Great News for Nigerians, as CBN raises ban on Cryptocurrency transactions.

In a significant development, the Central Bank of Nigeria (CBN) has recently issued operational guidelines on Virtual Assets Service Providers (VASPs) to all banks and other financial institutions (OFIs). This move marks a notable departure from the CBN's earlier stance, which had imposed restrictions on cryptocurrency transactions within the Nigerian financial system.

The regulatory shift, outlined in a circular dated December 22, 2023, and signed by Haruna Mustapha, CBN's Director of the Financial Policy and Regulation Department, follows a series of regulatory measures undertaken by the apex bank. Back in February 2021, the CBN had issued a circular instructing deposit money banks (DMBs), non-bank financial institutions (NBFIs), and OFIs to close accounts associated with cryptocurrency transactions, citing concerns over money laundering, terrorism financing, cybercrime, and the volatility of cryptocurrencies.

However, the recent guidelines reflect a change in the regulatory landscape. The CBN now directs all banks and OFIs to engage in cryptocurrency services, emphasizing the need to regulate the activities of VASPs, encompassing entities that facilitate exchanges between virtual assets (cryptocurrencies) and fiat currencies, as well as transfers of virtual assets.

The regulatory evolution aligns with global trends, acknowledging the importance of regulating virtual assets to prevent misuse for illicit activities, as highlighted by the Financial Action Task Force (FATF) in its updated Recommendation 15 in 2018. The move is also supported by domestic legislation, with Section 30 of the Money Laundering (Prevention and Prohibition) Act, 2022, recognizing VASPs as part of the definition of a financial institution.

Furthermore, the Securities and Exchange Commission (SEC) contributed to the regulatory framework by issuing rules on the issuance, offering, and custody of digital assets and VASPs in May 2022. This collaborative effort aims to establish a comprehensive and effective regulatory framework for the operation of virtual assets in Nigeria.

The CBN's latest guidelines supersede previous circulars issued in 2017 and 2021, providing updated directives for financial institutions under its regulatory purview. Notably, while banks and other financial institutions are now permitted to engage in cryptocurrency services, they remain prohibited from holding, trading, and/or transacting in virtual currencies on their accounts.

This regulatory evolution culminated on May 28, 2023, when President Muhammadu Buhari signed the finance bill into law, further solidifying the legal framework governing financial transactions and services in Nigeria.

In essence, the CBN's issuance of operational guidelines on VASPs reflects a pivotal moment in Nigeria's financial scene, with regulatory measures adapting to the dynamic nature of virtual assets, aiming to strike a balance between fostering innovation and mitigating risks associated with cryptocurrencies.

What's your thought on the crypto development for Nigerians? Share them in the comments.