institutions are hereby required to immediately comply with the provisions of the Guidelines.”
Nigerian analyst, Kolawole Oyebola, expresses his views on the CBN’s decision, highlighting the positive implications for the burgeoning cryptocurrency market in the country. Oyebola commends the regulatory clarity provided by the comprehensive guidelines, stating that it will instill confidence among investors and industry players.
“This move by the CBN is a welcomed and long-awaited step in the right direction. The comprehensive guidelines not only signal a pragmatic approach to regulating the cryptocurrency space but also demonstrate the recognition of the importance of digital assets in the evolving global financial landscape,” Oyebola tells FORBES AFRICA.
The CBN’s ban, during its implementation period, had raised concerns within the cryptocurrency community and sparked debates about the future of digital currencies in Nigeria. Analysts had been vocal about the need for a balanced regulatory framework that encourages innovation while addressing potential risks associated with cryptocurrencies.
“Now that the ban has been lifted, we can anticipate increased interest and participation in the cryptocurrency market. The guidelines provide a roadmap for both VASPs and investors, promoting transparency and accountability,” Oyebola adds.
Already, pan-African cryptocurrency trading platform, Yellow Card, is exploring opportunities to capitalize on its first-mover advantage by pursuing licensing.
While Oyebola opines that challenges may persist, noting the need for continuous dialogue between regulators and industry stakeholders, he remains optimistic about the future of cryptocurrency in Nigeria.
“The CBN’s decision to lift the ban and introduce comprehensive guidelines reflects a proactive stance that could pave the way for a more robust and inclusive digital financial ecosystem in the country.”