The Central Bank of Nigeria (CBN) has made a noteworthy reversal in its stance on cryptocurrency transactions in the country. Previously, a ban was imposed in February 2021 due to concerns over the risks of money laundering and terrorism financing associated with crypto assets. However, a circular issued on December 22 announced the lifting of this ban, allowing Nigerian banks and financial institutions to resume their operations with cryptocurrency service providers.
Changes in Guidelines for Financial Institutions
Under the new guidelines, financial institutions are now permitted to open accounts for businesses that engage in virtual/digital asset transactions. However, these accounts must be specifically designated for such purposes. Banks and other financial institutions must also adhere to the requirements outlined in the CBN’s guidelines when dealing with accounts related to crypto businesses.
Regulation for Virtual Asset Service Providers (VASPs)
Virtual Asset Service Providers (VASPs) involved in the crypto business are now required to obtain a license from the Nigerian Securities and Exchange Commission. While they can facilitate transactions for VASPs, banks and financial institutions are still prohibited from trading, holding, or transacting in cryptocurrencies on their own accounts.
The Impact on Nigeria’s Financial Landscape
The lifting of the ban is expected to have a significant impact on Nigeria’s financial landscape, particularly considering the country’s young and tech-savvy population’s keen interest in cryptocurrencies. In fact, a report by Chainalysis revealed that the volume of crypto transactions in Nigeria increased by 9% year-over-year to $56.7 billion between July 2022 and June 2023.
Opportunities and Challenges in Compliance
While the lifting of the ban creates new opportunities, it also presents challenges in ensuring compliance with international standards for preventing illegal activities. It is crucial to strike a balance between encouraging innovation in the digital asset space and safeguarding against potential risks. Nigeria’s decision to lift the ban aligns with global shifts toward recognizing and regulating cryptocurrencies rather than imposing outright bans.
The Securities and Exchange Commission in Nigeria introduced rules in May 2022 to establish a regulatory framework for digital assets and VASPs. The CBN’s guidelines are in line with international recommendations, such as those provided by the Financial Action Task Force (FATF), which emphasize the regulation of VASPs to prevent money laundering and terrorism financing through the misuse of virtual assets.
The new guidelines represent a significant step toward acknowledging and integrating cryptocurrencies into Nigeria’s financial system. Through this approach, there is recognition of the potential of digital assets, while also ensuring regulatory oversight to enhance security and compliance.
The Central Bank of Nigeria’s decision to lift the ban on cryptocurrency transactions marks a significant reversal in policy. It opens up opportunities for financial institutions and businesses involved in virtual asset transactions, reflecting a global trend toward recognizing and regulating cryptocurrencies. However, it also poses challenges in terms of ensuring compliance with international standards. By striking a balance between innovation and regulatory oversight, Nigeria aims to harness the potential benefits of cryptocurrencies while mitigating associated risks.