In addition to other severe guidelines, cryptocurrency exchanges, sometimes referred to as virtual assets service providers (VASPs), are not permitted to withdraw funds from their operational bank accounts. This information was released by the Central Bank of Nigeria (CBN).
The regulator further stated that an account formed for virtual asset services would not be utilised for other reasons and that “no third-party cheque shall be cleared” from the account.
A directive issued to banks and other financial institutions has these and numerous more strict requirements. It is a reversal of an earlier circular from February 2021 that forbade financial institutions from providing services to companies involved in the cryptocurrency space.
“However, current global trends have demonstrated the need to regulate the activities of virtual asset service providers (VASPs), which include cryptocurrencies and crypto assets. In response to these developments, the Financial Action Task Force (FATF) revised Recommendation 15 in 2018 to mandate the regulation of VASPs in order to stop the improper use of virtual assets for ML/TF/PF.”
“Furthermore, Section 30 of the Money Laundering (Prevention and Prohibition) Act, 2022 includes VASPs in the definition of a financial institution.”
In addition, the CBN mentioned in a circular signed by Haruna Mustafa, Director of the Financial Policy and Regulation Department, that the Securities and Exchange Commission (SEC) issued Rules on Issuance, Offering, and Custody of Digital Assets and VASPs in May 2022 to provide a regulatory framework for their operations in Nigeria.
Nearly two years after previous CBN governor Godwin Emefiele made the decision, the top bank relaxed the prohibition on providing financial services to cryptocurrencies.
The new rule said, “Withdrawals may only be made by managers’ cheque or account transfer, with the exception of virtual/digital asset settlements, which must be completed through a transfer to another designated account.”
The CBN stated that the settlement cycle for transactions involving VASPs will be T+3, which means that transactions involving such accounts will require three working days before a value is received, in contrast to the rapid settlement enjoyed by other accounts.
In order to prevent exploitation and misuse of the accounts for money laundering and other associated crimes, financial institutions (FIs) who provide services to the exchanges are required to do additional due diligence.
“FIs are required to continuously monitor all operations carried out in designated accounts opened in compliance with these recommendations. FIs are required to send data and other information on the designated accounts to the appropriate supervisory department of CBN by the end of each month, but no later than the tenth day of the subsequent month.”
The regulations stated that the information in the returns “must include, but not be limited to: the number of designated accounts opened within the reporting period; the value and volume of transactions conducted in each account within the reporting period; the details of the counterparty (ies) to the transactions; incidents of fraud or theft; and the number of customer complaints and remedial measures taken.”
