The Central Bank of Nigeria (CBN) has lifted the ban on cryptocurrency transactions in the country, in a significant reversal from its previous stance.
The change was announced by a circular on December 22. It allows Nigerian banks and other financial institutions to resume operations with cryptocurrency service providers.
The initial ban, imposed in February 2021, was enacted 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 businesses trading virtual/digital assets, but these accounts must be specifically designated for this purpose.
Banks and other financial institutions must comply with the requirements outlined in the CBN guidelines when processing accounts for crypto-related businesses. Meanwhile, virtual asset service providers (VASPs) involved in the crypto sector must be licensed by the Securities and Exchange Commission of Nigeria.
Although they can facilitate transactions for VASPs, banks and financial institutions are still prohibited from trading, holding or transacting cryptocurrencies in 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 and tech-savvy population who have shown keen interest in cryptocurrencies.
According to a report by Chainalysis, crypto trading volume in Nigeria increased by 9% year-over-year to $56.7 billion between July 2022 and June 2023.
While lifting the ban opens up opportunities, it also presents challenges in ensuring compliance with international standards for preventing illegal activities. This highlights the need for a balanced approach that encourages innovation while guarding against risks.
Nigeria’s move aligns with global shifts toward recognizing and regulating cryptocurrencies rather than banning them outright. This reflects a growing recognition of the potential of digital assets and the need for comprehensive regulatory frameworks.
The Securities and Exchange Commission of Nigeria published 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 the purposes of money laundering and terrorist financing.
The new rules represent 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.