Introduction
The Central Bank of Nigeria (the "CBN") recently issued its Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines for the fiscal years 2024 and 2025 (the "Policy Guidelines") which outline the CBN's objectives for the financial system and the regulations applicable to Banks and other Financial Institutions during this period. The Guidelines contain provisions on policy measures; foreign trade and exchange policy measures; consumer protection, among others.
In this newsletter, we discuss the provisions relating to the payments system within the monetary and credit policy measures, as well as policy developments under foreign trade and exchange measures.
1. The Payments System
In line with its vision of creating a widely used and
internationally recognized payments system, the CBN aims to enhance
the credibility and security of the Payments System. To achieve
this, the CBN will continue implementing the Payments System Vision
(PSV) 2025 throughout the 2024/2025 fiscal years. The PSV focuses
on promoting the safety and efficiency of the payments system,
deepening financial inclusion, and increasing competition among
service providers. To achieve this, the following key areas will be
addressed:
i. Security of the Payments System
The CBN will continue to ensure that all regulated entities conduct their operations in line with global payment industry standards. These include: Payment Application Data Security Standard (PA DSS); Payment Card Industry PIN Entry Device (PCI PED); Payment Card Industry Data Security Standard (PCI DSS); Triple Data Encryption Standard (Triple DES); Europay, MasterCard and Visa (EMV) Standards; and others as may be stipulated from time to time. Card schemes and financial institutions are to ensure that all cards produced and issued in Nigeria are chip-based to enhance safety. To this end, the CBN will continue to enforce its payment system guidelines.1
ii. Payment System Initiatives
The CBN will promote the regulatory sandbox program where Fintechs can test and innovate with new financial products and services. The CBN will also advance contactless payments that allow customers to make payments by tapping their card or mobile device on a contactless terminal. This includes the implementation of the Quick Response (QR) code system, which facilitates payments through the scanning of a barcode (QR Code) with a mobile device.
iii. eNaira
According to the CBN, the eNaira, which is the digital version of Nigeria's fiat currency, offers several benefits, including faster and cheaper payments, increased financial inclusion, and reduced fraud.2
Key initiatives to drive its adoption include the rollout of eNaira version 2.0, focusing on wholesale Central Bank Digital Currency (CBDC) to encourage the participation of deposit money banks and empower them to champion its adoption. Additional efforts involve implementing offline functionality and fostering greater collaboration with Federal and State Governments to expand its usage.
iv. Operation of the Bank Verification Number
The CBN will continue to ensure compliance with the requirements for customers to obtain Bank Verification Number (BVN) and National Identification Number (NIN) which provide unique identifiers to customers and improve Know-Your-Customer (KYC) documentation. All Tier 1 bank accounts and wallets for individuals are mandated to have BVN or NIN while Tier 2 and 3 accounts must be linked to the BVN and NIN of their users. 3
2. Policy Developments in Foreign Exchange Market
The following developments will apply in the foreign exchange market during the 2024-2025 fiscal period.
i. Pan-African Payments and Settlement System
The Pan-African Payments and Settlement System (PAPSS) facilitates payments within Africa by enabling settlement of cross-border payments in local currency at lower costs, thereby boosting intra-African trade. 4
In a July 2023 circular, the CBN provided further clarifications regarding PAPSS transactions settled using CBN foreign exchange. The key points are as follows:
a.PAPSS transactions must be trade-backed.
b.Payments will be made using the "Bills for Collection" method. 5
c.The transaction limit per customer is set at USD 20,000 per quarter.
d.Authorized Dealer Banks (ADB) have a limit of USD 200,000 per quarter.
e.Multiple applications by customers through different ADBs are not permitted.
f.ADBs must obtain CBN approval for USD cover before initiating payments on PAPSS.
g.ADBs may maintain a USD settlement account with the PAPSS settlement bank for transactions where CBN cannot provide foreign exchange. 6
ii. Mechanisms for Bureau De Change Operations in Nigeria
To improve efficiency in the operations of the Bureau De Change (BDC) segment of the Foreign Exchange Market, the CBN recently introduced, the following:
a. Maintenance of a permissible limit of -2.5 per cent to +2.5 per cent of the Nigerian Foreign Exchange Market window weighted average rate of the previous day, being the spread on buying and selling by BDC operators; and
b. Mandatory rendition of daily and monthly returns by BDC operators on the Financial Institution Forex (FIFX) rendition system. 7
iii. Electronic Certificate of Capital Importation
To enhance transparency and efficient processing of investment flows into Nigeria, the CBN integrated the electronic Certificate of Capital Importation (eCCI) application with the Society for Worldwide Interbank Financial Telecommunication (SWIFT) database. The aim is to verify all inflows before an eCCI is issued. 8
iv. Payout option in Naira for Receipt of Proceeds of Diaspora Remittances
In a move to further liberalize the payouts of diaspora remittances, the CBN introduced Naira payments in July 2023, in addition to USD and eNaira. This allows recipients of diaspora remittances to choose between receiving their funds in USD, Naira, or eNaira from licensed International Money Transfer Operators. Naira payments will be based on the Investors and Exporters (I&E) Window exchange rate applicable on the day of the transaction.
Conclusion
The Policy Guidelines reflect a commitment to enhancing the payments system, fostering financial inclusion, and improving the efficiency of foreign trade transactions. The outlined initiatives, from advancing the eNaira to streamlining cross-border payments through PAPSS, demonstrate the CBN's intention to promote a more secure, inclusive, and globally competitive financial landscape.
Footnotes
1 Some of the many guidelines the CBN will continue to enforce include the New License Categorization for the Nigerian Payments System; Framework for Regulatory Sandbox Operations; Framework for Quick Response (QR) Payments in Nigeria; Circular on Issuance of Regulatory Framework for Open Banking; Regulatory Framework for Mobile Money Services in Nigeria, amongst others.
2 Please see our article on eNaira here – https://pavestoneslegal.com/enaira-the-future-of-digital-currency-in-nigeria/
3 Please see our article on the BVN Framework here – https://pavestoneslegal.com/regulatory-update-the-revised-regulatory-framework-for-bank-verification-number-bvn-operations-in-nigeria/
4 Please see our article on the PAPSS here – https://pavestoneslegal.com/5815-2/
5 This means that the payment is processed through banks, where the seller's bank sends the shipping documents to the buyer's bank, and the buyer pays when the goods are delivered.
6 If the CBN cannot provide foreign currency for a particular transaction, banks (ADBs) can use their own USD accounts with PAPSS to settle these transactions directly, instead of waiting for the CBN to provide the funds.
7 Please see our article on this here – https://pavestoneslegal.com/regulatory-update-central-bank-of-nigerias-operational-mechanism-for-bureau-de-change-operations-in-nigeria-a-note-to-bdcs/
8 Please see our article on eCCI here – https://pavestoneslegal.com/doing-business-in-nigeria-the-relevance-of-the-certificate-of-capital-importation-to-foreign-investors-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.
