Introduction
The Central Bank of Nigeria (CBN) has finally abolished the “crypto ban” that was in place for more than two years in Nigeria.
All banks and other financial institutions were instructed to immediately comply with the terms of the new regulatory framework by the CBN. This was issued as a new set of “Guidelines on Operations of Bank Accounts for Virtual Assets Service Providers (VASPs). This was authorized on Friday, December 22, 2023.
Through a circular, the guidelines are introduced (FPR/DIR/PUB/CIR/002/003). The CBN’s Director of Financial Policy and Regulation Department, Haruna B. Mustafa, has signed the circular. However, the circular has not yet been posted on CBN’s website as of this writing.
Guidelines
The following are some of the new guidelines’ main provisions:
- The Securities and Exchange Commission (SEC) will now demand a license for VASPs (SEC). VASPS has to fulfill additional CBN account, opening, and paperwork criteria.
- The bank accounts of VASPs are now subject to certain limitations. Financial institutions having banking relationships with VASPs must keep an eye on the accounts of their VASP clients. They must equally submit monthly reports to the CBN.
- Any financial institution must get permission from CBN before offering a dedicated account for payments related to VASPs.
- Financial institutions must implement risk management systems to avert unlawful transactions involving VASPs and money laundering.
- To effectively address client complaints, financial institutions need to make sure that they have put in place consumer protection procedures.
Sanctions
The CBN may impose sanctions on financial institutions for violating the Guidelines’ requirements, including sanctions on the board, executives, and employees of the financial institution. Notably, the VASPs whose goods and services are the subject of the Guidelines place less emphasis on the CBN’s supervisory approach than the financial institutions under its jurisdiction as CBN-licensed institutions. It appears that the CBN anticipates that the SEC will oversee VASPs directly in Nigeria. The problem with this strategy is that it assumes that every VASP will be subject to SEC regulation.
If the contentious Circular No. 5 of February 2021 issued by the CBN prohibiting banks and other financial institutions from managing bank accounts for Bitcoin service providers was ever lawfully in effect, it is effectively no longer in effect. A directive to deposit money banks (DMBs), non-bank financial institutions (NBFIs), and other financial institutions (OFIs) in Nigeria to cease enabling cryptocurrency transactions was released by the CBN on February 5, 2021.
Call for Regulation
The Central Bank of Nigeria stated that “current trends globally have shown that there is a need to regulate the activities of virtual asset service providers (VASPs), which include cryptocurrencies and crypto assets,” in the circular announcing the new Guidelines. The Apex Bank also emphasized the necessity of preventing the improper use of virtual assets for funding terrorism, money laundering, and the spread of WMDs. The CBN is concerned about the banking connection between VASPs and financial institutions that fall under its jurisdiction.
Notably, the SEC published the Rules on Issuance, Offering, and Custody of Digital Assets and VASPs in May 2022. Because the CBN’s previous position on virtual assets dates back to February 2021, the SEC Rules have not been implemented or enforced until today.
It is still forbidden for financial institutions to retain, trade, or conduct transactions with virtual currencies using their accounts.
The Background
The use of cryptocurrencies between banks and cryptocurrency exchanges was outlawed under the direction of former CBN Governor Godwin Emefiele.
Six banks that have enabled cryptocurrency trading were hit with fines totaling N1.31 billion as a result of this action.
Notwithstanding the initial limitations, the CBN indicated in January 2023 that things would change and that a regulatory framework for the possible use of cryptocurrencies would be developed. This emphasizes how crucial blockchain technology is to be used by all spheres of society, as does the national blockchain policy enacted in May of this year. The passage of the Finance Act 2023, which placed a 10% tax on income from the sale of different digital assets, was another noteworthy development this year. Cryptocurrencies are examples of digital assets.
However, because of the persistent CBN constraints, these advancements have not resulted in a more favourable economic and regulatory environment for companies involved in digital assets inside the system. It appears that the nation’s digital asset industry has reached a plateau in terms of sustainable growth and development across all industries.
Crypto-resilience in Nigeria
In July 2023, a CoinGecko survey demonstrated Nigeria’s persistent interest in cryptocurrencies despite the prohibition. Nigerians ranked first in the world with a search score of 371 and expressed the greatest interest in terms like “cryptocurrency,” “invest in crypto,” and “buy crypto.” Third place in the world for the term “Solana” search demonstrates the tenacity of the Nigerian cryptocurrency scene.
Opinions from Industry Players
The demand for careers in cryptocurrency and blockchain was emphasized by cryptocurrency analyst Rume Ophi in May 2022, despite the ban at the time. She emphasized the fact that there are a variety of job opportunities in these fields.
Senator Ihenyen, a lead partner at Infusion Lawyers and a former president of the Stakeholders in Blockchain Technology Association of Nigeria (SiBAN), has consistently argued that the CBN should take a risk-based approach to the adoption of cryptocurrencies in Nigeria to ensure a balance between innovation and regulation, rather than having Nigeria kill the goose that might lay the golden egg. Since February 2021, he has further maintained that there isn’t a “crypto ban” in Nigeria; rather, there are restrictions on the banking and financial system’s ability to facilitate transactions connected to cryptocurrencies.
FinTech and blockchain industry stakeholders urged the federal government to enact laws that are consistent with the approved blockchain policy. The current president of SiBAN, Obinna Iwuno, has stressed the necessity of a progressive legislative framework to incorporate blockchain technology. This is to spur economic growth and employment creation in various industries.
The CBN has thankfully removed the “crypto ban” today. The cryptocurrency community is buzzing with anticipation about what would be good for Nigeria’s digital asset market. The Federal High Court has since pronounced the “crypto ban” to be unlawful. According to the court, the CBN lacks the authority to establish offenses not backed by written law.
Conclusion
The lifting of the “crypto ban” signifies more than just a shift in government policy for Nigerians. It may indicate a shift in the country’s standing in the international cryptocurrency scene. It is a positive development that is much needed for Nigeria, the continent’s largest virtual asset market. VASPs are currently faced with the issue of fulfilling the criteria under the new regulatory frameworks by the CBN and the SEC, especially for local entrepreneurs. Is this a success for regulation and innovation? We’ll find out in time.
Source: punchng.com
