The Central Bank of Nigeria (CBN) has announced a monumental policy shift, effectively lifting its longstanding ban on cryptocurrency transactions within the country.
This move comes as the CBN introduces a regulatory framework, aimed at both managing the associated risks of virtual assets and leveraging their immense potential. The announcement surfaced through Circular FPR/DIR/PUB/CIR/002/003, signed by Haruna Mustapha, the CBN’s Director of Financial Policy and Regulation.
The circular underlines the necessity for regulated operations concerning Virtual Assets Service Providers (VASPs), encompassing cryptocurrencies and crypto assets. Global trends and international directives, particularly the Financial Action Task Force’s (FATF) Recommendation 15, acknowledge the imperative nature of regulating VASPs to curb financial crimes like money laundering and terrorism financing.
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Moreover, the circular explicitly references Section 30 of the Money Laundering (Prevention and Prohibition) Act, 2022, recognizing VASPs as part of the financial institution definition. Additionally, it acknowledges the Securities and Exchange Commission’s (SEC) regulations unveiled in May 2022, which established a robust framework for digital asset issuance and VASPs operating in Nigeria.
The newly introduced guidelines within the circular supersede previous directives from the CBN. While maintaining the prohibition for banks and financial institutions from directly holding, trading, or transacting in virtual currencies for their accounts, the directive mandates immediate compliance with the new provisions outlined.
Haruna B. Mustapha, the Director of the Financial Policy and Regulation Department at the CBN, noted the pivotal role of these guidelines in fostering banking relationships between financial institutions and VASPs in Nigeria.
This significant decision represents a monumental departure from the CBN’s earlier stance on cryptocurrencies. Notably, in February 2021, the CBN mandated all banks in the nation to close accounts engaged in crypto-related transactions, citing the risks inherently associated with cryptocurrency transactions in reference to a 2017 cautionary circular on crypto issued by the bank.
Despite the Nigerian Security and Exchange Commission (SEC) acknowledging cryptocurrency as an asset and introducing regulations for digital asset issuance, the CBN had persistently maintained its ban, thereby impeding the full operationalization of the SEC’s guidelines.
Under this new development, while banks and regulated financial institutions remain prohibited from directly engaging with cryptocurrencies, the circular opens avenues for crypto-native fintechs, possessing SEC authorization such as Virtual Assets Service Providers (VASPs) and Digital Assets Exchanges (DAX), to collaboratively enable fiat on-ramp and off-ramp solutions with banks and eligible financial institutions through the establishment of designated accounts.
This transformative step is expected to redefine Nigeria’s digital asset market, facilitating more structured and regulated crypto-related operations. It signifies a progressive bridging of the gap between traditional financial institutions and the burgeoning digital assets industry, marking a significant milestone in Nigeria’s financial evolution.
