In a major policy shift, Nigeria’s central bank has lifted its 2021 ban on cryptocurrency transactions. The Central Bank of Nigeria (CBN) will now allow banks and financial institutions to facilitate crypto transactions, provided that crypto companies become licensed and follow strict regulations. This move signals Nigeria’s aim to strike a balance between enabling technological innovation through crypto, while still addressing risks like money laundering.
Key Highlights of New Crypto Regulations in Nigeria
- Banks can now open accounts for crypto companies and process related transactions
- Cryptocurrency firms must obtain licenses from the Nigerian SEC before operating
- Strong Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) rules instituted
- Banks still prohibited from holding or trading crypto assets themselves
The Change in Policy and Why Nigeria Lifted the Crypto Ban
In February 2021, the CBN unexpectedly banned banks from enabling any crypto transactions. This also prevented remittances from being used for crypto. The CBN cited risks of financial crime and warned banks to desist from “dealing in or facilitating transactions in cryptocurrencies”.
This blanket prohibition was out of step with global trends towards regulating, rather than banning, cryptocurrencies. Over the past three years, cryptos have continued growing in popularity worldwide, including in Nigeria. With internet access spreading, Nigeria’s large young population eagerly uses apps and peer-to-peer platforms to access investment products like Bitcoin and Ethereum.
Annual crypto transaction volumes from Nigeria totaled $56.7 billion from mid-2021 to mid-2022, up nearly 10% from the previous year according to Chainalysis. However, the crypto ban cut off Nigerians from formal financial channels to engage with decentralized finance and Web3 innovations occurring globally.
By easing restrictions while simultaneously establishing a licensing regime and stringent AML/CTF rules, Nigeria aims to balance technological development with addressing illicit financing risks. The new guidelines require detailed customer due diligence by crypto companies, suspicious transaction monitoring, dedicated compliance officers, and more.
How Banks and Financial Institutions Can Now Engage With Cryptocurrencies
Under the new circular from the CBN dated December 22nd, 2022, banks and financial institutions can provide account and transaction services to licensed Virtual Asset Service Providers (VASPs) operating in Nigeria. This is a major shift from the previous outright prohibition. Banks can offer these services:
- Open accounts for VASPs following strict Know Your Customer (KYC) rules
- Provide settlement accounts for VASP transactions
- Act as corridors for foreign exchange inflows and outflows related to crypto trading
However, while banks can now channel transactions, the CBN circular expressly forbids them from personally trading, holding or dealing in crypto assets at this stage. The SEC licenses are mandatory for VASPs themselves. Any entity looking to provide crypto exchange, custody, or payment services must formally register with SEC guidelines before commencing operations.
Criteria for VASPs to Obtain Operational Licenses in Nigeria
The SEC requirements for VASP licensing cover issues like minimum capital levels, consumer protection standards, cybersecurity rules, and more. Highlights include:
- Minimum capitalization of NGN100 million for exchanges and NGN50 million for other VASPs
- Mandatory proof of technical expertise and available technology systems
- Strict standards for customer due diligence, transaction monitoring, fraud controls, and reporting
- Dedicated Chief Compliance Officers and other qualified personnel
- Rules around asset segregation, insurance, investor compensation funds
VASPs that satisfactorily meet these standards will be certified to provide digital asset services in Nigeria. This allows for innovation in the crypto economy while safeguarding consumers and national security priorities.
Questions and Answers
Here are some common questions around Nigeria’s new crypto regulations:
What crypto activities are now allowed in Nigeria?
All virtual asset transactions are allowed, provided the VASP is duly licensed by the SEC per the recent guidelines. This includes services like exchanges, trading, payments, lending, investments and more around cryptocurrencies.
Can individuals still trade crypto freely?
Yes. Individual Nigerians always had rights to access crypto markets, even during the CBN ban when banks could not process transactions. With P2P channels, many users continued trading despite formal restrictions. The new rules enable formal financial sector participation.
Are the new regulations positive for Nigeria’s crypto industry?
The regulatory clarity and formal licenses are overwhelmingly positive. Legitimate firms can now scale while consumers get protection. Tighter controls also reduce illegal activity risks that worried authorities. This balances innovation with responsible oversight for crypto’s growth.
What other African nations regulate crypto?
South Africa, Kenya, Tanzania and Ghana also have defined regulatory approaches allowing crypto with oversight around consumer protection and other guardrails. As crypto adoption rises across Africa, appropriate regulation rather than outright bans is the growing policy trend.
Nigeria loosening restrictions for virtual assets signifies authorities recognizing both the inevitability and potential of cryptocurrency innovation. With the nation boasting Africa’s largest economy and population, Nigeria’s shift can influence the continent’s broader stance. By allowing participation in emerging technologies like decentralized finance and Web3, while upholding integrity standards, Nigeria leads in balancing digital development with financial stability.
Alexander focuses on breaking news stories and ensuring we offer timely reporting on some of the latest stories released through market wires. He has previously spent over 5 years as a trader in us stock market and is now semi-retired. Now he works for investingbizz.com specializing in quicker moving active shares with a short term view on investment opportunities and trends. He covers financial sector news.