Nigeria’s Central Bank Rolls Out Regulations For Financial Institutions Dealing with VASPs

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The Central Bank of Nigeria (CBN) has issued new regulations to guide banks and other financial institutions that offer domestic accounts for virtual assets service providers (VASPs). 

In an official circular released on its website on Jan 3, the country’s leading banking regulator rolled out strict rules on all market participants in a bid to protect investors and the economy citing global crypto regulations. 

According to the release, following the previous announcement that lifted the ban on cryptocurrency transactions, and the Financial Action Task Force (FAFT) directive requiring VASPs to be regulated to prevent misuse, there is a need for national authorities to set an operational framework. 

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“Current trends globally have shown that there is a need to regulate the activities of virtual assets service providers which include cryptocurrencies and crypto assets.”

CBN issues tough laws 

The new guidelines allow crypto firms to create bank accounts in the country but those accounts are only to be used for digital assets transactions and none other. 

Cash withdrawals are also prohibited from the account alongside other cheque limitations. No third-party cheques are to be cleared from the VASP bank account except for cases involving a crypto transaction to another account and it shall be done through a manager’s cheque. 

Furthermore, financial institutions are required to carry out risk assessment criteria for transaction limits for each account and must not run any account on concession or enter any agreement with a company for that purpose.

Banks are also charged to make periodic filings to the CBN on details of VASP accounts opened as well as other facts to ensure proper regulations. 

The CBN requires financial institutions to conduct due diligence requirements to further anti-money laundering and terrorist prevention efforts in addition to continuous verification and validation of addresses and other facts. 

“FIs shall establish appropriate risk management systems to determine whether a designated account opened under these guidelines has been used, is being used, or is likely to be used for ML, TF, and PF. Fls shall take reasonable measures to establish the Beneficial Ownership, source of wealth, and the source of funds of designated accounts under these guidelines.”

Nigeria’s new industry stance 

The scope and objectives of these regulations are to provide a minimum standard requirement for banking relationships with VASPs and to monitor the activities of registered companies through regulatory agencies like the Securities and Exchange Commission (SEC). 

In 2021, the CBN issued a directive restricting financial institutions from offering services to crypto companies in the country citing cyber crimes, money laundering, and a lack of global regulations. 

The country has since softened its stance in dealing with markets with the Financial Act 2023 placing a tax on digital assets recognizing it as an asset class. Nigeria now joins South Africa, Botswana, and other countries to release crypto guidelines.

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