Central Bank of Nigeria bans banks from serving crypto exchanges

The Central Bank of Nigeria has banned all regulated financial institutions from providing services to crypto exchanges in the country.

LETTER TO ALL DEPOSIT MONEY BANKS, NON-BANK FINANCIAL INSTITUTIONS AND OTHER FINANCIAL INSTITUTIONS

The Central of Bank of Nigeria’s (CBS) circular of January 12, 2017 ref FPR/DIR/GENICIRI06/010 which cautioned Deposit Money Banks (DMBs). Non-Bank Financial Institutions (NBFIs), Other Financial Institutions (OFIs) and members of the pubic on the risk associated with transactions in cryptocurrency refers.

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. Yours faithfully,

BELLO HASSAN

DIRECTOR OF BANKING SUPERVISION

MUSA. I. JIMOH

DIRECTOR PAYMENTS SYSTEM MANAGEMENT DEPARTMENT

via Twitter

Cryptocurrencies are big business in Nigeria

Nigeria is an emerging crypto currency hotbed. In a report by Quartz Africa, Nigeria is second only to the United States on Paxful (a leading peer-to-peer bitcoin marketplace). This all came about because the youth of the country, during the EndSars protests in October, were using bitcoin as a means of collecting donations after the Nigerian authorities shut down local payment platforms.

In roughly a week bitcoin accounted for about 40% of US$400 000 that was raised. This event was an example of what happens when people innovate around regulatory pressure.

Since that time, there has been fervent interest in cryptocurrencies in the country, with Bitcoin ranking high on Google Trends in Nigeria. The announcement by The Central Bank of Nigeria looks like an effort to hamper the progress the youth are making towards adopting decentralised currencies.

The strange thing is (or not so strange depending on your viewpoint) we have seen something like this before in our own back yard…

Golix vs RBZ

Back in 2018, Golix was the focus of regulatory ire when financial institutions were told to disassociate themselves from the crypto exchange by RBZ. This then led to the exchange being told to shut up shop completely.

There was no way for Golix to effectively fight back because how could it?

The cease and desist order by the RBZ was probably more comprehensive than what we are seeing in Nigeria but it’s along the same lines.

However different the orders or circumstances are/were, this will have a detrimental effect on Nigeria’s startup ecosystem. Closing off this avenue will narrow what startups who were already in crypto space can do and its now a case of “back to the drawing board”