The Central Bank of Nigeria (CBN) has issued extensive new guidelines for banks to open and operate accounts for registered virtual asset service providers (VASPs), in a major policy shift towards regulating cryptocurrencies in the country.
The 14-page circular , dated December 22 and released on January 2, outlines rules for commercial banks, merchant banks, and other financial institutions under CBN’s authority to conduct business with licensed VASPs. This includes opening specialized “designated accounts” for registered crypto companies.
Previously, the CBN had barred banks from dealing in cryptocurrencies or facilitating related transactions in any way, warning of risks. But the CBN says Nigeria and global trends now point to a need for regulation within the crypto space instead of an outright ban.
The policy change comes as crypto adoption has exploded in Nigeria. Trading volumes grew 9% to $56.7 billion in the past year alone, according to data from blockchain research firm Chainalysis. According to a recent report, Nigeria is one of the world’s few countries where crypto transaction volumes rose during market turmoil in 2022.
The CBN circular noted that many Nigerians have embraced virtual assets to hedge against rapid naira currency devaluation and soaring inflation, which hit an 18-year high of 27.3% in October 2023.
Crypto interest spiked last summer as President Bola Tinubu’s economic reforms, including cutting expensive fuel subsidies, caused the value of the naira to plunge. The volatility led many Nigerians to stablecoins and Bitcoin (BTC).
Under the new guidelines, Nigerian VASPs will need to register with the Securities and Exchange Commission (SEC) and then provide extensive paperwork to the banks before opening special designated accounts. This includes showing SEC license certificates, ownership information, addresses, anti-money laundering policies and more.
The rules also impose various account restrictions around cash withdrawals, transaction types, and limits based on risk assessments. Banks must monitor activity closely and report suspicious transactions to Nigerian authorities. Accounts face possible closure after 90 days of inactivity.
The new regime makes Nigeria more aligned with global regulations following the Financial Action Task Force and other bodies pressing countries to regulate crypto and VASPs properly in order to mitigate risks around money laundering, terrorism financing and fraud.
Many banking sectors in Africa and worldwide had been reluctant to facilitate crypto transactions without clear rules in place. However, the CBN indicated Nigerian banks remain prohibited from holding or trading virtual currencies on their own accounts.
In effect, the Nigerian central bank has carved out supervised lanes for virtual assets instead of letting the emerging digital economy grow unchecked.
However, virtual currencies remain controversial across Africa, and few countries on the continent have put comprehensive legislation in place.
But grassroots demand continues rising fast. Ugandans boosted crypto activity 245% over the past year, for example. Meanwhile, Kenya saw a major drop as authorities there crack down. The CBN described the trends as part of rationale for establishing firmer rules in the country.