Nigerian Central Bank orders closure of accounts related to cryptocurrency transactions

The Nigerian Central Bank has directed that all deposit money banks (DMBs), non-bank financial institutions (NBFIs), and other financial institutions (OFIs) should close accounts related to cryptocurrency transactions or exchanges.

The apex bank sent this directive via a circular issued today to all financial institutions.

It reminded the financial institutions of the circular dated January 12, 2017 that cautioned the financial institutions and the public of the risk associated with transactions in cryptocurrency. The circular stated that virtual currencies such as Bitcoins, Monero, Ripples, Litecoin, Dogecoin, Onecoin, e.t.c and other similar products were not legal tender in Nigeria, thus any bank or institution that transacts in such businesses did so at its own risk.

According to the apex bank in this new circular,

Further to earlier regulatory directives on the subject, the Bank hereby wishes to remind regulated institutions that dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges is prohibited.”

“Accordingly, all DMBs, NBFIs and OFIs are directed to identify persons and/or entities transacting in or operating cryptocurrency exchanges within their systems and ensure that such accounts are closed immediately.”

“Please note that breaches of this directive will attract severe regulatory sanctions.

This letter is with immediate effect.”

There has been a lot of activity in cryptocurrency space in Nigeria and globally with Fintechs springing up nearly everyday dealing in the virtual currency.

In the last five years, Nigeria has traded 60,215 bitcoins, valued at more than $566 million which, apart from the US, is the largest volume worldwide on Paxful, a leading peer-to-peer bitcoin marketplace.

Chainalysis’ 2020 Cryptocurrency Geography Report also revealed that Nigeria ranked eight in terms of crypto adoption and usage rate among 154 countries included in the study.

The EndSARS protest last year proved the power of cryptocurrency when local payment platforms were banned from receiving donations and people switched to crypto currency. It is reported that Bitcoin accounted for about 40% of the total amount received.

It was recently reported that PiggyVest, Cowrywise, OPay, Bitsika and PalmPay may be activating forex and crypto trading features soon, based on a partnership with Nigerian API fintech, Mono.

Just as crypto is gaining ground as a medium of exchange, some governments are still not comfortable with it as they have not created regulatory guidelines concerning the transactions

Some days ago, it was reported that the Indian government was planning to introduce a law “prohibit all private cryptocurrencies in India,” but allow “for certain exceptions to promote the underlying technology [blockchain] of cryptocurrency and its uses.”

One thing is for sure. The Central Bank of Nigeria is wary of the possible fraud inherent in cryptocurrency transactions and it has not been able to introduce safety measures to mitigate against possible fraud. So it might just want to understand and develop the relevant controls before allowing the transactions.