The Central Bank of Nigeria (CBN) has lifted the ban on cryptocurrency transactions in the country in a significant reversal of its previous stance.
The change was announced through a circular on Dec. 22. It allows Nigerian banks and other financial institutions to resume operations with cryptocurrency service providers.
The initial ban, imposed in February 2021, was primarily enacted over concerns related to money laundering and terrorism financing risks associated with crypto assets.
New guidelines for crypto
Under the new guidelines, financial institutions are now allowed to open accounts for businesses dealing in virtual/digital assets, but these accounts must be specifically designated for that purpose.
Banks and other financial institutions must comply with the requirements outlined in the CBN’s guidelines when dealing with accounts for crypto-related businesses. Meanwhile, Virtual Asset Service Providers (VASPs) involved in the crypto business are required to be licensed by the Nigerian Securities and Exchange Commission.
While they can facilitate transactions for VASPs, banks, and financial institutions are still barred from trading, holding, or transacting in cryptocurrencies on their own accounts.
The lifting of the ban is expected to significantly impact the Nigerian financial landscape, given the country’s young, tech-savvy population that has shown a keen interest in cryptocurrencies.
According to a report by Chainalysis, the volume of crypto transactions in Nigeria grew by 9% year-over-year to $56.7 billion between July 2022 and June 2023.
While the lifting of the ban opens up opportunities, it also presents challenges in ensuring compliance with international standards for preventing illegal activities. It underscores the need for a balanced approach that encourages innovation while safeguarding against risks.
Shifting tides
Nigeria’s decision aligns with global shifts towards recognizing and regulating cryptocurrencies rather than outright banning them. This reflects an increasing acknowledgment of the potential of digital assets and the need for comprehensive regulatory frameworks.
The Securities and Exchange Commission in Nigeria issued rules in May 2022 to provide a regulatory framework for digital assets and VASPs.
The CBN’s guidelines are in line with international recommendations, such as those from the Financial Action Task Force (FATF), to regulate the use of virtual assets.
The FATF updated its guidelines in 2018, emphasizing the regulation of VASPs to prevent the misuse of virtual assets for money laundering and terrorism financing.
The new rules represent a significant step in acknowledging and integrating cryptocurrencies into Nigeria’s financial system, balancing the need for innovation in digital assets with regulatory oversight to ensure security and compliance.