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CBN makes u-turn on crypto ban, calls for regulation

Circular Encourages Banking Relationships with Virtual Assets Service Providers

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In a significant shift of policy, the Central Bank of Nigeria (CBN) has rescinded its previous ban on cryptocurrency transactions and urged banks to disregard the earlier prohibition. The directive, outlined in a circular dated December 22, 2023, signals a departure from the CBN’s stance in February 2021.

The circular, titled ‘Circular to all Banks and other Financial Institutions Guidelines on Operations of Bank Accounts for Virtual Assets Service Providers (VASPS),’ was signed by Haruna Mustafa, the Director of the Financial Policy and Regulation Department at the apex bank.

The CBN highlighted the evolving global landscape and the imperative for crypto regulation, acknowledging the necessity to monitor and regulate the activities of virtual asset service providers (VASPs), including cryptocurrencies and crypto assets.

The circular stated, “Current trends globally have shown that there is a need to regulate the activities of virtual asset service providers (VASPs), which include cryptocurrencies and crypto assets.” It referenced the Financial Action Task Force’s (FATF) 2018 update requiring the regulation of VASPs to prevent misuse of virtual assets for money laundering, terrorism financing, and proliferation financing.

Furthermore, the CBN pointed to Section 30 of the Money Laundering (Prevention and Prohibition) Act, 2022, which recognizes VASPs as part of the definition of a financial institution. It also cited the Securities and Exchange Commission’s May 2022 issuance of rules providing a regulatory framework for the operations of VASPs in Nigeria.

The new guidelines outlined in the circular supersede previous ones and mandate banks and financial institutions to comply immediately. However, it reiterated the prohibition on banks holding, trading, and transacting in virtual currencies on their own accounts.

The CBN’s change in stance comes after its circular with reference number BSD/DIR/PUB/LAB/014/001, dated February 5, 2021, which explicitly prohibited dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges. The earlier directive required banks to identify and close the accounts of persons or entities involved in cryptocurrency transactions within their systems.

This latest development reflects a recognition of the evolving financial landscape and the need for a regulatory framework to address the challenges and opportunities presented by virtual assets. The CBN’s circular indicates a more nuanced approach to cryptocurrency regulation, emphasizing the importance of overseeing and guiding the activities of VASPs in Nigeria.

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