The Central Bank of Nigeria (CBN) has lifted the embargo previously imposed on cryptocurrency transactions within the country’s banking sector. The embargo, which had been in place since February 2021, restricting digital currency transactions, has been officially lifted by the banking industry regulator.
In a recent notice dated December 22, 2023, addressed to deposit money banks (DMBs), the central bank authorized banks to permit their customers to engage in transactions involving highly volatile digital assets. This move marks a reversal of the earlier ban on cryptocurrency transactions in the country.
However, while allowing customers to trade in cryptocurrencies, the CBN underscored that banks and other financial institutions are still barred from holding, trading, or conducting transactions using virtual currencies within their accounts.
The CBN’s initial circular in February 2021 had prohibited banks and financial institutions from operating accounts for cryptocurrency service providers, citing concerns about money laundering, terrorism financing risks, and the absence of regulations and consumer protection measures in cryptocurrency operations.
The decision to lift the ban comes in response to global trends indicating the necessity of regulating virtual asset service providers (VASPs), including cryptocurrencies and crypto assets. The Financial Action Task Force (FATF) updated its Recommendation 15 in 2018, urging the regulation of VASPs to prevent misuse of virtual assets for illicit activities.
Furthermore, the Money Laundering (Prevention and Prohibition) Act, 2022, recognizes VASPs as part of the definition of a financial institution. The Securities and Exchange Commission also introduced Rules on Issuance, Offering, and Custody of Digital Assets and VASPs in May 2022, providing a regulatory framework for their operations in Nigeria.
In light of these developments, the CBN has issued guidelines to offer direction to financial institutions under its regulatory oversight concerning their banking relationships with VASPs in Nigeria.
While the recent directive allows for a resumption of cryptocurrency trading for customers, the prohibition on banks and financial institutions from directly engaging in activities involving virtual currencies remains in force. The move signifies a shift in approach by the CBN in response to evolving global regulatory trends surrounding digital assets.
