5 January 2024

Understanding The Central Bank Of Nigeria Guidelines On The Operation Of Bank Accounts For Virtual Assets Service Providers In Nigeria

On 22nd December 2023, the Central Bank of Nigeria ("CBN") issued Guidelines FPR/DIR/PUB/CIR/002/003 on the operations of bank accounts for virtual assets service providers.
Nigeria Technology
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On 22nd December 2023, the Central Bank of Nigeria ("CBN") issued Guidelines FPR/DIR/PUB/CIR/002/003 on the operations of bank accounts for virtual assets service providers ("VASPs") (the "Guidelines"). The Guidelines lifted the ban hitherto placed on banks and other financial institutions from operating accounts for virtual/digital service providers. Recall, following an increase in virtual assets transactions in Nigeria, the CBN via a Circular FPR/DIR/GEN/06/010 to Banks and Other Financial Institutions on virtual currency operations in Nigeria dated 12th January 2017, outlined the risks associated with cryptocurrency transactions, particularly the fact that it could be used as a conduit for money laundering and other criminal activities. Therefore, the CBN requested financial institutions to ensure that they do not hold, trade or transact in any way with cryptocurrency; ensure that existing customers, that are virtual currency exchangers, have effective anti-money laundering and combating terrorism financing controls in place that will enable them comply with customers' due diligence and transaction monitoring, and to immediately report any suspicious transactions by these customers to the Nigerian Financial intelligence Unit ( "NFIU" ).

The Security and Exchange Commission ("SEC") also attempted to regulate virtual/digital assets in Nigeria. On 14th September 2020, SEC issued a "Statement on Digital Assets and their Classification and Treatment" (the "Statement"), pursuant to which it recognized cryptocurrency and other virtual crypto assets as securities and, by virtue of section 13 of the Investment and Securities Act, 2007, falls under the regulatory purview of SEC. SEC therefore requested all Digital Assets Token Offering ("DATOs"), Initial Coin Offerings ("ICOs"), Security Token ICOs and other Blockchain-based businesses that offer digital assets within Nigeria or by Nigerian users or sponsors or foreign issuers targeting Nigerian investors to register with SEC.

Further, in 2022, SEC released rules on Issuance, Offering and Custody of Digital Assets and VASPs ("SEC Regulatory Framework"). However, due to CBN Letter BSD/DIR/ PUB/LAB/014/001 to all deposit money banks, non-bank financial institutions and other financial institutions dated 5th February, 2021, ("CBN Letter") instructing them to desist from dealing in or facilitating cryptocurrency exchange within their system and to ensure that crypto related accounts are closed down immediately, the SEC Regulatory Framework could not become effective. Accordingly, banks and other financial institution forthwith desisted from entertaining crypto service providers.

Although the CBN Letter did not criminalise crypto transactions in Nigeria, it negatively impacted the ecosystem as both local and foreign investors' growing interest waned and most withdrew from investing in the space. In Rise Vest Technology Limited v. Central Bank of Nigeria Suit, No: FHC/ABJ/CS/822/2021., the court held that CBN cannot rely on mere circular to freeze the bank accounts of a company transacting in cryptocurrency. According to Justice Taiwo O Taiwo, "Being unknown to the law, circulars cannot create an offence because it was not shown to have been issued under an order, Act, Law or Statute". In the above case -where our Firm represented one of the defendants, the CBN obtained interim order freezing the bank accounts of the defendants on the allegation that defendants were transacting in cryptocurrency which violated its directive on virtual currencies and contributed to the weakening of the naira against US dollar.

The Guidelines therefore suspends the CBN Letter, activated SEC Regulatory Framework and allows banks and other financial institutions to create bank accounts for SEC licensed crypto service providers. We have therefore, summarized the key provisions of the Guidelines for the benefits of our clients and a wide range of stakeholders in the virtual/digital assets ecosystem.

  1. Objectives of the Guidelines

The core objectives of the Guidelines are to:

  • Provide minimum standards and requirements for banking business relationships and account opening for VASPs in Nigeria.
  • To provide and ensure effective monitoring of the activities of banks and other financial institutions in providing service for SEC licensed VASPs/ Digital Assets (DA) entities in Nigeria.
  • To provide guidance on the relationship and operations of accounts for licensed VASPs/DA entities and guarantee effective risk management in the banking industry with regards to the operations of licensed VASPS.
  1. Scope of the Guidelines

The Guidelines applies to banks and other financial institutions under the regulatory purview of the CBN. They include:

  • Commercial and merchant banks
  • Payment service providers (restricted to those that are involved in settlement for third parties)
  • All entities registered by the SEC to conduct the business of digital/virtual assets services and include:
  • Virtual Assets Service Providers
  • Digital Asset Custodian
  • Digital Asset Offering Platform
  • DAX
  • DAX Operator
  • Any other entity that may be categorized by the CBN from time to time

The Guideline complements other relevant legislation and regulations on Anti-Money Laundering, Combating the Financing of Terrorism and Countering Proliferation Financing of Weapons of Mass Destruction in Financial institutions and customer due diligence.

  1. Conceptual Clarification

The Guidelines distinguished between digital asset and virtual asset. It defined digital asset as a digital token representing assets such as a debt or equity claim on the issuer whereas virtual asset is a digital representation of value that can be transferred, digitally traded and can be used for payment or investment purposes and does not include digital representations of fiat currencies, securities and other financial assets already covered elsewhere by the Financial Action Task Force ("FATF") recommendation. The Guideline further defined VASPs as any entity who conducts one or more of the following activities or operations for or behalf of another:

  • Exchange between virtual assets and fiat currencies
  • Exchange between one or more forms of virtual assets
  • Transfer of virtual assets
  • Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets
  • Participation in and provision of financial services related to an issuer's offer and/or sale of a virtual asset.

Digital Asset Exchange ("DAX") was defined as an electronic platform which facilitates the trading of a virtual asset or digital asset. A Digital Asset Custodian is defined as a person who provides the services of safekeeping, storing, holding or maintaining custody of virtual assets/digital tokens for the account of another person. Digital Asset Offering however means initial coin offerings and other Distributed Ledger Technology offers of digital assets whereas Digital Asset Offering Platform ("DAOP") is an electronic platform operated by a DAOP operator for offering digital assets. It is important to note that the definition under this Guideline is similar to the definition of the terms under the SEC Regulatory Framework.

  1. Activation of the SEC Regulatory Framework

The SEC Regulatory Framework, issued last year and currently in abeyance, is by virtue of this Guidelines made effective and accordingly binding on all stakeholders transacting in digital/virtual assets in Nigeria. Pertinently, the SEC Regulatory Framework stipulates the license categorization and relevant thresholds for participants in digital/virtual assets in Nigeria. Paragraph 7.3 of the Guidelines requires VASPs, DAX and DAOP to show evidence of valid license obtained from SEC as part of the account opening requirements. In furtherance of the foregoing, paragraph 5.0 of the Guideline also provides that every entity licensed by SEC pursuant to the SEC Regulatory Framework is eligible to participate in digital/virtual asset transactions. Consequently, participants are expected to comply with the SEC Regulatory Framework in addition to this Guidelines.

  1. Scope of Banks and other financial institutions' participation in digital/virtual asset transaction

Banks and other financial institutions are only permitted to do the following:

  • Opening of designated accounts
  • Provide designated settlement accounts and settlement services
  • Act as channels for foreign exchange flows and trade
  • Any other activity that maybe permitted by the CBN from time to time

They are however prohibited from holding, trading and/or transacting in virtual currencies on their own account.

  1. Operation of bank account by VASPs

VASPs are only permitted to operate bank account designated for the purpose of conducting business of digital /virtual assets ("Designated Account"). The Designated Account must be approved by the senior management who must be an officer of the bank from the rank of assistant general manager and above. The application for opening of Designated Account must be supported by the following documents:

  • Evidence of a valid license issued by the SEC for the entity to engage in the business of VASPs/DAX/DAOP
  • Certified true copy of the memorandum and article of association
  • Statement of share capital and return of allotment of shares
  • Particulars of Secretary
  • Notice of registered address
  • Particulars of Directors
  • Verifiable registered address of the company
  • Copy of certificate of capital importation (where applicable)
  • Valid means of identification of all the directors, principal officers and beneficial owners of the company
  • Bank Verification Number ("BVN") of all the directors, principal officers and beneficial owners of the company
  • Home address of all the directors, principal officers and beneficial owners of the company
  • AML, CFT and CPF Policy of the entity
  • All other requirements of a corporate account in line with the CBN customer due diligence ("CDD") regulations
  • Any other requirements that the CBN may impose from time to time.

Financial institutions ("FI") shall not be allowed to enter into any concession agreement or arrangement with a holder of a designated account. The Designated Account must be subject to maximum transaction charges band approved by CBN for banks and other financial institution.

  1. Restriction on the use of the account

The Designated account shall only be used for: Transactions on virtual/digital assets and not for any other purpose. Accordingly, the designated account

  • Should not be used for cash withdrawal
  • Should not be used for clearing third party cheques
  • Withdrawal shall be done only through a Manager's Cheque or transfer to an account except where it is for settlement of a virtual/digital assets transaction which shall be done through a transfer to another Designated Account.
  1. Transaction limits and Monthly returns to CBN

The Guidelines mandates FI to establish transaction limits for each Designated Account taking into account the volume of cash moved by the account holder and the risks associated with the conduct and nature of the business of the account holder.

Further, FI is expected to file returns about the Designated Account with the CBN every 10th of the following month. The return shall contain the following:

  • The number of designated accounts opened within the reporting period
  • The value and volume of transactions conducted in each account within the reporting period
  • Details of the counter party(ies) to the transactions
  • Incidents of fraud or theft; and
  • Number of customer complaints and remedial measures taken.
  1. Operation of designated settlement account by FI

The Guidelines allow FI to operate designated settlement account of SEC's VASPs/DA entities, upon authorization from the CBN. All obligations arising from transactions within the VASPs/DA entities platform shall be settled in the designated settlement accounts maintained by them in the banks. The VASPs/DAs shall not be given value before settlement occur or earlier than the settlement. The settlement cycle for transactions shall be T+3. FIs shall ensure that VASPs/DAs entities maintain minimum collateral equal to 150% highest net debit position into the designated settlement account over the past 10days. Further, the designated settlement account shall:

  • Warehouse all Naira positions of individuals with the VASPs/DAs
  • Designated settlement account including associated linked account for warehousing settlement monies shall not be interest bearing
  • The details of the transactions on the VASP platform leading to settlement on the designated settlement account shall be accessible online, on real-time basis to the FIs at all times
  • Credit to the designated settlement account shall be for the funding of Naira positions of personas on the VASPs/DAs platform
  • Returns on transaction on the designated settlement accounts shall be rendered to the Bank monthly or at any frequency that the Bank may require
  • FIs shall not use the designated account as collateral for credit
  • FIs shall not facilitate transfer and settlement from the foreign exchange positions of persons on the VASP/DAs platform to any foreign account
  • FIs shall ensure that only account that have completed KYC process can fund or receive from positions on the VASPs/DAs platform.
  • FIs/NIBSS shall not allow usage/creation of NUBAN accounts by VASPs. Transactions on the VASP/DA platform shall only be in Naira.
  1. Risk Management for Anti-Money Laundering and Customer Due Diligence

The Guidelines mandates FIs to implement appropriate risk management measures to be able to determine whether a Designated Account is being used or likely to be used for Money Laundering ("ML"), Terrorism Financing ("TF") and Proliferation Financing ("PF"). FIs shall establish beneficial ownership, source of wealth and the source of funds Designated Account.

Further, the Guideline mandates FIs to conduct CDD in the following instances:

  • When onboarding a VASPs in a new relationship
  • When a transaction of significant value takes place
  • When a customer information/documentation change substantially
  • When there is material change in the way that the account is being operated or
  • When the institution becomes aware that it lacks sufficient information about an existing customer.

FIs shall implement enhanced due diligence ("EDD") requirements to all Designated Account opened in accordance with these Guidelines on the basis of materiality and risk.

  1. Maintenance of Records

The Guidelines enjoins FIs to maintain records of transaction of Designated Account for a minimum of five (5) years or such longer period as may be required by CBN, whether the relationship is still ongoing or has been terminated. The record shall contain the following:

  • Records of customers and beneficial owners obtained through CDD including copies of records of official identification documents
  • Nature and date of the transaction
  • Type and amount involved
  • Type and identifying number of any account involved in the transaction
  • Results of any analysis including inquiries to establish the background and purpose of complex unusual large transactions.
  1. Duties of FIs with respect to Monitoring and Reporting of Suspicious Transaction

The Guidelines mandates FIs to constantly monitor and supervise all activities of the Designated Account and will remain responsible for misapplication of any account. It shall also be responsible for implementing appropriate know your customer procedure to reasonably identify all individuals/entities offering services under this Guidelines and ensure they comply with the Guidelines. Other obligations include:

  • They should have information on the volume and value of transactions carried out for each designated account
  • Monitor effective compliance with set of limits for each designated account
  • Take all other measures including onsite visits to ensure that the account is being operated strictly within the requirements of these Guidelines and other extant laws and regulations.
  • Pay special attention to all complex, usually large transactions or unusual patterns of transactions that have no visible economic or lawful purpose
  • Investigate suspicious transactions and report its findings to the Nigerian Financial Intelligence Unit ("NFIU") immediately in compliance with the relevant provisions of any law or regulations being in force.
  • Keep records of investigations of reviewed unusual transactions where the transactions were not reported as suspicious transactions to the NFIU.
  1. Duties of FIs with respect to Consumer Protection

The Guideline provides that FIs shall put measures in place to achieve the following with regards to consumer protection:

  • Ensure that appropriate consumer protection systems against risks of fraud are established
  • Provide a channel for communication of customer complaints against designated account holders
  • Establish complaints redress mechanism and ensure proper communication of this mechanism to the general public
  • Ensure strict adherence to the provision of the circular issued by CBN on deployment of the consumer complaints management system.
  1. Sanctions

In furtherance of its statutory regulatory powers, the CBN may take any of the following actions against FIs, its board of directors, officers or staff for failure to comply with the provisions of this Guidelines:

  • Prohibition from opening any further Designated Account
  • Monetary penalty not below the sum of N2,000,000 against the FIs, members of its board, senior management and any staff for any infraction
  • Suspension of operating license of a FI

The Banks and FIs must be extremely cautious of their dealings with potential customers and scrupulously ensure compliance with all the requirements of this Guidelines to avoid regulatory backlash considering the array of potential sanctions imposable upon them by CBN, more particularly the suspension of their operating license.


Notwithstanding the wrong message sent by the previous regulatory stance taken by the CBN, we envisage that the coming of this Guidelines will i) restore the much-needed confidence and respite amongst stakeholders in the virtual/digital assets ecosystem and ii) unlock fresh local and foreign investment in decentralized ledger technology in Nigeria.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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