Nigerian Fintech Ecosystem Responds to Crypto Transaction Ban by the CBN

Thursday April 01, 2021 / 06:30 PM / By FintechNGR / Header Image Credit: WRAL TechWire

Members of
The Fintech Association and Stakeholders In The Cryptocurrency Industry

The Fintech
Association of Nigeria (‘FintechNGR) has been invited by the Nigerian Senate to
deliver a presentation on behalf of the Nigerian Fintech and innovation
ecosystem on the issues pertaining to the Circular. Following this, the
FintechNGR has invited members of the public to submit their comments on the
Circular. These comments were collated and summarised, and are set out below:

Background

1. On the 5
of February 2021, the Central Bank of Nigeria (the “CBN”) issued a
circular to Deposit Money Banks (DMBs),
Non-Bank Financial Institutions (NBFIs), and Other Financial Institutions
(OFIs) (Regulated institutions) on transacting in cryptocurrencies. (the
“Circular”).

2. The
Circular mandates these Regulated Institutions to identify persons and/or entities
transacting in or operating cryptocurrency exchanges within their systems and
close such accounts with immediate effect.

3. In
January 2017 the CBN issued a circular to Banks and OFIs on Virtual Currency
Operation Nigeria, directing the banks and OFIs to:

(a) ensure
that banks and OFIs do not use, hold, trade and. or transact in anyway in
virtual currencies;

(b) ensure
that existing customers that are virtual currency /exchanges have effective
Anti-Money Laundering/Combating the Financing of Terrorism
(“AML/CFT”) controls that enable them to comply with customer
identification, verification, and transaction monitoring requirements;

(c)
discontinue relationships where banks OFIs are not satisfied with controls with
the controls put in place by the virtual currency exchanges/customers; and

(d) report
any suspicious transactions in these customers should immediately be reported
to the Nigerian Financial Intelligence Unit (NFIU).

4. In March
2018 (2018 Press Release), the CBN reiterated its statement on virtual
currencies warning traders against digital assets which carry the risk of
losing their investments as it does not constitute a legal tender.

5. The
Circular reiterates the position of the CBN that these Regulated Institutions
are prohibited from dealing in cryptocurrencies, the Circular also: (a)
prohibits the Regulated Institutions from facilitating payments for
Cryptocurrency exchanges; and (b) instructs Regulated Institutions to identify
persons and/or entities transacting in or operating Cryptocurrency Exchanges
within their systems and close such accounts with immediate effect.

6. The CBN
Press Release titled Response to Regulatory Directive on Cryptocurrencies
stated the following reasons – (a) the volatility of cryptocurrency and the
consequent inability of cryptocurrency to be used as a lasting means of
payment; (b) the anonymity associated with cryptocurrency transactions; (c)
that “cryptocurrencies are not backed by any real assets or
fundamentals” and as a result could crash in value; and (d) promotion of
illegal activities such as money laundering, terrorism financing, etc.

7. In view
of the above, the FintechNGR informally engaged the Central Bank of Nigeria
(“CBN”) as well as major stakeholders in the cryptocurrency industry
to understand their perspectives on the Circular. Consequently, the Fintech NGR
received an invitation from the Nigerian Senate to deliver a presentation on
the issues pertaining to the Circular, on Tuesday 23 February 2020.

Comments on
the Circular

Prohibition of Regulated
Institutions

1. The
prohibition of the Regulated Institutions from facilitating payments for
Cryptocurrency transactions by the CBN would redirect trade revenue to nearby
African markets. This will further limit the federal governments drive to
diversify revenue earning sources with the gloomy global economy. Also, the
prohibition will make a lot of people involved in cryptocurrency transactions
to go underground. Rather than this prohibition, the CBN should adjust/adapt
its existing regulatory instruments to fit the highly innovative cryptocurrency
sector. This adjustment/adaptation should strike a balance between protecting
the people from the dangers of cryptocurrencies and harnessing the benefits of
these cryptocurrencies.

2. The CBN
or Securities and Exchange Commission (“SEC”) should reach an
agreement as regards the regulatory authority that will regulate
cryptocurrencies. They should also consider approving cryptocurrencies that
have achieved global acceptance like Bitcoin, stablecoins, and other Altcoins.

3.
Consideration should be given to the role of the National Information
Technology Development Agency (“NITDA”) with respect to data
protection in the cryptocurrency space.

4. NITDA is
charged with the mandate to create a framework for the planning, research,
development, standardization, application, monitoring, evaluation, and
regulation of Information Technology practices in Nigeria, NITDA views
blockchain technology as one of the emerging technologies that Nigeria should
leverage for global competitiveness. Pursuant to its mandate, NITDA published
the Nigerian Blockchain Adoption Strategy. The primary objective of the
Nigerian Blockchain Adoption Strategy is to identify and utilize the
opportunities provided by Blockchain technologies to strengthen the country’s
security on cyberspace and stimulate the growth of the economy. The strategy is
built on the following initiatives: (i) Establishment of the Nigerian
Blockchain Consortium, (ii) strengthening of the regulatory and legal
framework, (iii) focus of the provision of the national digital identity, (iv)
promotion of blockchain digital literacy and awareness, (v) creation of
blockchain business incentive programmes, (vi) establishment of national
blockchain sandbox for proof of concepts and pilot implementation. This
blockchain adoption strategy aims at and will promote Blockchain technology in
Nigeria and help in mitigating the risks regarding its implementation by
government agencies, and corporate organizations.

5. CBN may
also consider registering and designating locally and globally renowned
cryptocurrency exchanges with proven KYC and compliance capabilities as
legitimate places for Nigerians to trade cryptocurrency. This way, entities
dealing with cryptocurrency can be known and licensed accordingly.

6. The CBN
should also communicate with stakeholders and highlight specific ways they
would like their concerns to be addressed. This will enable both stakeholders
to work together to regulate the cryptocurrency market effectively.

7. The CBN
should consider developing and testing of a Central Bank Digital Currency
(CBDC). CBDC is a digitally represented version of the country’s sovereign
currency, in this case the Naira, issued and backed by the Central Bank. CBDC
could impact monetary policy favorably by providing a new tool for the Bank to
apply and implement monetary policy with enhanced speed and improved
efficiencies. If the Bank determined that CBDC should be interest bearing, this
remuneration feature would likely increase the accumulation and use of CBDC for
direct payments by and between individuals and retail businesses as the wallet
holders of CBDC. Some countries have started experimenting and testing CBDC’s.
Please see Schedule II.

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