Crypto Guidelines for Nigerian Banks: A Shift from Bans to Regulation
In December, Nigeria lifted the ban that prohibited banks and local financial institutions from providing crypto services. Recently, the Nigerian central bank published guidelines for banks opening crypto accounts. The guidelines were initially sent to local banks and financial institutions in December but were made public on January 2.
The ban by the Central Bank of Nigeria (CBN) was implemented in February 2021 to restrict the provision of crypto services. However, the CBN has now decided to regulate virtual asset service providers (VASPs) based on recommendations from the Financial Action Task Force (FATF) of the G7.
The new guidelines provide indications to financial institutions regarding their banking activities in relation to VASPs in Nigeria. However, banks are still prohibited from holding, trading, and conducting transactions in virtual currencies on their own behalf.
The Strict Rules: Crypto Ban for Banks Remains
Bloomberg reports that the recently published guidelines seem to be quite strict. The ban on banks holding and trading cryptocurrencies on their own behalf remains intact. Therefore, the opening of crypto accounts only applies to their customers’ accounts. While transactions related to cryptocurrencies are allowed, cash withdrawals are not permitted.
The purpose of these strict rules is twofold. Firstly, the CBN aims to provide standards and minimum requirements for opening VASP bank accounts and monitor their activity. Secondly, they seek information about relationships with banks and banking transactions carried out by VASPs to ensure effective risk management in licensed VASP operations.
The services allowed for banks towards VASPs are limited to account opening, settlement services, and financial flow management for their activity.
Crypto Regulation: A Trend in Africa
Nigeria’s shift towards regulating the crypto sector follows the trend seen in other African countries such as South Africa, Botswana, and Kenya. The absence of crypto regulation in the USA is surprising, especially considering the launch of the European Union’s MiCA regulation last year.
In Africa, strict regulation is seen as an effective way to contain the spread of cryptocurrencies and address issues related to financial scams. By regulating the sector, countries can monitor and manage risks associated with crypto activities.
Africa and Cryptocurrencies
Africa is becoming increasingly involved in the crypto space. The Central African Republic has declared Bitcoin as legal tender after El Salvador. However, the adoption of Bitcoin has not brought significant advantages to the Central African Republic due to its lack of a thriving tourism industry.
Nigeria has the potential to become an African crypto hub if it takes the lead before countries like Botswana, South Africa, or Kenya. It remains to be seen how these countries will navigate the crypto landscape and regulate it effectively.
Hot Take: Nigeria Embraces Crypto Regulation to Manage Risks
Nigeria’s decision to shift from a ban on crypto services to regulating them reflects a growing trend in Africa. By implementing strict guidelines for banks and financial institutions, Nigeria aims to manage risks associated with cryptocurrencies and prevent financial scams. This move aligns with global recommendations from organizations like FATF.
While Nigeria has taken a step towards becoming an African crypto hub, other countries in the region are also exploring crypto regulation. It will be interesting to see how this regulatory landscape evolves and whether other nations, including the USA, will follow suit.
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