Nigeria: Virtual Assets Service Providers In Nigeria: What Has Changed?

Introduction

Nigeria has been circling round the validity of virtual assets service providers for the past few years. In February 2021, the Central Bank of Nigeria (CBN) issued a circular restricting banks and other financial institutions from operating accounts for cryptocurrency service providers in view of money laundering and terrorism financing risks.

However, relying on Financial Action Task Force recommendation, the CBN has decided to review its decision by regulating the activities of the virtual assets rather than its earlier decision to totally restrict same.

The CBN pursuant to the powers contained in the Central Bank Act 2007 and Banks and Other Financial Institution Act (BOFIA) 2020 has established guidelines for regulating bank accounts for Virtual Assets Service Providers (VASP) in Nigeria.

What has changed?

One of the key objectives of the guideline is to ensure effective risk management in the banking industry regarding the operations of licensed VASPs. To achieve that objective, the account for the VASP shall be opened only with the approval of the senior management of a financial institution and be strictly designated for that purpose¹. An application to open the account must be supported by the valid license issued by the Securities & Exchange Commission, copy of certificate of capital importation, anti-money laundering policy of the VASP etc.

The financial institution has an obligation at the end of every month to submit information containing the number of designated accounts opened within the reporting period, the value and volume of transactions conducted in each account within the reporting period, number of customer complaints and remedial measures taken etc². The financial institution must also note that the appropriate time to conduct customer due diligence is not limited to the onboarding of the VASP but is continuous throughout the bank-customer relationship particularly when a transaction of significant value takes place, there is a material change in the way the account is being operated, the customer documentation has changed substantially etc³. The financial institution also has the responsibility to provide a channel for communication of customer complaints against designated account holders and ensure strict compliance with the guideline and in the event, it fails to do so, the operating license of the financial institution may be suspended⁴.

Conclusion

The success of the guideline relies heavily on the ability of the financial institution to implement same. In view of the sensitivity of this responsibility, the CBN considered it wise to mandate the senior management of the financial institution(s) to be involved in the approval of the opening of any VASP account. Thus, this is a responsibility that cannot be treated with "kid's gloves" or waived in the interest of meeting financial targets.

In the unlikely event that the provisions are not adhered to, the financial institutions should be prepared to lose their license or worse, another circular from the CBN may be issued restricting accounts for cryptocurrency service providers and the circling regarding the validity of VASPs would continue till further notice.

Footnotes

1. Section 7.2 and 7.3 of the guidelines

2. Section 7.5 of the guideline

3. Section 8.1 of the guideline

4. Section 10.0 of the guideline

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