In a move to regulate the activities of virtual asset service providers, Nigeria's central bank has issued comprehensive guidelines for banks opening cryptocurrency accounts.

While still upholding the ban on banks trading or holding virtual assets, the regulations, released on the central bank's website, follow the decision to permit banks to operate accounts for crypto service providers.

The central bank highlights global trends emphasising the need for oversight in virtual asset services, including cryptocurrencies and cryptoassets.

This decision aligns with a shift observed across Africa, prompted by corporate collapses, such as the bankruptcy of Bahamas-based exchange FTX in April.

Naira Accounts Only

The guidelines restrict cryptocurrency accounts to the national currency, the naira, with no provision for cash withdrawals.

Furthermore, third-party check clearances through crypto accounts are prohibited, and withdrawals are limited to two per quarter.

South Africa, known for hosting major crypto scams, mandated crypto exchanges to apply for licenses by the end of 2023, following a series of global regulatory moves.

Similarly, Botswana enacted regulations in 2022 to prevent the crypto sector from turning into the "Wild West" of finance, while Kenya has refrained from outlawing cryptocurrency, opting to prepare regulations.

The Bank of Mauritius is also progressing with plans to launch a central bank digital currency as part of its broader strategy to embrace financial technology.

Nigeria's Crypto Challenges

Previously, on December 22, 2023, the Central Bank of Nigeria issued a circular superseding earlier directives from 2017 and 2021 that had banned banks from engaging in crypto-related transactions.

The guidelines had then emphasised the necessity for financial institutions to maintain records of virtual asset service providers, including transaction details.

A significant aspect of the guidelines focuses on user identification requirements, with centralised and decentralised exchanges needing to adhere to Know Your Customer (KYC) data requirements.

While the regulatory shift is seen as positive, concerns about the loss of anonymity may evoke mixed reactions from users in the country.

The central bank's involvement in cryptocurrency regulation dates back to February 2021 when it addressed the absence of regulation and consumer protection measures. The circular issued at that time prevented Nigerian banks from directly linking bank accounts to cryptocurrency transactions. Despite the ban, cryptocurrency adoption in Nigeria persisted, leading to the growth of peer-to-peer (P2P) trading.