Central Bank of Nigeria reverses ban on digital currency transactions

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Nearly three years after imposing a blanket ban on digital currency transactions, the Central Bank of Nigeria (CBN) appears to be making a U-turn in a show of support for the asset class.

The CBN introduced new guidelines for banks to follow in an attempt to provide virtual asset service providers (VASPs) with banking services. The latest directions allow banks and other financial institutions to open accounts for VASPs, offer designated settlement accounts, and “act as channels for FX flows and trade.”

However, VASPs must fulfill several conditions before accessing banking services from commercial banks in the country. Top on the list of requirements is approval from the Nigerian Securities and Exchange Commission (SEC) and evidence of registration with the Corporate Affairs Commission (CAC).

As an added layer, bank accounts for VASPs should have the express approval of a senior manager of a chosen financial institution. However, the rules take a hard stance against banks keen on trading and holding digital currencies on their balance sheets, as the CBN remains firm on its stance to disallow them from engaging in such services.

The CBN disclosed in its statement that several macroeconomic factors formed a significant part of its change of heart toward digital assets. Firstly, the CBN’s 2021 blanket ban failed to stifle adoption rates for the asset class, with millions of Nigerians turning to peer-to-peer exchanges to carry out digital asset transactions.

Nigeria’s banking regulator cited Section 30 of the Money Laundering Act of 2022, a key piece of legislation that validates VASPs to operate as financial companies.

Pundits have pointed to introducing the SEC’s 2022 guidelines for digital asset firms as proof of an impending CBN change of heart as the rules sought to bring the operations of VASPs under regulation rather than pursuing a blanket ban.

The new rules take their inspiration from the Financial Action Task Force (FATF)
recommendations, urging national financial regulators to pursue tailor-made steps to prevent the misuse of digital currencies. At the time of the ban, the CBN cited the potential for virtual currencies to be deployed for terrorism financing and money laundering activities.

An adoption spike in the offing

Stakeholders across Nigeria’s digital asset ecosystem project that the new guidelines will increase adoption levels for the asset class.

Experts are also pointing to a spike in the level of collaboration between VASPs and regulators to create robust rules for the sector, a fact shared by digital asset firm Yellow Card.

With the new policy fostering a regulated environment, Yellow Card anticipates a surge in user adoption and engagement in the coming months,” said Oludimu, Yellow Card’s Chief Data Protection Officer.

“This clarity provided by the regulatory framework instills trust and confidence among users, attracting more individuals and businesses into the crypto space,” the official added.

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