The Central Bank of Nigeria (CBN) has sent a letter to banks and financial institutions ordering them to identify and close the accounts of companies involved in cryptocurrency transactions. The directive, which entered into force immediately, threatens financial institutions that do not comply with the requirements with heavy legal penalties.
Banks take immediate action
Immediately after the publication of the letter, some banks and other financial service providers started to comply. Binance’s CEO Changpeng Zhao tweeted that his company had received a message from its Nigerian partners confirming that naira deposits and lines had been damaged. Other cryptocurrency startups such as Quidax, Buycoins Africa and Bundle have said they will abide by the policy.
Meanwhile, Nigeria’s crypto community is reacting furiously to the directive, with many labelling the decision as regressive. Senator Ihenyen, president of the Nigeria Blockchain Stakeholders Association (SIBAN), says the CBN should explain its decision, especially now that the letter has disappeared from the CBN website for a while. At the time of writing, an amended version of the letter appeared in place of the original with typos.
At the same time, Ijenyan said it would be a wrong direction for banks and other financial institutions to block customers just because of the CBN’s letter. The SIBAN chairman also points out that the CBN may not have the legislative or regulatory powers to simply order banks to deny banking services to a group of people or an entire emerging industry.
As I understand it, the CBN can only regulate how banking services can be provided to these people by applying risk management rules such as KYC, AML/CFT. A blanket ban, contrary to the January 2017 letter, is arbitrary, illegal, irresponsible and disrespectful enough.
While some commentators have suggested that the CBN has simply revised its guidance for 2017, Ijeninen believes this view is incorrect. According to the SIBAN chairman, who is also a lawyer, the 2017 directive frowns on doing business in Nigeria and completely bans banks and other financial institutions from dealing in cryptocurrencies.
However, the same 2017 directive gave the same banks and financial institutions the freedom to provide banking services to cryptocurrency exchanges and traders, subject to KYC/AML guidelines. The latest directive, unlike the 2017 directive, completely prohibits banks and other financial institutions from offering banking services to cryptocurrency traders and companies involved in the exchange of cryptocurrencies.
Decrease in remittances
While it’s not clear what prompted the central bank’s sudden decision, some think it wants to defend itself against an industry that could weaken its influence. This view is shared by Nathaniel Luz, the leader of Daesh in Nigeria. Luz explains that the decline in remittances (a major source of foreign exchange) could be one of the reasons.
Data from Nairalytics shows that remittances sent to Nigeria through traditional corridors have dropped from $2.05 billion in January 2020 to $54.4 million in September the same year. While many Nigerians are now turning to channels for money transfers in cryptocurrency, Luz says the CBN is currently struggling with this latest directive.
Others, however, have speculated that the CBN directive could be an attempt to prevent repeated protests like those initiated by the Endars movement. When authorities tried to quell the protest by freezing Endar’s bank accounts, protest leaders began asking for donations in bitcoins.
Meanwhile, some cryptocurrency owners say they want the CBN to be involved in drafting the directive, which seems to contradict the position of another Nigerian regulator, the Securities and Exchange Commission (SEC) of Nigeria. As of the date of this letter, CBN has made no further commitments beyond this letter. News.Bitcoin.com will provide updates as more information becomes available.
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