Nigeria: no more bans for crypto companies in banks

In December, the ban that prohibited banks and local financial institutions from providing crypto services was lifted in Nigeria.

A few days ago it was discovered that an additional step has been taken in this direction with the publication of guidelines by the Nigerian central bank for banks opening crypto accounts. 

Crypto guidelines for Nigerian banks: no more bans

The guidelines were sent to local banks and financial institutions with a circular on December 22, but the central bank only made it public on January 2.

The ban by the CBN (Central Bank of Nigeria) dates back to February 2021, when it issued a circular that restricted the provision of crypto services to local banks and other financial institutions.

However, in the circular of December 22nd, they write that current global trends have shown that it is necessary to regulate, and not prohibit, the activity of virtual asset service providers (VASPs), that is, providers of services related to cryptocurrencies and crypto-assets. 

And so they have decided to adopt the new recommendations of the FATF (Financial Action Task Force) of the G7, choosing to regulate VASPs. 

In light of this, the CBN has decided to publish new guidelines to provide indications

to financial institutions regarding their banking activities in relation to VASPs in Nigeria.

The new circular, however, reiterates that banks and other local financial institutions are still prohibited from holding, trading, and/or conducting transactions in virtual currencies on their own behalf.

The strict rules of Nigeria: stop the crypto ban for banks

As reported by Bloomberg, the guidelines published yesterday appear to be quite strict.

First of all, the ban on banks holding and trading cryptocurrencies on their own behalf remains in force. Therefore, the opening only applies to their customers’ accounts. 

In addition, they will be able to carry out transactions related to cryptocurrencies, but not withdraw cash. 

The purpose of the new strict rules is manifold. 

The CBN states that it wants to provide standards and minimum requirements for opening bank accounts

of the VASP, and monitor their activity.

It also states that it wants to obtain information regarding the nature of relationships with banks and banking transactions carried out by VASPs, in order to ensure effective risk management in the banking sector regarding licensed VASP operations.

In fact, the new guidelines integrate the existing provisions on money laundering, combating the financing of terrorism, and combating the proliferation of weapons of mass destruction.

The services allowed to banks towards VASPs are limited to the opening of accounts, the provision of settlement services, and the management of financial flows for their activity. 

Crypto regulation

So after years of unsuccessful attempts to block the use of cryptocurrencies, Nigeria has finally had to surrender and instead opt for regulating the sector. 

This is a trend that has been going on for some time now, especially since Switzerland was one of the first countries in the world to have specific regulations for cryptocurrencies and crypto services. 

Other African countries also seem to be inclined to follow this trend, and in light of this, the absence of crypto regulation in the USA is even more surprising, especially after the launch of the European Union’s regulation (MiCA) last year.

The MiCA will come into effect this year, so in 2024 the USA will effectively remain far behind in this sector. 

Three African countries that have already moved in this direction, in addition to Nigeria, are South Africa, Botswana, and Kenya. Even the Mauritius islands seem inclined to adopt crypto regulation. 

If we add El Salvador, the United Arab Emirates of Dubai, and even Hong Kong to this, it becomes really difficult to understand why the USA has not yet decided to do the same. 

Africa and cryptocurrencies

It should not be forgotten that in Africa there is the second country in the world to have declared Bitcoin as legal tender, after El Salvador, namely the Central African Republic.

In Africa, and specifically in Nigeria and South Africa, there are major issues related to financial scams, particularly those involving cryptocurrencies. 

Regulating the sector with strict regulation is probably the only effective way to contain its spread, since cryptocurrencies, being decentralized tools, cannot be truly arrested. 

To tell the truth, the adoption of Bitcoin as a legal currency in Central African Republic doesn’t seem to have brought significant advantages, also because El Salvador has a tourism industry, while the African country is more backward in this regard.

In addition, El Salvador is trying to become the crypto hub of Latin America, while the Central African Republic does not seem to be able to become an African crypto hub.

However, it could be Nigeria itself to become an African crypto hub, as long as countries like Botswana, South Africa, or Kenya do not precede it.