The Central Bank of Nigeria (CBN) has lifted the ban on cryptocurrency transactions in the country, marking a significant reversal from its previous position.
The change was announced via a circular on December 22. Nigerian banks and other financial institutions can resume operations with cryptocurrency service providers.
The initial ban, imposed in February 2021, was issued primarily due to concerns over money laundering and terrorist financing risks associated with crypto assets.
New guidelines for crypto
Under the new guidelines, financial institutions are now allowed to open accounts for companies 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 set out in the CBN guidelines when dealing with accounts for crypto-related businesses. Meanwhile, Virtual Asset Service Providers (VASPs) involved in the crypto industry must be licensed by the Nigerian Securities and Exchange Commission.
Although they can facilitate transactions for VASPs, banks and financial institutions are still banned from trading, holding or executing cryptocurrencies on their own accounts.
The lifting of the ban is expected to have a significant impact on 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 9% year-on-year to $56.7 billion between July 2022 and June 2023.
While the lifting of the ban offers opportunities, it also brings challenges in ensuring compliance with international standards for preventing illegal activities. It underlines the need for a balanced approach that stimulates innovation while protecting against risks.
Changing tides
Nigeria’s decision is in line with global shifts toward recognizing and regulating cryptocurrencies rather than banning them outright. This reflects an increasing recognition 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 guidelines are in line with international recommendations, such as those of the Financial Action Task Force (FATF), to regulate the use of virtual assets.
The FATF updated its guidelines in 2018, focusing on the regulation of VASPs to prevent the misuse of virtual assets for money laundering and terrorist financing.
The new rules mark an important step in the recognition and integration of cryptocurrencies into the Nigerian financial system, balancing the need for innovation in digital assets with regulatory oversight to ensure security and compliance.