The Central Bank of Nigeria (CBN) has issued a strong warning to all International Money Transfer Operators (IMTOs) operating within the country, cautioning them against selling foreign exchange above the prescribed exchange rate.
The warning dated September 13, 2023, and referenced TED/FEM/PUB/PC/001/009 is aimed at curbing forex arbitrage, which the apex bank has said contributes to the naira’s poor performance in the FX market.
The CBN’s approved rates for forex are the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rates plus or minus 2.5%, which closed at N773.04/$1 on Wednesday.
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The CBN noted that some IMTOs have been flouting the rules, contained in its earlier circular dated August 9, 2023, and referenced TED/FEM/PUB/PC/001/006. The circular contained guidelines and conditions for IMTOs, such as crucial aspects related to payment methods, pricing, and exchange rate quotations that must be strictly followed when providing international money transfer services.
Earlier, the apex bank had accused IMTOs of jeopardizing the Investor & Exporter window by diverting diaspora remittances to the parallel market. The fresh warning means that the financial institutions are selling forex at parallel market rates.
In its cautionary circular, the CBN reiterated its regulations concerning rate quotations, stressing that International Money Transfer Operators (IMTOs) are required to provide exchange rates within a permissible range of -2.5% to +2.5% of the prior day’s closing rate in the Nigerian Foreign Exchange Market for their transactions.
This implies that IMTOs are prohibited from selling foreign exchange at rates exceeding 2.5% above the previous day’s NAFEX (Nigerian Autonomous Foreign Exchange) rates. For example, if the Wednesday NAFEX rate is N773.04, IMTOs should set their exchange rate for selling dollars at approximately N792.73 or lower. This measure is designed to prevent undue fluctuations and maintain stability in the foreign exchange market.
The central bank said following routine checks, it was observed that some IMTOs were operating and acting in breach of the above-referenced circular. These actions included arbitrary rate quotes outside of permissible range and other sharp practices, in violation of extant regulations.
“Such deviations from the rules compromise the stability of Nigeria’s financial markets and have the potential to introduce unfair practices that may disadvantage consumers,” it added.
To stop the arbitrage and deter all IMTOs from flouting the rules, the CBN rolled out a series of sanctions that will be meted out to IMTOs caught violating the regulation. The penalties include:
- Being compelled to sell their forex proceeds directly to the Central Bank of Nigeria.
- Suspension from engaging in international money transfer operations.
- The potential loss of their operating license.
“Going forward, any IMTO in breach of this specific regulation would face sanctions, including but not limited to being compelled to sell their proceeds to the Central Bank of Nigeria, suspension from operations and loss of operating license,” the apex bank said.