Nigeria’s Central Bank Reverses Crypto Ban Amid Regulatory Developments

The Central Bank of Nigeria (CBN) has overturned its previous ban on cryptocurrency transactions. This shift comes as a response to the evolving global financial landscape and the growing need to regulate virtual asset service providers (VASPs), including cryptocurrencies and crypto assets.

Previously, in February 2021, the CBN had prohibited banks and financial institutions from participating in or facilitating transactions involving crypto assets. The ban was primarily motivated by concerns over money laundering and terrorism financing. However, the Nigerian Securities and Exchange Commission (SEC) exhibited a more nuanced approach. In May 2022, the SEC introduced regulations for digital assets, indicating an attempt to balance the outright prohibition of cryptocurrencies with their unregulated use.

The new regulations, detailed in a circular dated December 22, outline the procedures for banks and financial institutions. These include the requirements for opening accounts, providing designated settlement accounts, offering settlement services, and acting as conduits for foreign exchange inflows and trade related to crypto assets. To operate in the crypto sector, VASPs are required to secure a license from the Nigerian SEC.

While this development opens doors for regulated cryptocurrency transactions, the CBN maintains a firm stance against banks directly engaging in crypto trading, holding, or transactions. This decision reflects a cautious approach towards embracing the digital asset revolution while safeguarding the traditional banking system.

The reversal of the crypto ban is particularly significant in Nigeria, where a young and tech-savvy population has rapidly adopted cryptocurrencies. This demographic has often resorted to peer-to-peer trading through crypto exchanges, circumventing the restrictions imposed on the financial sector. According to a report by New York-based blockchain research firm Chainalysis, Nigeria saw a 9% increase in crypto transactions year-over-year, totaling $56.7 billion from July 2022 to June 2023.

The CBN’s latest move marks a pivotal moment in Nigeria’s financial sector, aligning with global trends towards the regulation and integration of digital assets into mainstream finance. This decision not only reflects the dynamism of Nigeria’s economy but also its willingness to adapt to the digital financial landscape.