CBN rescinds restriction on cryptocurrency assets, transactions

Central Bank of Nigeria (CBN) has lifted the restriction slammed on cryptocurrency assets in the country, just as the regulatory bank further requested commercial banks to ignore its earlier pronouncement banning transactions in cryptocurrencies.

A statement by the CBN on the policy U-turn was contained in a circular released, Friday, December 22, with reference number FPR/DIR/PUB/CIR/002/003 and signed by the Director, Financial Policy and Regulation Department, Haruna Mustafa.

Titled; ‘Circular to all Banks and other Financial Institutions Guidelines on Operations of Bank Accounts for Virtual Assets Service Providers (VASPS),’ the circular explained that the regulatory bank has now changed its earlier stance on crypto assets in the country.

According to the CBN, the latest development is in line with the need to align with current global trends, which showed a need for crypto regulation.

“The CBN, in February 2021, issued a circular restricting banks and other financial institutions from operating accounts for cryptocurrency service providers in view of the money laundering and terrorism financing (ML/TF) risks and vulnerabilities inherent in their operations as well as the absence of regulations and consumer protection measures.

“However, current trends globally have shown that there is a need to regulate the activities of virtual assets service providers (VASPs) which include cryptocurrencies and crypto assets. Following this development, the Financial Action Task Force (FATF) in 2018 also updated its Recommendation 15 to require VASPS to be regulated to prevent misuse of virtual assets for ML/TF/PF.

“Furthermore, Section 30 of the Money Laundering (Prevention and Prohibition) Act, 2022 recognises VASPs as part of the definition of a financial institution.

“In addition, the Securities and Exchange Commission in May 2022 issued Rules on Issuance, Offering and Custody of Digital Assets and VASPs to provide a regulatory framework for their operations in Nigeria.

“In view of the foregoing, the CBN hereby issues this guideline to provide guidance to financial institutions under its regulatory purview in respect of their banking relationship with VASPs in Nigeria,“ the CBN circularread.

The CBN noted that this latest guideline supersedes its old ones referenced FPR/DIR/GEN/CIR/06/010 of January 12, 2017, and BSD/DIR/PUB/LAB/014/001 of February 5, 2021 on the subject.

It also affirmed banks and other financial institutions are still prohibited from holding, trading, and/or transacting in virtual currencies on their account.

In addition, the CBN requested all commercial banks and other financial institutions ‘to immediately comply with its new guidelines.’

The latest move by the CBN also follows the earlier 2021 directive issued by the Federal Government through the Securities and Exchange Commission (SEC) which announced new regulations guiding the issuance, exchange and custody of digital assets in Nigeria, in the wake of the 2020 ban on transactions on cryptocurrency in the country.

It would be recalled that in the aftermath of the October 2020 EndSARS protests across the country, the Federal Government, through the Central Bank of Nigeria (CBN) had placed a ban on transaction in cryptocurrencies by financial institutions with individuals and companies in the country, as it then claimed that organisers of the agitations by youths had relied on the digital currencies to fund their activities.

Subsequently, the government established the eNaira digital currency regime to fill the void created by the ban on crytocurrency usage.

CBN had then directed financial service providers to halt cryptocurrency transactions. However, in its latest regulations issued, Monday, SEC mandated the registration of ‘the offering and sale of digital tokens that are considered securities.’

The new regulations, among others, provide that issuers may only raise funds within a limit of N10 billion.

The development is coming more than a year after the commission issued the classification and treatment of digital assets.

According to SEC, a digital asset means a digital token that represents assets such as a debt or equity claim on the issuer.

It added that the rules shall apply to all issuers seeking to raise capital through digital asset offerings.

According to the regulation, digital asset actors include digital asset offering platforms (DAOPs), digital asset custodians (DACs), virtual assets service providers (VASPs), and digital assets exchange (DAX).

SEC said it would review applications within 30 days before determining whether the digital asset proposed to be offered constitutes a “security.”

“The commission may reject any application for registration of digital assets if, in its opinion, the proposed activity infringes public policy, is injurious to investors or violates any of the laws, rules and regulations implemented by the commission,” the regulator added.

The regulation provides that issuers may only raise funds within a limit of N10 billion.

It, however, added that it could adjust the ceiling from time to time.

The regulation requires applicants seeking to register a DAOP to pay N100,000 for the filing or application fee, N300,000 for the processing fee, N30 million for the registration fee, and N100,000 for sponsored individuals.

SEC’s new rules could help provide the needed regulatory lucidity for the scope of a digital asset or security.