In a new 2023 Regulation for the Operation of Virtual Asset Providers in Nigeria, issued by Nigeria’s Central Bank, Nigeria has effectively lifted a previous ban that prohibited local Nigerian banks from transacting with or providing business banking services to cryptocurrency companies and virtual asset service providers (“VASPs”). The legal update highlights the categories of cryptocurrency businesses and VASPs that local Nigerian banks are now allowed to transact with as well, as some of the product and compliance considerations that are now applicable to cryptocurrency companies and VASPs operating in Nigeria.
What kind of Cryptocurrency Companies/VASPs can open bank accounts in Nigeria?
Cryptocurrency companies and VASPs which are registered in Nigeria and with a trading license from the Securities and Exchange Commission (the “SEC”) are allowed to open business accounts in Nigeria. These include cryptocurrency businesses carrying on business as crypto custodians, crypto trading platforms & crypto exchanges, as well as platforms for issuing cryptocurrencies or digital assets to the Nigerian public. This category also includes VASPs[1], which are defined as platforms for exchanging, virtual assets with fiat currencies or with other types virtual assets, safekeeping /administration of virtual assets and the issuance of virtual assets.
What kind of Banking Services will Cryptocurrency Companies/VASPs have access to?
Cryptocurrency companies and VASPs operating in Nigeria can only open a special type of business accounts with local Nigerian banks (“Crypto Business Account”). A Crypto Business Account is a special kind of bank account because:
- a Crypto Business Account requires the prior approval of the senior management of the relevant account bank prior to operation.
- a Crypto Business Account must only be used only for the conduct of crypto business. In other words, the transactions ( inflows and outflows ) in the relevant Crypto Business Account business must be traceable to the crypto-asset activities, for which the relevant cryptocurrency company or VASP was registered.
- of the statutory restrictions placed on the operation of a Cryptocurrency Business Account
Cryptocurrency companies and VASPs operating in Nigeria will also have access to settlement accounts and settlement services from local Nigerian banks. Such local Nigerian banks can also act as a channel for FX flows and trade for cryptocurrency companies and VASPs.
What are some of the key restrictions that are applicable to Crypto Business Accounts operated by cryptocurrency companies and VASPs in Nigeria?
The operation of a Crypto Business Account is subject to the following restrictions:
- A Nigerian bank must not allow any cash withdrawals to be made from a Crypto Business Account
- A Nigerian bank must not allow third-party cheques to be cleared from a Crypto Business Account
- Settlement of a virtual/digital assets transactions can only be executed through a transfer to another Crypto Business Account
- A Nigerian bank must implement reasonable operational & transactional restrictions based on the volume of transactions and risk associated with the conduct and nature of the business of the account holder.
- A Nigerian bank must declare as dormant and close a Crypto Business Account where no transactions have occurred on the account for a period of 3 (Three) consecutive months.
What are some of the key product and compliance obligations which Cryptocurrency Companies and VASPs in Nigeria will have to comply with?
Some of the key product and compliance obligations which cryptocurrencies companies and VASPs now have to comply with are as follows:
- All obligations arising from transactions arising from platforms operated by cryptocurrency currencies must be settled into settlement accounts maintained by cryptocurrency companies and VASPs with the relevant bank
- Such designated settlement accounts shall warehouse all Naira positions of the customers of cryptocurrencies businesses and VASPs ( the “Customers”)
- Such designated settlement account, including any associated linked account for warehousing settlement monies, shall not be interest bearing.
- The details of settlement transactions on a platform managed by a cryptocurrency company or a VASP must be accessible online, on real-time basis to the relevant local Nigerian bank at all times.
- Credits to such designated settlement accounts shall be for the funding of Naira positions of Customers.
- Debits from such designated settlement account shall only be in favour of the specific accounts that was used to fund Naira positions on the relevant platforms.
- The designated settlement account shall not be used to facilitate FX positions of Customers.
- Cryptocurrencies companies and VASPs must always maintain a minimum collateral equal to 150% highest net debit position into the designated settlement account (over the past 10 days).
- Banks are prohibited from using the designated settlement account as collateral for credit.
- The settlement cycle for transactions on platforms managed by cryptocurrency business shall be T+ 3 days.
- Value shall not be given to cryptocurrency companies before settlement occurs or earlier than the settlement cycle.
- Banks are prohibited from facilitating transfer and settlement from the FX positions of Customers to any foreign account.
- Transfers from the Naira position of Customers into their bank account shall not be more than twice in a quarter.
- Transactions on platforms managed by cryptocurrency companies/VASPs can only be in Naira.
- Local Nigerian banks must ensure that only accounts that have completed full KYC process (Tiered accounts subject to exemptions are excluded) can fund or receive from positions on platforms managed by cryptocurrencies companies and VASPs.
- Banks shall not allow for the usage or creation of NUBAN accounts by cryptocurrency companies and VASPs.
Final Analysis
We expect to see an upward trend in crypto-related projects and ICOs in the short term. It is instructive to note that there is no prohibition of cash deposits into a Crypto Business Account. Also, cryptocurrencies are not regulated by CBN as a means of payment or store of value in Nigeria. All that the CBN has done with the new rules is to allow local Nigerian banks to provide banking services to cryptocurrency companies regulated by the SEC. Whereas, the SEC continues to regulate cryptocurrencies as an asset class. Therefore (a) customers who deposit crypto assets into crypto wallets and other local storage platforms will not be entitled to statutory deposit protection; and (b) Cryptocurrency companies in Nigeria will not be able compel their customers to make purchase of services or goods with cryptocurrency.
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 inquiries.
[1] A Virtual Asset is defined under the Regulations as a digital representation of value that can be transferred, digitally traded and can be used for payment or investment purposes. Virtual Assets do not include digital representations of fiat currencies, securities and other regulated financial assets
