The end of the year 2023 marked a significant moment for Nigeria’s crypto market, following the shift in policy by the Central Bank of Nigeria (CBN), after it lifted a two-year restriction on crypto assets transactions.
Recall that in a circular dated February 5, 2021, the CBN directed all banks to desist from transacting in with entities dealing in cryptocurrency. The apex bank also directed banks to close accounts of persons or entities involved in cryptocurrency transactions within their systems.
Following the recent reversal in policy, the CBN noted that it was spurred by current global trends in crypto transactions, which have shown the need to regulate the activities of virtual asset service providers (VASPs).
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The new policy mandated that VASPs would need to be licensed by the Nigerian Securities and Exchange Commission (SEC) to engage in the crypto business. By introducing guidelines for financial service providers working with VASPs, the CBN has signaled a move toward structured regulation. These guidelines are expected to bring much-needed clarity to the digital assets market, addressing concerns related to security, governance, compliance, and oversight. As a result, the formalization of the sector is anticipated to boost investor confidence, reduce the perceived risks of crypto transactions, and foster broader adoption of virtual assets in Nigeria.
Fast forward to 2024, The Nigerian Securities and Exchange Commission (SEC) granted provisional licenses or “Approval-in- Principle” to two cryptocurrency exchanges, Quidax and Busha, as part of its accelerated regulatory incubation program (ARIP). The ARIP was created to onboard firms which had commenced operations prior to the release of the rules on virtual asset service Providers in May 2022.
This means that Quidax and Busha are now part of an ARIP cohort as digital asset exchanges. The cohort also comprises four digital asset offering platforms and one digital asset custodian. The digital asset offering platforms are Trovotech, Wrapped CDC, HousingExhange, and Dream City Capital. The one digital asset custodian is Blockvault Custodian. The SEC outlined the commission’s commitment to fostering innovation while ensuring investor protection and market integrity.
The introduction of these licenses is part of a broader regulatory framework designed to bring order to the previously ambiguous crypto space in Nigeria. It also emphasized that the program aims to balance innovation with necessary regulatory safeguards, creating a secure environment for both investors and industry participants. This move is particularly noteworthy considering the history of regulatory challenges faced by crypto exchanges in Nigeria.
Over time, the structured regulatory approach will help establish standardized operational practices, enhance security protocols, and improve investor protection. This will not only benefit fintech firms operating in the crypto space but also provide them with greater legitimacy and access to financial services, enabling business expansion. Despite previous restrictions, Nigeria’s virtual asset economy has remained resilient, and these new regulations are set to fuel further growth.
Notably, one of the most significant developments following the CBN’s policy shift, is the announcement by the Africa Stablecoin Consortium (ASC) to launch its stablecoin, cNGN, in Q1 2024. ASC has been accepted into the CBN’s regulatory sandbox to conduct a pilot for the stablecoin, which will be pegged 1:1 with the Naira.
Designed to facilitate seamless cross-border transactions, CNGN is well-positioned for accelerated adoption under the new regulatory framework. The CBN’s transition from an outright ban to a nuanced regulatory approach highlights its recognition of the potential benefits of virtual assets. As regulations continue to evolve, their impact on Nigeria’s crypto landscape will be closely watched, with expectations of a more structured, secure, and thriving digital asset ecosystem.