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In its most recent circular, the Central Bank of Nigeria (CBN) announced the lifting of the prohibition on cryptocurrency transactions. This decision was influenced by the need to regulate virtual asset service providers (VASPs) in light of global trends, as highlighted by the bank. The CBN’s action reverses its previous stance from February 2021, where it forbade banks and other financial institutions from engaging in or facilitating dealings in crypto assets. The bank’s initial ban was rooted in concerns over the risks of money laundering and financing terrorism.
Embracing Digital Transformation: Nigeria Adopts Regulatory Framework for Cryptocurrency Trade
Further emphasizing the country’s shift towards a more regulated cryptocurrency environment, the Nigerian Securities and Exchange Commission (SEC) issued regulations for digital assets in May of the previous year. This move by the SEC was seen as an effort to balance between outright prohibition and uncontrolled usage of crypto assets. Nigeria, known for its large and technologically adept population, has witnessed significant growth in cryptocurrency adoption, particularly among its youth. For instance, peer-to-peer trading on crypto exchanges has become increasingly popular as a means to bypass traditional financial channels.
The CBN, in its circular dated December 22, outlined detailed guidelines for banks and financial institutions (FIs) regarding the handling of cryptocurrency transactions. These guidelines specify the procedures for opening accounts, providing designated settlement accounts and services, and facilitating forex inflows and trade for entities involved in crypto asset transactions. However, the CBN maintains restrictions on banks, prohibiting them from trading, holding, or directly transacting in cryptocurrencies.
“From the commencement of these Regulations, Fl shall not open or permit the operation of any account by any person or entity to conduct the business of virtual/digital assets unless that account is designated for that purpose and opened in line with the requirement of these Guidelines”
To participate in the crypto business, VASPs are required to obtain a license from the Nigerian SEC. The CBN’s regulations mandate that financial institutions should not open or allow the operation of any accounts for virtual or digital asset businesses unless these accounts are specifically designated for such purposes and comply with the newly established guidelines.
This renewed approach to cryptocurrency in Nigeria reflects a significant change in the country’s financial landscape. According to a report by New York-based blockchain research firm Chainalysis in September, Nigeria’s crypto transaction volume grew by 9% year-over-year, reaching $56.7 billion between July 2022 and June 2023. This growth underscores the country’s dynamic and evolving relationship with digital currencies.
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