CBN Issues Fresh Guidelines on Cryptocurrency Operation

•Insists banks remained banned from transacting in crypto, bank accounts barred from cash withdrawals 

•Violators risk N2m fine, other punitive measures

James Emejo in Abuja and Nume Ekeghe in Lagos

The Central Bank of Nigeria (CBN) yesterday released new guidelines to regulate the operations of bank accounts for Virtual Assets Service Providers (VASPs), otherwise known as cryptocurrency.

The framework provides minimum standards and requirements for banking business relationships and account opening for VASPs, and creates an effective monitoring of the activities of banks and Other Financial Institutions (OFIs) in providing service for Securities and Exchange Commission (SEC) licensed VASPs/Digital Assets (DA) entities in the country.

Among other things, the document also seeks to ensure effective risk management in the banking industry with regard to the operations of licensed VASPs.

The new guidelines followed the lifting of the ban that previously barred banks from operating accounts for crypto assets, although banks are still not allowed to hold or trade in crypto assets themselves.

CBN Director, Financial Policy and Regulation Department, Mr. Haruna Mustafa, in a circular addressed to banks and other financial institutions, stated that banks are “still prohibited from holding, trading and/or transacting in virtual currencies on their own account”.

The apex bank said from the commencement of the regulations, financial institutions shall not open or permit the operation of any account by any person or entity to conduct the business of virtual/digital assets unless that account is designated for that purpose and opened in line with the requirement of the guidelines.

Under the new framework, commercial and merchant banks; Payment Service Providers (restricted to those that are involved in settlement for third parties); all entities registered by SEC to conduct the business of digital/virtual assets services provision were eligible to register bank accounts for the operation of virtual assets.

These included VASPs, digital asset custodian, digital asset offering platform, digital asset exchange, DAX operator and any other entity that might be categorised by the CBN from time to time.

In addition to the permissible activities of each category of institution, financial institutions were permitted to undertake opening of designated accounts, provide designated settlement accounts and settlement services, as well as act as channels for FX flows and trade in their operations of accounts for VASPs.

The central bank mandated financial institutions to establish transaction limits for each designated account opened in accordance with the guidelines in line with its risk assessment criteria.

It stated that limits shall be prudent and bear a relationship to the volume of cash moved by the account holder and the risks associated with the conduct and nature of the business of the account holder.

The apex bank also stated that designated accounts shall not be run on concession, as banks shall not allow or enter into any concession agreement/arrangement with a holder of a designated account.

It stressed that such accounts shall at all times be subject to the maximum transaction charges band as provided for under the CBN Guide to Charges for Banks and Other Financial institutions.

Among other restrictions imposed on the VASPs’ bank account, the central bank instructed that no cash withdrawal shall be allowed from the account, adding that no third-party cheque shall be cleared from the account as well.

The CBN further stated that an account opened in accordance with the guidelines shall only be used for transactions on virtual/digital assets and not for any other purpose.

It said except for settlement of a virtual/digital assets transaction, which shall be done through a transfer to another designated account, withdrawal shall be only through a Managers’ Cheque or transfer to an account.

It stated further, among others, that transfers from the Naira position of persons on the VASP platform into their bank account shall not be more than twice in a quarter,.

The CBN said, “Banks shall also ensure that only accounts that have completed full KYC process (Tiered accounts subject to exemptions are excluded) can fund or receive from positions on the VASP/DAs platform.”

In addition, financial institutions/NIBSS shall not allow usage/creation of NUBAN accounts by VASPs, CBN directed.

Under the sanction regime, the apex bank said there shall be a monetary penalty not below the sum of N2 million against banks, members of its board, senior management, and any staff for any infraction.

Moreover, it stated that notwithstanding the powers of the CBN under the BOFIA 2020 and in addition to the use of remedial measures in the guidelines, the central bank might take any or all of the following sanctions against a financial institution, its board of directors, officers or staff for failure to comply with any of the requirements: prohibition from opening any further designated account and suspension of operating license.

CBN in February 2021 issued a circular restricting banks and other financial institutions from operating accounts for cryptocurrency service providers in view of the money laundering and terrorism financing (ML/TF) risks and vulnerabilities inherent in their operations as well as the absence of regulations and consumer protection measures.

However, current trends globally showed that there was a need to regulate the activities of virtual assets service providers (VASPs), which include cryptocurrencies and crypto assets, the apex bank explained.

The CBN stated, “Following this development, the Financial Action Task Force (FATF) in 2018 also updated its Recommendation 15 to require VASPs to be regulated to prevent misuse of virtual assets for ML/TF/PF.

“Furthermore, Section 30 of the Money Laundering (Prevention and Prohibition) Act, 2022 recognizes VASPs as part of the definition of a financial institution. In addition, the Securities and Exchange Commission (SEC) in May 2022 issued Rules on Issuance, Offering and Custody of Digital Assets and VASPs to provide a regulatory framework for their operations in Nigeria.”

It added, “In view of the foregoing, the CBN hereby issues these guidelines to provide guidance to financial institutions under its regulatory purview in respect of their banking relationship with VASPs in Nigeria.

“The Guidelines supersedes the CBN’s circulars referenced FPR/DIR/GEN/CIR/06/010 of January 12, 2017 and BSD/DIR/PUB/LAB/014/001 of February 5, 2021 on the subject. However, banks and other financial institutions are still prohibited from holding, trading and/or transacting in virtual currencies on their own account.”