Nigerian Central Bank Issues Circular Reversing 2021 Bitcoin Ban

of Nigeria headquarters building seen from the street, National Ecumenical Centre in background.getty

On Friday, Dec 22, the Central Bank of Nigeria issued a circular to all banks and Financial Institutions that lifted its ban on bitcoin and outlined new guidelines for Virtual Asset Service Providers in Nigeria.

This new regulation is yet another positive step by the regulators in Nigeria in providing better regulatory clarity as we continue to see the growth and importance of bitcoin and stablecoins in the daily lives of Nigerians and the Nigerian economy more broadly.

The Infamous 2021 CBN Circular

In Feb of 2021, the CBN stepped in and filled the void created by the lack of crypto regulation and consumer protection measures, coupled with their fears of money laundering and terror financing, to issue its now infamous circular, which saw the prohibition of Nigerian banks from allowing bank accounts to be directly tied to crypto transactions. Which resulted in businesses having to adjust to the drastic change, with some shutting down.

However, a consequence of the circular was the growth of Nigeria’s P2P crypto market, which is now dominant globally. According to Chainalysis, Nigeria’s crypto transaction volume surged by 9% YoY to $56.7B between July 2022 and June 2023. Additionally, per the Chainalysis 2023 Global Crypto Adoption Index report, Nigeria ranked 1st for P2P exchange trade volumes and 2nd for overall adoption, rising from its previous ranks of 17th and 11th, respectively, a year prior in their 2022 edition of that report.

The CBN’s New Regulation and Guidelines

In a Friday circular to all banks and other FIs, the CBN communicated their “Guidelines On Operations of Bank Accounts For Virtual Assets Service Providers (VASPs).” The CBN cited global trends and guidelines from the Nigerian SEC as reasons for lifting its previous restrictions, as well as its introduction of more regulatory clarity and guidelines for digital assets and activities of VASPs.

The guidelines outline permitted activities between banks and FIs when opening accounts for virtual asset transactions and facilitating foreign exchange inflows and virtual asset trade for VASPs. The CBN also states that Nigerian banks and FIs are prohibited from holding, trading, and transacting cryptocurrencies for themselves.

Consequences For VASPs and Individuals In 2024

The CBN’s new guidelines are a much-needed step toward a more transparent regulatory landscape for virtual assets. However, the circular also introduces stringent KYC, AML, and other related measures and checks, including requiring VASPs to obtain a license issued by the Nigerian SEC to operate bank accounts in Nigeria.

Section 7.9 of the circular, where it outlines provisions for designated settlement accounts, stipulates pertinent guidelines regarding FX, including that “Transactions on VASPs and Digital Assets platforms shall only be in Naira” and other related guidelines for debit, credit, and settlement for FX positions on VASP platforms and accounts.

VASPs operating as exchanges in Nigeria must also adhere to new guidelines set by the Nigerian SEC, such as meeting the minimum paid-up capital of N500 million (~$550,000), registration with the Nigerian Corporate Affairs Commission, and approval from the SEC to launch tokens. The CBN’s recognition of the Nigerian SEC’s guidelines is a positive step in harmonizing regulations in Nigeria.

Nevertheless, there are still questions about the effects of the guidelines’ KYC and AML measures and transaction limits on individuals and VASPs, respectively (E.g. whether individuals must declare virtual asset trades or the exact transaction limits for VASPs).

As with previous CBN circulars, we can expect more clarity on the effects in 2024 as the banks and other FIs implement these changes.

Outlook For 2024

As we head into 2024, and given Nigeria’s role as one of the continent’s largest and leading economies, the effects of this circular will no doubt have reverberations beyond Nigeria’s shores and into other countries’ regulatory halls.

The new guidelines will influence overall market dynamics next year and likely play a role in influencing the FX markets in Nigeria, especially as we head into 2024 with the current bitcoin price rally.

Moreover, as the Nigerian regulators catch up with the rest of the world in regulating VASPs, 2024 will present these companies with a more favorable operating reality that’ll see increased competition and overall benefit to end consumers.

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