Nigeria's Crypto Regulation: The Absence Of a Clear Oversight

It's hard to understand how Nigerian policymakers are addressing the misgivings about the country's regulatory oversight because the Central  Bank of Nigeria(CBN), the nation's apex bank, has increasingly overshadowed SEC Nigeria, its capital market regulator.

Not only is the West African country struggling to establish a clear-cut regulatory framework befitting her socio-economic demands, but it's also finding it difficult to disentangle itself from the morass of confusion it slid into in 2021 when the CBN issued a circular banning all bank-assisted crypto transactions.

Nigeria's current regulatory challenges indubitably began in 2021 when the CBN under the embattled former governor Godwin Emefiele issued a circular prohibiting DMBs from further engaging in crypto-related services such as payment remittance. Before the ban, most banks in Nigeria were directly involved in crypto transactions.

Responding to an FBI intelligence report about Nigerian fraudsters siphoning off millions of dollars in weekly cryptocurrency thefts from the US, the Central Bank of Nigeria (CBN) issued a sweeping directive in 2022: all crypto transactions between domestic money banks (DMBs) and crypto exchanges were halted. This two-year ban, while intended to curb illicit activity, ultimately sowed widespread confusion and regulatory chaos.

The effect of the CBN prohibition of crypto transactions in the banking sector is the lack of a clear regulatory oversight, the consequence of which remains to be seen in the myth surrounding the CBN prohibition.

To this day, there is still a misreporting of the 2021 CBN ban in several media outlets because the CBN directive created a wrong impression of a ban in the real sense of a legal prohibition backed by law. Meanwhile, the CBN circular was not a law and could never have stood in its place because a circular by its nature does not carry the force of law.

Consequently, the misunderstanding resulting from the CBN prohibition occasioned a series of injustices meted out against crypto businesses in Nigeria, many of which had their Nigerian bank accounts frozen on the orders of the CBN.

However, it would take a Federal High Court sitting in Abuja, the nation’s capital, to undo those injustices in the intervening period. Reuters reported the story on the 26th of October, 2021 under the following title: NIGERIAN COURT LIFTS BANK FREEZE ON FIRMS ACCUSED OF BUYING CRYPTO.

The court’s presiding judge Justice Taiwo O. Taiwo ruled that CRYPTOCURRENCY TRADING IS NOT ILLEGAL IN NIGERIA and that the Central Bank of Nigeria circular, referenced as BSD/DIR/PUB/LAB/014/001 of February 5, 2021, is not a law.

The Abuja High Court ruling meant that the CBN by its circular is not the prescribing authority that is empowered to declare crypto trading as illegal in the country.

Blaming Nigeria’s lack of regulatory clarity on the failure of the 2021 CBN directive to DMBs is part of a larger effort to condemn the CBN’s oversight and its refusal to let the capital market regulator, the SEC Nigeria,to assume its legal duties.

As it stands today, CBN has completely assumed control over the crypto industry, pushing a not-so-clear policy on cryptocurrency regulation and hiding behind a load of technical jargon. Could one possibly imagine the Federal Reserves playing the SEC or the CFTC in the United States?

The extent of the CBN’s rashness lies in the fact that it has arrogated to itself the power to oversee the crypto industry, rendering the SEC practically useless. The result of this infraction is that more often than not its policies on crypto, which are mostly bank directives, are erroneously interpreted as the nation's broader crypto policy.

A recent example of how CBN circulars are mistaken for Nigeria's crypto laws is the newly issued circular directing all DMBs to engage directly with Virtual Asset Providers(VASPs) after two years of brutal crackdown.

Reading between the lines, one is compelled to think that the CBN has now finally lifted the “ban on cryptocurrency” without acknowledging the fact that the new circular is a fair attempt to allow the banking sector to engage in cryptocurrency transactions.

The new circular is a carrot-and-stick approach devised by the CBN. In one breath, it allows Virtual Assets Providers(VASPs)to operate within the country, and in another breadth, it prohibits the DMBs from dealing in cryptocurrencies on “their own accounts”.

Following the release of the latest CBN circular, the rumour mill has gone into overdrive with the unfounded claim that the CBN has “lifted the ban on cryptocurrency”. The news is now everywhere on the internet but does that make it true and accurate?