Nigerian Central Bank Issues Circular Reversing 2021 Bitcoin Ban

On Friday, December 22, the Central Bank of Nigeria issued a circular to all banks and financial institutions lifting its ban on bitcoin and outlining new guidelines for virtual asset service providers in Nigeria.

This new regulation is another positive step by Nigerian regulators to provide greater 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 at large.

The infamous CBN circular of 2021

In February 2021, the CBN stepped in and filled the void created by the lack of cryptocurrency regulation and consumer protection measures, along with its fears of money laundering and terrorist financing, to issue its now infamous circular, in which was prohibited to Nigerian banks. of allowing bank accounts to be linked directly to crypto transactions. Which caused companies to have to adapt to the drastic change, and some closed.

However, one consequence of the circular was the growth of Nigeria's P2P crypto market, which now dominates globally. According to Chainalysis, Nigeria's crypto transaction volume increased 9% year-on-year to $56.7 billion between July 2022 and June 2023. Additionally, according to the Chainalysis Global Cryptocurrency Adoption Index 2023 report, Nigeria ranked first place in P2P exchange commerce volumes and second in overall adoption, rising from their previous positions of 17th and 11th, respectively, a year earlier in their 2022 edition of that report.

The new regulations and guidelines of the CBN

In a circular on Friday addressed to all banks and other financial institutions, the CBN communicated its “Guidelines on Bank Account Operations for Virtual Asset Service Providers (VASPs).” The CBN cited global trends and guidelines from Nigeria's SEC as reasons for lifting its previous restrictions, as well as the introduction of greater regulatory clarity and guidelines for digital assets and VASP activities.

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

Consequences for VASPs and individuals in 2024

The CBN's new guidelines are a much-needed step towards a more transparent regulatory landscape for virtual assets. However, the circular also introduces strict KYC, AML and other related measures and controls, including the requirement for 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 the provisions for designated settlement accounts, stipulates relevant guidelines regarding currencies, including the fact that “transactions on VASP platforms and digital assets shall only be conducted in naira” and others. related guidelines for debit, credit and foreign exchange settlement. positions in VASP platforms and accounts.

VASPs operating as exchanges in Nigeria must also comply with new guidelines set by the Nigerian SEC, such as meeting the minimum paid-up capital of 500 million naira (~$550,000), registration with the Corporate Affairs Commission of Nigeria and SEC approval to launch. records. The CBN's recognition of the Nigerian SEC guidelines is a positive step towards harmonizing regulations in Nigeria.

However, there are still questions about the effects of the KYC and AML measures of the guidelines and transaction limits on individuals and VASPs, respectively (for example, whether individuals must declare virtual asset transactions or the exact limits of transactions). transactions for VASPs).

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

Outlook for 2024

As we approach the year 2024, and given Nigeria's role as one of the continent's largest and leading economies, the effects of this circular will undoubtedly have repercussions beyond Nigerian shores and into the regulatory spaces of others. countries.

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

Furthermore, as Nigerian regulators catch up with the rest of the world in regulating VASPs, 2024 will present these companies with a more favorable operational reality that will see greater competition and an overall benefit to end consumers.