Thursday April 01, 2021 / 06:30 PM / By FintechNGR / Header Image Credit: WRAL TechWire
Members of The Fintech Association and Stakeholders In The Cryptocurrency Industry
The Fintech Association of Nigeria ('FintechNGR) has been invited by the Nigerian Senate to deliver a presentation on behalf of the Nigerian Fintech and innovation ecosystem on the issues pertaining to the Circular. Following this, the FintechNGR has invited members of the public to submit their comments on the Circular. These comments were collated and summarised, and are set out below:
1. On the 5 of February 2021, the Central Bank of Nigeria (the "CBN") issued a circular to Deposit Money Banks (DMBs), Non-Bank Financial Institutions (NBFIs), and Other Financial Institutions (OFIs) (Regulated institutions) on transacting in cryptocurrencies. (the "Circular").
2. The Circular mandates these Regulated Institutions to identify persons and/or entities transacting in or operating cryptocurrency exchanges within their systems and close such accounts with immediate effect.
3. In January 2017 the CBN issued a circular to Banks and OFIs on Virtual Currency Operation Nigeria, directing the banks and OFIs to:
(a) ensure that banks and OFIs do not use, hold, trade and. or transact in anyway in virtual currencies;
(b) ensure that existing customers that are virtual currency /exchanges have effective Anti-Money Laundering/Combating the Financing of Terrorism ("AML/CFT") controls that enable them to comply with customer identification, verification, and transaction monitoring requirements;
(c) discontinue relationships where banks OFIs are not satisfied with controls with the controls put in place by the virtual currency exchanges/customers; and
(d) report any suspicious transactions in these customers should immediately be reported to the Nigerian Financial Intelligence Unit (NFIU).
4. In March 2018 (2018 Press Release), the CBN reiterated its statement on virtual currencies warning traders against digital assets which carry the risk of losing their investments as it does not constitute a legal tender.
5. The Circular reiterates the position of the CBN that these Regulated Institutions are prohibited from dealing in cryptocurrencies, the Circular also: (a) prohibits the Regulated Institutions from facilitating payments for Cryptocurrency exchanges; and (b) instructs Regulated Institutions to identify persons and/or entities transacting in or operating Cryptocurrency Exchanges within their systems and close such accounts with immediate effect.
6. The CBN Press Release titled Response to Regulatory Directive on Cryptocurrencies stated the following reasons - (a) the volatility of cryptocurrency and the consequent inability of cryptocurrency to be used as a lasting means of payment; (b) the anonymity associated with cryptocurrency transactions; (c) that "cryptocurrencies are not backed by any real assets or fundamentals" and as a result could crash in value; and (d) promotion of illegal activities such as money laundering, terrorism financing, etc.
7. In view of the above, the FintechNGR informally engaged the Central Bank of Nigeria ("CBN") as well as major stakeholders in the cryptocurrency industry to understand their perspectives on the Circular. Consequently, the Fintech NGR received an invitation from the Nigerian Senate to deliver a presentation on the issues pertaining to the Circular, on Tuesday 23 February 2020.
Comments on the Circular
Prohibition of Regulated Institutions
1. The prohibition of the Regulated Institutions from facilitating payments for Cryptocurrency transactions by the CBN would redirect trade revenue to nearby African markets. This will further limit the federal governments drive to diversify revenue earning sources with the gloomy global economy. Also, the prohibition will make a lot of people involved in cryptocurrency transactions to go underground. Rather than this prohibition, the CBN should adjust/adapt its existing regulatory instruments to fit the highly innovative cryptocurrency sector. This adjustment/adaptation should strike a balance between protecting the people from the dangers of cryptocurrencies and harnessing the benefits of these cryptocurrencies.
2. The CBN or Securities and Exchange Commission ("SEC") should reach an agreement as regards the regulatory authority that will regulate cryptocurrencies. They should also consider approving cryptocurrencies that have achieved global acceptance like Bitcoin, stablecoins, and other Altcoins.
3. Consideration should be given to the role of the National Information Technology Development Agency ("NITDA") with respect to data protection in the cryptocurrency space.
4. NITDA is charged with the mandate to create a framework for the planning, research, development, standardization, application, monitoring, evaluation, and regulation of Information Technology practices in Nigeria, NITDA views blockchain technology as one of the emerging technologies that Nigeria should leverage for global competitiveness. Pursuant to its mandate, NITDA published the Nigerian Blockchain Adoption Strategy. The primary objective of the Nigerian Blockchain Adoption Strategy is to identify and utilize the opportunities provided by Blockchain technologies to strengthen the country's security on cyberspace and stimulate the growth of the economy. The strategy is built on the following initiatives: (i) Establishment of the Nigerian Blockchain Consortium, (ii) strengthening of the regulatory and legal framework, (iii) focus of the provision of the national digital identity, (iv) promotion of blockchain digital literacy and awareness, (v) creation of blockchain business incentive programmes, (vi) establishment of national blockchain sandbox for proof of concepts and pilot implementation. This blockchain adoption strategy aims at and will promote Blockchain technology in Nigeria and help in mitigating the risks regarding its implementation by government agencies, and corporate organizations.
5. CBN may also consider registering and designating locally and globally renowned cryptocurrency exchanges with proven KYC and compliance capabilities as legitimate places for Nigerians to trade cryptocurrency. This way, entities dealing with cryptocurrency can be known and licensed accordingly.
6. The CBN should also communicate with stakeholders and highlight specific ways they would like their concerns to be addressed. This will enable both stakeholders to work together to regulate the cryptocurrency market effectively.
7. The CBN should consider developing and testing of a Central Bank Digital Currency (CBDC). CBDC is a digitally represented version of the country's sovereign currency, in this case the Naira, issued and backed by the Central Bank. CBDC could impact monetary policy favorably by providing a new tool for the Bank to apply and implement monetary policy with enhanced speed and improved efficiencies. If the Bank determined that CBDC should be interest bearing, this remuneration feature would likely increase the accumulation and use of CBDC for direct payments by and between individuals and retail businesses as the wallet holders of CBDC. Some countries have started experimenting and testing CBDC's. Please see Schedule II.
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