INTRODUCTION
The rise of digital currencies, particularly cryptocurrencies like Bitcoin, Ethereum, and others, has brought about a paradigm shift in the financial landscape, and Nigeria has not been left out from this phenomenon. These digital currencies have gained significant traction globally and particularly within Nigeria. As the popularity of cryptocurrency trading grows within the Nigerian market, participants face a unique set of opportunities shaped by the evolving regulatory landscape. This article aims to delve into the current state of cryptocurrency regulations in Nigeria.
THE NIGERIAN REGULATORY ENVIRONMENT
1. Central Bank of Nigeria (CBN) Guidelines
The Central Bank of Nigeria (CBN) has taken various positions on digital currencies by virtue of its authority to make regulations and guidelines for financial institutions against money laundering[1]. In 2017, the CBN issued a circular stating that cryptocurrencies were not legal tender and warning financial institutions against providing services for cryptocurrency-related transactions[2]. However, in 2021, the CBN imposed restrictions on banks and financial institutions from facilitating cryptocurrency transactions, citing concerns about consumer protection and money laundering[3]
In response to global trends and the subtle recognition of the value of cryptocurrency, and recognizing the need for regulation, the CBN in December 22, 2023 released another circular to financial institutions relieving the prohibitions that were put on persons and entities transacting in cryptocurrencies, and thereby officially recognizing cryptocurrency as legal tender. This Circular included issued guidelines to provide clarity on banking relationships with Virtual Assets Service Providers (VASPs) in Nigeria[4]. CBN in its Circular cites Recommendation 15 of the Financial Action Task Force (FATF), Section 30 of the Money Laundering (Prevention and Prohibition) Act, 2022 and the Rules on Issuance, Offering and Custody of Digital Assets and VASPs by the SEC as reasons for the need to regulate VASPs. These guidelines supersede previous circulars and removes the prohibition on banks and financial institutions from holding, trading, or transacting in virtual currencies on their own accounts. This move aims to address the absence of regulations in the cryptocurrency sector.
All financial institutions are mandated to adhere to the guidelines. Failure of financial institutions to comply with the said guidelines will make them liable to the set sanctions.
2. Securities and Exchange Commission (SEC) Regulation
In a more progressive move, the Securities and Exchange Commission (SEC) in May, 2022 recognized the potential of cryptocurrencies as a new asset class[5]. This is in consonance with the SEC’s powers to issue directives to a securities exchange, capital trade point or any self-regulatory organisation[6]. The SEC released rules that provide a thorough roadmap for entities intending to launch digital asset offerings, like cryptocurrencies, in Nigeria. The process involves the submission of an assessment form and a comprehensive white paper detailing various project aspects. The Securities and Exchange Commission (SEC) conducts a meticulous review within 30 days, determining whether the proposed digital assets qualify as securities. If deemed as such, the issuer must register, adhering to specific requirements that cover digital asset details, KYC procedures, security protocols, and more.
The document also outlines equity holding criteria, limiting the transfer of ownership until project completion. Fundraising limits, refund policies, and investment constraints ensure a controlled investment environment, with exemptions provided for specific scenarios.
The overall aim is to ensure transparency, protect investors, and regulate digital asset issuance in Nigeria. This move provides a degree of clarity for traders, as it acknowledges the legitimacy of certain cryptocurrencies.
3. Anti-Money Laundering and Know Your Customer Compliance
Similar to global trends, Nigerian cryptocurrency exchanges are required to adhere to Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. Traders must comply with identity verification processes, enhancing the transparency of transactions and aligning with broader financial integrity goals.
As stated above, Section 30 of the Money Laundering (Prevention and Prohibition) Act, 2022 defines virtual assets as a ‘digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes, but does not include digital representations of fiat currencies, securities and other financial assets’. This provision shows the recognition of the validity of virtual assets and the value they currently serve which can be likened to the traditional physical money. This also posits that virtual assets/cryptocurrencies are susceptible to money laundering and are being equally monitored and regulated by this Act.
CONCLUSION
Navigating the regulatory landscape for cryptocurrency trading in Nigeria requires a nuanced understanding of the divergent positions taken by regulatory bodies which all point towards the recognition of cryptocurrency as legal tender in Nigeria. While the CBN’s restrictions posed a challenge in the past, the other regulatory agencies through their own regulations and rules slowly recognized the use of cryptocurrency as if it were a legal tender which then influenced the CBN proclaiming it so and creating guidelines to that effect. Nigerian cryptocurrency traders are advised to remain vigilant and stay informed about regulatory updates as there is the prospective of a more favorable environment for the continued growth of the cryptocurrency market in Nigeria. As the regulatory landscape evolves, collaboration between regulators and market participants will be key to fostering a robust and inclusive digital economy in Nigeria.
[1] Section 66 of the Banks and Other Financial Institutions Act, 2020
[2] ‘Circular to Banks and Other Financial Institutions on Virtual Currency Operations in Nigeria’ by the Central Bank of Nigeria dated January 12, 2017, and accessed at https://www.cbn.gov.ng/out/2017/fprd/aml%20january%202017%20circular%20to%20fis%20on%20virtual%20currency.pdf at about 4:15pm on January 24, 2024
[3] ‘Letter to all Deposit Money Banks, Non-Bank Financial Institutions and Other Financial Institutions’ by the Central Bank of Nigeria dated February 5, 2021 and accessed at https://www.cbn.gov.ng/out/2021/ccd/letter%20on%20crypto.pdf at about 1:18pm on January 29, 2024
[4] ‘Guidelines on Operations of Bank Accounts for Virtual Assets Service Providers (VASPs)’ by the Central Bank of Nigeria dated December 22, 2023 and accessed at https://www.cbn.gov.ng/Out/2024/FPRD/GUIDELINES%20ON%20OPERATIONS%20OF%20BANK%20ACCOUNTS%20FOR%20VIRTUAL%20Asset%20Providers.pdf on January 29, 2024 at about 1:55pm
[5] ‘New Rules on Issuance, Offering Platforms and Custody of Digital Assets’ by the Securities and Exchange Commission dated May 21, 2022 and accessed at file:///C:/Users/ADMIN/Downloads/Rules-on-Issuance-Offering-and-Custody-of-Digital-Assets%20(1).pdf on January 21, 2024 at about 3:02pm
[6] Section 35 of the Investments and Securities Act, 2007
