CBN Issues Game-Changing Guidelines For Virtual Assets In Nigeria

On December 22, 2023, the Central Bank of Nigeria (CBN) released new operation guidelines for Virtual Asset Service Providers (VASPs) to banks. This new development legalizes them as part of the Nigerian financial system. Hence, restrictions on crypto bank accounts are lifted.

In 2021, the Central Bank of Nigeria issued a circular mandating banks and other financial institutions to stop operating accounts of crypto service providers. This restriction was issued to mitigate dangers relating to money laundering and terrorism financing, as well as the lack of consumer protection regulations.

However, the latest guidelines have prevailed over the 2021 circular. In light of this, cryptocurrency service providers are required to abide by the new rules set by the CBN.

Events unfolding worldwide all indicate the need for regulatory activities of VASPs, including cryptocurrencies and crypto assets. As a result, the updated Financial Action Task Force’s (TATF) recommendation 15 in 2018 suggested that VASPs be regulated to prevent misusing virtual assets for financial crimes.

According to Section 30 of the 2022 Money Laundering Prevention and Prohibition Act, the CBN recognizes VASPs as a legitimate branch of the financial system. In May 2022, the Securities and Exchange Commission (SEC) issued additional rules governing the issuing, offering, and custody of digital assets and VASPs. This new development lays the foundation for the well-structured running of the institution.

Some new policies state that cash withdrawals from designated accounts are not allowed. Also, third-party cheques from the accounts will not be cleared. The CBN has also imposed a fine of two million naira on any bank, board member, or staff member who violates these rules.

This new update will go a long way in boosting the Nigerian economy. The VASPs in Nigeria will also gain more visibility as people are tilting towards investing in digital assets in this contemporary world. Additionally, it will create multiple income streams for users and investors.

Although these new policies now approve of cryptocurrencies and other digital assets, they are not to be used for money laundering or terrorism financing. In a nutshell, cryptocurrencies are not prohibited, but they are required to be regulated to ensure their compliance and legal use.

Regardless of the latest update, banks and other financial institutions are still prohibited from holding, transacting, or trading digital currencies directly. Nevertheless, provisions have been made for such institutions to interact with cryptocurrency service providers under specified conditions.

In this digital age, financial crimes keep advancing, and criminals are getting craftier. Therefore, the CBN's move to deepen the financial services sector and promote financial inclusion instead of banning it is applaudable.

Moreover, the effectiveness of these guidelines in achieving these goals will be visible over time. It is important for the CBN to monitor and enforce compliance with the guidelines to ensure that Payment Service Banks (PSBs) operate fairly and transparently and that consumers are protected. In the meantime, all hands are on deck to ensure these policies are strictly adhered to.