1. Introduction
On 22nd December, 2023, the Central Bank of Nigeria (the "CBN") issued the Guidelines on Operations of Bank Accounts for Virtual Assets Service Providers1 (the "Guidelines") to provide direction to financial institutions in respect of their banking relationship with virtual assets service providers ("VASPs") in Nigeria.
In a bid to stay abreast with global trends and properly regulate the activities of VASPs, including cryptocurrencies and crypto assets, the CBN has shifted from its previous hardline stance which restricted banks and other financial institutions from operating accounts for cryptocurrency service providers due to the money laundering and terrorism financing risks and the absence of regulations and consumer protection measures to counteract the risks.
The Guidelines supersedes the CBN's Circular to Banks and other Financial Institutions on Virtual Currency Operations in Nigeria2 of 12th January, 2017 and Letter to all Deposit Money Banks, Non-Bank Financial Institutions and other Financial Institutions2 of 5th February, 2021 on the subject.
This note provides a general overview of the Guidelines, including the key provisions and the effect of the changes.
2. Objectives of the Guidelines
The primary objective of the Guidelines is to remove the restriction on crypto transactions and provide a framework for the effective guidance and monitoring of the activities of the banking industry with regards to the operation of VASPs.
3. Scope of the Guidelines
The Guidelines apply to banks and other financial institutions under the regulatory scope of the CBN. The Guidelines complement relevant provisions in the Anti-Money Laundering, Combating the Financing of Terrorism and Countering Proliferation Financing (AML, CFT, & CPF) laws and regulations issued by the CBN and other competent authorities.
4. Who are the eligible stakeholders of the Guidelines?
Eligible stakeholders under the guidelines are commercial and merchant banks, payment service providers, all entities registered by the Securities and Exchange Commission (the "SEC") to conduct the business of digital/virtual assets services provision, and other entities that may be categorised by the CBN from time to time.
5. Permissible activities by the Financial Institutions ("FI")
FIs are permitted to carry out activities including, opening of designated accounts, providing designated settlement services, acting as channels for FX flows and trade, and others. However, FIs are still barred from holding, trading and/or transacting in virtual currencies on their own account.
6. Operation of bank accounts by VASPs
Fls are permitted to operate any account designated for the purpose of virtual/digital assets services and such account shall be opened with approval of the senior management of the FI.
Any application for opening a designated account by a company providing virtual/digital asset services shall be supported by the documents listed in paragraph 7.3 of the Guidelines. The designated account shall be used for virtual/digital asset services transactions only. FIs shall continuously monitor all activities conducted in designated accounts opened in accordance with the Guidelines.
7. Risk Management for Anti-Money Laundering, Combating the Financing of Terrorism and Counter Proliferation Financing (AML, CFT, & CPF)
Fls shall take judicious measures to establish the beneficial ownership, source of wealth and the source of funds of all designated accounts under the Guidelines. This shall be done by customer due diligence inquiries, continuous verification, validation of address and documentation requirement, maintenance of records, and monitoring and reporting of suspicious transactions.
8. Consumer protection measures
According to the Guidelines, all FIs are mandated to provide appropriate consumer protection systems against risks of fraud, customer complaints channels and complaints redress mechanisms for the general public. It is vital that there should be strict adherence to the provision of the Circular issued by the CBN on the Deployment of the Consumer Complaints Management System (CCMS).
9. Sanctions
For failure to comply with any of the requirements of the Guidelines, the CBN may impose any or all of the following sanctions against a Fl, its board of directors, officers or staff:
- prohibition from opening any further designated account;
- monetary penalty not below the sum of N2,000,000.00 (two million Naira) against the FI, members of its board, senior management, and any staff, for any infraction; and
- suspension of operating licence of a financial institution.
10. Conclusion
It is comforting to see that the CBN is geared to keep up with global developments by recognising the importance of virtual/digital assets and improving its regulation of virtual/digital assets. It is anticipated that with the issuance of these Guidelines, local and foreign investment in the technology space will be boosted and there will be a positive effect on the Nigerian economy.
The collaboration with the SEC on its Rules on Issuance, Offering and Custody of Digital Assets and Virtual Assets Service Providers is a step in the right direction to provide a regulatory framework for the operation of virtual/digital assets in Nigeria. It is noteworthy that the cooperation among regulators will be crucial to the successful implementation of the Guidelines and other relevant laws and regulations regarding the operation of virtual assets in Nigeria.
Footnotes
1. See, Guidelines on Operations of Bank Accounts for Virtual Assets Service Providers available at https://www.cbn.gov.ng/Out/2024/FPRD/GUIDELINES%20ON%20OPERATIONS%20OF%20BANK%20ACCOUNTS%20FOR%20VIRTUAL%20Asset%20Providers.pdf accessed on 19th January 2024.
2. See, Circular to Banks and other Financial Institutions on Virtual Currency Operations in Nigeria available at https://www.cbn.gov.ng/Out/2017/FPRD/AML%20January%202017%20Circular%20to%20FIs%20on%20Virtual%20Currency.pdf accessed on 19th January 2024.
3. See, Letter to all Deposit Money Banks, Non-bank Financial Institutions and other Financial Institutions available at https://www.cbn.gov.ng/Out/2021/CCD/Letter%20on%20Crypto.pdf accessed on 19th January 2024.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
