In a significant policy reversal, the Central Bank of Nigeria (CBN) has announced the lifting of its nearly three-year ban on banks operating accounts for cryptocurrency service providers and users. However, the apex bank maintains restrictions on financial institutions, preventing them from directly engaging in transactions involving virtual assets.
The decision was communicated through a circular issued by Haruna Mustafa, Director of the Financial Policy and Regulation department at the CBN. The circular outlined guidelines aimed at providing direction to financial institutions regarding their banking relationships with Virtual Assets Service Providers (VASPs) in Nigeria.
This marks a departure from the CBN’s previous stance in February 2021 when it cited concerns about money laundering and terrorism financing risks associated with cryptocurrency operations. The absence of regulations and consumer protection measures further fueled the decision to restrict banks and financial institutions from servicing cryptocurrency accounts.
The latest circular acknowledged global trends, emphasizing the necessity of regulating the activities of VASPs, including cryptocurrencies and crypto assets. It referenced the Financial Action Task Force’s (FATF) updated Recommendation 15 in 2018, urging the regulation of VASPs to prevent the misuse of virtual assets for money laundering, terrorist financing, and proliferation financing.
Additionally, the circular highlighted the Money Laundering (Prevention and Prohibition) Act, 2022, which recognizes VASPs as part of the definition of a financial institution. The Securities and Exchange Commission (SEC) had also contributed to the regulatory landscape by issuing rules in May 2022 governing the issuance, offering, and custody of digital assets and VASPs.
The CBN’s guidelines supersede previous circulars on the subject, emphasizing that while banks and financial institutions are now allowed to engage with VASPs, they remain prohibited from holding, trading, and transacting in virtual currencies on their own account.
It is imperative for all banks and financial institutions to promptly comply with the provisions outlined in the new guidelines. This development follows the CBN’s imposition of a substantial fine of N814.26 million on five commercial banks in 2021 for violating its directive to freeze bank accounts used for cryptocurrency transactions. Stay tuned for further updates on this evolving regulatory landscape.