The Central Bank of Nigeria (CBN) has recently made a significant policy shift by lifting the restrictions on crypto assets and encouraging banks to disregard the initial ban imposed on cryptocurrency transactions. This pivotal decision, as conveyed by Haruna Mustafa, the Director of the Financial Policy and Regulation Department at CBN, stems from a recognition of current global trends emphasizing the imperative need for comprehensive regulation in the cryptocurrency sphere.
In a circular, Mustafa revisited the CBN’s stance in February 2021 when it issued a directive restricting banks and other financial institutions from engaging in transactions with cryptocurrency service providers. This restriction was primarily motivated by concerns about the inherent risks of money laundering and terrorism financing associated with cryptocurrency operations. Additionally, the absence of robust regulations and consumer protection measures contributed to the cautious approach taken by the CBN at that time.
However, Mustafa pointed out that the evolving landscape of cryptocurrency activities globally has underscored the necessity of regulating the operations of virtual assets service providers (VASPs), encompassing both cryptocurrencies and crypto assets. This perspective aligns with the Financial Action Task Force’s (FATF) 2018 update of Recommendation 15, which emphasized the importance of regulating VASPs to prevent the misuse of virtual assets for money laundering, terrorism financing, and proliferation financing.
Furthermore, Mustafa highlighted a legislative development in the form of Section 30 of the Money Laundering (Prevention and Prohibition) Act, 2022, which officially recognizes VASPs as part of the broader definition of a financial institution. This legislative acknowledgment further solidifies the need for a regulatory framework to govern the operations of VASPs.
In tandem with these developments, Mustafa brought attention to the Securities and Exchange Commission’s issuance of Rules on Issuance, Offering, and Custody of Digital Assets and VASPs in May 2022. These rules were designed to establish a comprehensive regulatory framework for the operations of digital assets and VASPs within Nigeria.
In light of these considerations, the CBN has issued a new guideline aimed at providing direction to financial institutions under its regulatory purview regarding their banking relationships with VASPs in Nigeria. Importantly, Mustafa emphasized that this new guideline supersedes the previous directives, such as FPR/DIR/GEN/CIR/06/010 of January 12, 2017, and BSD/DIR/PUB/LAB/014/001 of February 5, 2021. These earlier directives, issued during the tenure of President Muhammadu Buhari and former CBN governor Godwin Emefiele, had imposed restrictions on cryptocurrency transactions.
However, it’s noteworthy that despite the relaxation of certain restrictions, the CBN director clarified that banks and other financial institutions are still prohibited from holding, trading, and/or transacting in virtual currencies on their own accounts. This safeguard indicates a cautious approach to ensure financial stability and security.
Conclusion: cryptocurrency
The CBN’s latest guideline marks a significant departure from its previous stance on cryptocurrency transactions, acknowledging the evolving global landscape and emphasizing the need for a well-defined regulatory framework. Financial institutions are now required to promptly comply with this new directive, reflecting a more nuanced approach to the dynamic world of cryptocurrencies while maintaining prudent restrictions to mitigate potential risks.
Source: guardian.ng
