Nigeria’s Central Bank ( the “CBN“) is intensifying its efforts to safeguard the Naira from ongoing devaluation pressures. A key battleground in this mission is the international money transfer and remittance sector. This sector is particularly strategic compared to the foreign direct investments (FDI) markets because there is generally no requirement for repatriation of capital as would be the case with FDI investments. Accordingly, the central regulatory theme in newly released regulations appears to be the need to deepen the remittance market and to reduce the demand for FX locally. Investors in the remittance sector can therefore expect that the relative permanence of remittance capital and the need to deepen the remittance market, will continue to drive the policies of the CBN[1] in the short term. This policy update highlights some of the most important rules that existing and new International Money Transfer Operators (IMTOs) now have to comply with under the New 2024 Regulations[2].
- The Rule Against Fintechs
Under the New 2024 Regulations, fintechs are prohibited from providing IMTO services[3]. Prior to now, only deposit money banks were prohibited from carrying on business as an IMTO. Whilst the New 2024 Regulations do not define the category of fintechs that are excluded from carrying on IMTO business, there are at least two implications of this new rule. The first is that, fintechs or start-ups intending to carry on business as an IMTO must now fully comply with the licensing and operational requirements for carrying on business as an IMTO, as a licensing matter and on an ongoing basis.[4] Fintechs in the international remittance market can often use technology and innovative contracting/strategic partnership structures to bypass regulatory requirements. With this new rule, the CBN appears to be saying that, it will no longer tolerate such structures.
Secondly, it appears that fintechs carrying on business as payment service providers, and with a license to also carry on IMTO business, as part of their service offering, will no longer be able to carry on IMTO business. This regulatory intention is clear based on the emphasis in the New 2024 Regulation, that IMTOs cannot carry on or engage in another business[5]. For fintechs looking to continue carrying on an IMTO business, an intra-group re-organisation may now be necessary. However, a corporate re-organization should not be considered a generally applicable rule. A case-by-case analysis and an evaluation of the relevant facts and structuring considerations will be prudent.
- The Rule against Regulatory Arbitrage
It appears that the CBN is now also focusing its attention on non-resident IMTO companies who make a practice of relying on, only foreign money transfer licenses to provide money transfer services to Nigerians, resident abroad.[8] Firstly, the New 2024 Regulations clearly define the scope of IMTO business as involving entities that (i) facilitate the transfer of funds from individuals or entities abroad to recipients in Nigeria and (b) pay a corresponding sum to a beneficiary through a clearing house network to which the IMTO belongs. Additionally, the New 2024 Regulations stipulate that the provision of IMTO services, in any form, without a CBN license will be sanctioned[6]. The New 2024 Regulations further states that, any financial product which involves the provision of international remittance to Nigeria, which is not registered with the CBN is illegal.[7] With these new rules, non-resident IMTO firms may not be able to continue providing IMTO services without the necessary update to their regulatory compliance strategy.
- Rule Against Shareholder Participation
Under the New 2024 Regulations, shareholders and directors on IMTOs are prohibited from carrying on IMTO business. It appears that this rule will apply primarily to local IMTO operators.
- Exchange Rate Regulation
Under the New 2024 Regulations, the applicable exchange rate for IMTOs is now the prevailing rate in the Nigerian Foreign Exchange Market and in-bound transfers to Nigeria must be paid in Naira through a bank account or in cash. Additionally, under the New Regulations, the allowable limit / cap of -2.5% to + 2.5% around the previous day’s closing rate at the Nigerian foreign exchange market, has now been removed, with the implication that, the applicable or reference exchange rate will now be the prevailing rate at the Nigerian foreign exchange market, on a willing buyer, willing seller basis.
- Rule Against Outbound Transactions
Under the New 2024 Regulations, IMTOs are now prohibited from engaging in outbound transactions, with the implication that local IMTOs can no longer accept Naira in Nigeria under an obligation to payout the equivalent in a convertible currency, abroad.
- B2B Transactions
Prior to now, inward remittances were only generally allowable through an IMTO for person-to-person transactions. Under the New Regulations, non-resident businesses can now make Naira payments through IMTOs to recipients in Nigeria by exchanging the equivalent dollar payments to the relevant IMTO. Such recipients may be individuals or other businesses. It is useful to note that there are no limits on the amounts that can be transferred by such businesses to recipients in Nigeria.
Balogun Harold provides this information as a service to clients and friends for informational purposes only. The foregoing information should not be construed or relied on as legal advice or assumed to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional advisers. Kindly seek professional advice specific to your situation. You may also reach out to your usual Balogun Harold contact or via support@balogunharold.com for professional advice.
[1] As of December 2023, the World Bank estimated that Nigeria, the largest remittance recipient country in Sub-Saharan Africa, is expected to receive more than $20 billion in official remittances by the end of 2023
[2] Specifically, the Reviewed Guidelines of International Money Transfer Services in Nigeria and the Circular on the Removal of Allowable Limit of Exchange Rate Quoted by the IMTOs
[3] Prior to now, only banks were prohibited from carrying on IMTO business in Nigeria
[4] There are new/updated operational requirements regarding the appointment of technical partners and banking agents, business premise regulations, technical standards, channel regulation, charges, customer dispute resolution, transaction reporting and record keeping
[5] See Section 3.2(i) of the Reviewed Guidelines of International Money Transfer Services in Nigeria
[6] See Section 8.1. of the Reviewed Guidelines of International Money Transfer Services in Nigeria
[7] See Section 2.0. of the Reviewed Guidelines of International Money Transfer Services in Nigeria. It is useful to note that IMTO firms looking to operate in other jurisdictions, must obtain a specific approval from the CBN for this purpose.
[8] Historically, some start-ups have relied on the Electronic Money Institution License in the UK or a money transmitter license in the United States, to provide money transfer services to Nigerians in those jurisdictions.
