Nigeria's Central Bank Reverses Course on Cryptocurrency Regulations

In a landmark policy shift, Nigeria's central banking authority has revoked its previous prohibition on cryptocurrency-related transactions, aligning with the global trend towards regulated digital asset activities. This decision marks a significant departure from the Central Bank of Nigeria's (CBN) February 2021 directive, which had barred financial institutions from facilitating or engaging in cryptocurrency transactions, citing concerns about illicit financial flows and potential terrorist financing.

CBN Unveils New Regulatory Framework for Digital Asset Service Providers

A recent circular dated December 22 from the CBN outlines the necessity to oversee the operations of virtual asset service providers (VASPs), a category that encompasses entities dealing with cryptocurrencies and other digital assets.

The newly introduced guidelines delineate specific protocols, including the establishment of banking relationships for VASPs, the provision of designated correspondent accounts, and the facilitation of foreign exchange transactions for organizations involved in the digital asset sphere.

Notably, the framework mandates that VASPs obtain proper licensing from Nigeria's Securities and Exchange Commission (SEC) before engaging in cryptocurrency-related business activities.

Financial Institutions Given Green Light with Caveats

While the updated regulations permit banks to participate in the digital asset ecosystem, the CBN's circular explicitly prohibits these institutions from directly trading, holding, or transacting in cryptocurrencies themselves. This nuanced approach reflects Nigeria's attempt to foster innovation within the digital asset space while simultaneously mitigating associated risks.

Nigeria, with its youthful and technologically adept population, has emerged as a significant adopter of cryptocurrencies. The popularity of peer-to-peer trading platforms offered by digital asset exchanges has grown, allowing citizens to navigate financial transactions with increased autonomy.

According to a September report from Chainalysis, a New York-based blockchain analytics firm, Nigeria's cryptocurrency transaction volume experienced a year-over-year increase of 9%, totaling $56.7 billion between July 2022 and June 2023. The reintroduction of regulated cryptocurrency transactions is anticipated to create a more favorable environment for ongoing innovation and participation in Nigeria's burgeoning digital asset landscape.