Central Bank of Nigeria freezes bank accounts of six Fintech startups over illegal FX trading

A federal high court based in Abuja has granted the request of the Central Bank of Nigeria (CBN) to freeze accounts of six Fintech companies for 180 days.

The six Fintech startups affected are Rise Vest Technologies Limited, Bamboo Systems Technology Limited, Bamboo Systems Technology Limited OPNS, Chaka Technologies Limited, CTL/Business Expenses, and Trove Technologies Limited.

According to a report by TheCable newspaper, CBN said it was investigating ‘illegal foreign exchange transactions’ carried out by the startups. It sought the court injunction to freeze their bank accounts for 180 days pending the completion of investigations.

In the ex parte motion filed on August 4, by the apex bank through its counsel Michael Kaase Aondoakaa, it stated that “the investigation being carried out concerns what has been discovered to be serious infractions by the defendants/respondents in connection with some foreign exchange transactions, and non-documentation by the defendants/respondents in violation of the extant laws and regulations, particularly the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act and the Central Bank of Nigeria foreign exchange manual.”

“That more specifically, there is a grave allegation that the defendants/respondents are engaged in illegal foreign exchange transactions, accessing/procuring of foreign exchange via their banks from the Nigerian foreign exchange market via several bureaux de change, international money transfer operators and have transferred cash deposit of more than S10,000.00 (Ten thousand dollars) to various accounts overseas contrary to provisions of extant laws and regulations and also traded in foreign securities and cryptocurrencies in contravention to CBN Circular referenced TED/FEM/FPC/GEN/01/012 and BSD/DIR/PUB/LAB/014/001 dated February 5, 2021, and July 01, 2015.

“It is evident that Rise Vest Technologies Limited, Bamboo Systems Technology Limited, Chaka Technologies Limited and Trove Technologies Limited are complicit in operating without license as asset management companies and utilising FX sourced from the Nigerian FX market for purchasing foreign bonds/shares in contravention of CBN’s directive.”

In his ruling, Ahmed Mohammed said: “having listened to senior counsel to the applicant, on the motion ex parte filed in August, it is granted as prayed.”

He added that any person who feels aggrieved about the freezing order is entitled to approach the court within the period to seek redress. He then adjourned the matter to February 20, 2022, for hearing.

In April this year, the Security and Exchange Commission (SEC) in Nigeria warned that online investment and trading platforms in Nigeria should stop selling securities of foreign companies listed on Securities Exchanges outside Nigeria. In response some of the affected companies including the six that have had their bank accounts frozen, responded by assuring their customers that they are working with SEC to ensure that they are in compliance with all regulatory requirements.

However the companies continued with the sale of securities of foreign companies listed on Securities Exchanges outside Nigeria. So it would seem that this new approach is a way of discouraging them from continuing this practice.

In a swift response to this bank account freeze, risevest, one of the affected startups issued a statement on social media titled “Our statement on the latest CBN order on our FX dealings.”

“With regard to the latest news about us and our FX dealings, you can be sure that your investments and funds are safely managed, that funding and withdrawals will continue to be processed as normal, and that all our US operations remain intact,” Risevest wrote in a mail to investors.

“We will work with regulators, as we always have to ensure that all issues raised are properly addressed. However, this does not affect our users or their investments, which are managed by regulated third parties in all jurisdictions in which we operate.”

This should put a stop to the operations of these six Fintech startups however some investors might be keen to know what would happen to their stocks and funds.

This move by the apex bank is akin to a previous order to commercial banks in Nigeria to close the accounts related to cryptocurrency transactions