The Central Bank of Nigeria (CBN) has issued a directive requiring all Bureau de Change (BDC) operators in the country to reapply for new operational licenses by June 3, 2024. This move is part of a broader effort to restructure the foreign exchange (forex) market and strengthen the regulatory framework governing BDC operations.
In addition to reapplying for licenses, BDC operators must now meet new capital requirements: N2 billion for Tier 1 operators and N500 million for Tier 2 operators.
The new requirements were detailed in a circular issued by Haruna Mustafa, the CBN Director of Financial Policy and Regulation Department. This circular outlined significant updates to the Regulatory and Supervisory Guidelines for BDC Operations, initially announced in February 2024. These changes aim to boost the BDC sub-sector’s role in the Nigerian foreign exchange market and ensure its alignment with international best practices.
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Key Changes in the Guidelines
The revised guidelines introduce a tiered licensing system, offering operators the option to choose between different categories, each with specific capital and operational standards. This differentiation is intended to cater to varying scales of BDC operations and to ensure that entities are properly capitalized for their level of activity.
The guidelines have also revised the range of permissible activities for BDCs. These revisions aim to ensure that BDCs operate within the boundaries of their intended role in the forex market, thereby reducing the risk of malpractices and ensuring a more transparent and stable market environment.
In addition to the new capital requirements (N2 billion for Tier 1 and N500 million for Tier 2), the guidelines stipulate that BDCs must maintain adequate financial reserves to cover their operations. This measure is designed to enhance the financial stability of BDCs and ensure they can withstand economic fluctuations.
Corporate Governance Requirements
New corporate governance standards have been introduced to improve the management and oversight of BDCs. These standards require BDCs to implement robust internal controls and governance frameworks, thereby promoting accountability and transparency within the sector.
AML/CFT/CPF Provisions
The guidelines also include enhanced measures for Anti-Money Laundering (AML), Counter Financing of Terrorism (CFT), and Combating Proliferation Financing (CPF). These provisions are designed to ensure that BDCs comply with international standards and contribute to the integrity of the global financial system.
BDC operators must reapply for licenses under the new guidelines, choosing their desired tier or category. They must meet the specified minimum capital requirements within six months from the effective date of the guidelines. Applications for new licenses must include detailed information about the promoters, the proposed BDC’s name, and contact information for the promoters.
However, this reform is expected to have significant implications on the operations of BDCs which will include a reduction in the number of operators in the market, aimed at ensuring that only financially stable and serious entities remain. This could enhance the overall integrity and stability of the forex market.
Broader Economic Impact
This move by the CBN is part of a larger strategy to stabilize Nigeria’s foreign exchange market, which has been under pressure due to various economic challenges, including fluctuations in oil prices and inflation. Strengthening the BDC sector is seen as a crucial step in ensuring a more resilient and transparent forex market, which is essential for economic stability and growth.
While BDCs undoubtedly play a vital role in Nigeria’s forex market by providing a platform for small-scale forex transactions – helping to bridge the gap between the official and parallel markets, and ensuring that foreign exchange is accessible to a broader segment of the population, the sector has faced challenges, including allegations of financial malpractice, and currency speculation which have affected the naira, prompting the CBN to introduce stricter regulations.