Central Bank of Nigeria Implements Stricter Capital Requirements for Bureau de Change Operators

In a bid to strengthen regulatory oversight and fortify the integrity of Nigeria’s foreign exchange market, the Central Bank of Nigeria (CBN) has announced a significant overhaul of the minimum capital requirements for Bureau de Change (BDC) operators in the country, among other changes.

Under the revised Regulatory and Supervisory Guidelines for Bureau de Change Operations in Nigeria, Tier 1 license holders will now be subject to a minimum capital requirement of N2 billion, marking a substantial increase from the previous threshold. Similarly, Tier 2 license holders will be required to maintain a minimum capital of N500 million.

Also, under the revised guideline, Tier 1 operators are required to deposit a caution deposit of N200 million. Additionally, they must pay application and license fees of N1 million and N5 million respectively, along with an annual renewal fee of N5 million.

For Tier 2 operators, the caution deposit is set at N50 million. Application and license fees amount to N250,000 and N2 million respectively, with an annual renewal fee of N1 million.

The new directives, unveiled on Friday, represent a notable departure from previous thresholds and are poised to reshape the BDC operations across the nation.

In the previous guideline that came into effect in January 2016, the non-refundable application fee was N100,000, and the licensing fee was N1 million. The mandatory caution deposit stood at N35 million, and the annual licensing renewal fee was N250,000.

This move underscores the CBN’s commitment to enhancing the regulatory framework governing BDC operations, in accordance with its mandate under Section 56 of the Banks and Other Financial Institutions Act, 2020 (BOFIA).

According to a circular signed by Haruna Mustapha, Director of the Financial Policy and Regulation Department at the CBN, the updated guidelines are strategically crafted to elevate corporate governance standards, reinforce anti-money laundering provisions, and streamline licensing requirements for BDCs. The circular indicated that these measures are essential amidst ongoing reforms aimed at bolstering the efficiency and transparency of the foreign exchange market.

The revised guidelines also address key areas such as board composition and operational protocols for BDCs. Tier 1 BDCs are mandated to have a board comprising a minimum of three directors, including at least two independent non-executive directors. Similarly, Tier 2 BDCs must have a board with at least one independent non-executive director.

“The number of independent non-executive directors shall be at least 2 for tier 1 BDCs and 1 for tier 2 BDCs, provided that where a BDC is publicly listed, it shall comply with the applicable provisions of CAMA 2020. A tier 1 BDC shall have an Executive Director other than the MD/CEO. A tier 2 BDC may have an ED apart from the MD/CEO,” it said.

The guidelines advocate for gender diversity on BDC boards, in alignment with principles of women’s economic empowerment, marking a shift from the previous one.

However, Paul Alaje, Chief Economist at SPM Professionals, offered insights into the implications of the new capital requirements. While acknowledging the potential benefits of the revised framework, Alaje highlighted the challenges it may pose, particularly amidst the current economic climate.

He said the increased barrier to entry for owning a BDC license presents a significant challenge, especially in the context of the prevailing economic crisis, adding that while the stricter capital requirements may enhance market stability and promote investor confidence, they could also potentially deter prospective BDC operators, thereby limiting market participation.

In addition to capital requirements, the revised guidelines introduce stringent operational protocols for BDCs. All transactions by residents are now mandated to commence only after electronic retrieval of the potential customer’s Bank Verification Number (BVN) or Tax Identification Number (TIN) from relevant databases. BDCs are also required to obtain comprehensive documentation for foreign exchange transactions, particularly those exceeding specified limits.

Furthermore, the guidelines outline strict protocols for transactions conducted at border control areas, mandating electronic crediting or transfer of Naira proceeds to customers’ accounts or prepaid cards. Non-resident visitors engaging in forex transactions with BDCs must adhere to stringent identification requirements, including the provision of valid travel documents.

While applauding the efforts to enhance market transparency and combat money laundering, Alaje raised concerns regarding the practical implementation of these measures. He noted potential challenges in enforcing compliance, particularly in detecting cash transactions conducted outside the purview of BDCs.

“The challenge lies in effective implementation and monitoring of these regulations,” Alaje remarked. He noted that despite the stringent protocols outlined in the revised guidelines, there remains a risk of non-compliance and illicit transactions taking place beyond the oversight of BDCs.

“The challenge is that of implementation, two persons can meet in any corner of any room and exchange cash without BDC explaining. Recall that the former CBN Governor has done a similar reform where BDCs will need to report to whom they gave money but BDCs did not completely comply and there was no punishment.

“With this new regulation whether there will be punishment or not is another kettle of fish. If there is punishment for instance punishment could be no supply of FX to such BDC that faulted the law” he said.

The CBN’s decision to revise the capital requirements for BDC operators has been hailed in many quarters as a bold step in fostering transparency and a vibrant foreign exchange market. While the stringent measures outlined in the revised guidelines are poised to elevate regulatory standards, stakeholders emphasize the importance of balanced implementation and ongoing policy adjustments to address potential market frictions effectively.