Banking Regulation Newsletter – February 2021
In February 2021, the Central Bank of Nigeria (“CBN”) reiterated its policy stance on the use of cryptocurrency in Nigeria. This has rekindled the longstanding concerns over the regulation of digital currency in Nigeria.
One of the critical questions by the stakeholders is whether an outright negativity to digital currency is a long-term policy or whether there will be a regulation and when? In this newsletter we have highlighted the recent CBN policy directives on cryptocurrency, the clarification on withdrawal limits for ordinary domiciliary accounts and acceptable proof of identity for refugees and asylum seekers.
Through its circular No. BSD/DIR/PUB/LAB/014/001, which was addressed to deposit money banks, non-bank financial institutions and other financial institutions, the CBN emphasized that “dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges is prohibited”. It directed the above regulated institutions to identify persons or entities transacting in or operating cryptocurrency exchanges within their systems and ensure that such accounts are closed immediately. CBN stated that any breaches of the directive would result in “severe regulatory sanctions.”
Sequel to the foregoing, the CBN issued a press release on 7th of February 2021 justifying its ban on cryptocurrencies. The CBN stated that cryptocurrencies are issued by unregulated and unlicensed entities and their use is inimical to its key mandate as the issuer of legal tender in Nigeria. This is in addition to the concern that cryptocurrencies have been used for conducting “illegal activities including money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion”. Another justification for the ban was volatility of cryptocurrencies which according to the CBN has threatened the stability of financial systems in other countries.
It worthy to note that CBN had issued a circular in 2007 warning financial institutions and members of the public about the risks associated with dealing in cryptocurrencies. Although the 2017 circular expressly prohibited financial institutions from using, holding, trading and/or transacting in cryptocurrencies, CBN had hinted in that circular about substantive cryptocurrency regulation. In September 2020, the Securities and Exchange Commission (SEC) issued a statement announcing its intention to regulate digital assets which include cryptocurrencies. However, following the recent directive by CBN, the SEC has put its plans to regulate cryptocurrencies on hold creating huge uncertainty over the future of cryptocurrency in Nigeria.