N2m penalty for infractions, no cash withdrawals… highlights of CBN’s crypto guidelines

On December 22, 2023, the Central Bank of Nigeria (CBN) issued operational guidelines on virtual assets service providers (VASPs) to all banks and other financial institutions (OFIs).

According to the CBN, VASPs are entities that conduct exchanges between virtual assets (cryptocurrencies) and fiat currencies, and transfers of virtual assets.

The guidelines signal a reversal of the ban placed on cryptocurrency transactions in the country.

In 2021, CBN issued a circular to deposit money banks (DMBs), non-bank financial institutions (NBFIs), and OFIs to close accounts of persons or entities involved in cryptocurrency transactions within their systems.

The regulator also warned local financial institutions against dealing in crypto-assets or facilitating payments for crypto exchanges.

On Friday however, in a circular signed by Haruna Mustapha, CBN’s director of financial policy and regulation department, the apex bank said based on current trends, VASPs — which include cryptocurrencies and crypto assets — need to be regulated to prevent misuse.

The CBN guidelines provide a framework for the relationship between banks and VASPs.

Here are major highlights of the guidelines and what to know about VASPs.

WHAT ARE VASPs

A virtual asset is a digital representation of value that can be transferred, digitally traded, and used for payment or investment purposes. The VASPs are the organisations that make these transactions possible.

VASPs are entities that conduct exchanges between virtual assets and fiat currencies; between one or more forms of virtual assets; transfer of virtual assets; and safekeeping or administration of virtual assets or instruments enabling control over virtual assets.

They also participate in and provide financial services related to an issuer’s offer and/or sale of a virtual asset.

VASPs ELIGIBLE STAKEHOLDERS

The parties authorised to engage in VASP, according to the CBN, include commercial and merchant banks.

Also included are payment service providers (restricted to those that are involved in settlement for third parties).

Others are all entities registered by the Securities and Exchange Commission (SEC) to conduct the business of digital assets services provision. Examples of such entities are VASPs digital asset custodians, digital asset offering platforms, digital asset exchange (DAX), DAX operators, “and any other entity that may be categorised by the CBN from time to time”.

PERMISSIBLE ACTIVITIES

In the guideline, the CBN also enumerated the activities financial institutions can undertake in their operations of accounts for VASPs.

According to the regulator, banks, in their relationship with VASPs, are allowed to open designated accounts, and provide designated settlement accounts and settlement services.

They can also “act as channels for FX flows and trade,” and perform “any other activity that may be permitted by the CBN from time to time”.

OPERATION OF BANK ACCOUNT BY VASPS

On the designation of accounts, the financial regulator said banks are not to open or permit the operation of any account by any person or entity to conduct the business of virtual and digital assets unless that account is designated for that purpose and opened in line with the requirement of the guidelines.

Also, the apex bank added that an account “shall only be opened with the approval of the senior management of the bank”. 

DOCUMENTS FOR ACCOUNT OPENING

Speaking on the procedures for opening a virtual asset account, the CBN said certain documents will be required.

A major document needed, the regulator said, is evidence of a valid licence issued by the SEC for the entity to engage in the business of VASP, DAX, and a digital asset offering platform (DAOP).

“A certified true copy of the memorandum and article of association, certified true copy Form CAC 2-Statement of share capital, and return of allotment of shares,” CBN added.

“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 and their home addresses.”

RESTRICTION ON THE USE OF ACCOUNT

The apex bank further stressed that an account opened under the guidelines will only be used for transactions on virtual digital assets and not for any other purpose.

The CBN said there would be no cash withdrawal from such an account, and no third-party cheque would be cleared from it.

In addition, the bank said except for the settlement of virtual assets transactions, which shall be done through a transfer to another designated account, withdrawals shall only be through a manager’s cheque or transfer to an account.

TRANSACTION LIMITS

As part of the regulations, the CBN directed financial institutions to establish transaction limits for each designated account opened under the guidelines in line with its risk assessment criteria.

“The limits shall be prudent and bear a relationship to 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,” the guideline reads.

“FIs shall not allow or enter into any concession agreement/arrangement with a holder of a designated account. The account shall, at all times be subject to the maximum transaction charges band as provided for under the CBN ‘Guide to Charges for Banks and Other Financial Institutions”.

The CBN also said any designated account opened in accordance with the guidelines shall be declared dormant if no customer-induced transaction is carried out for three consecutive months.

SANCTIONS

The guidelines empowered the CBN to prohibit a bank, its board of directors, officers, or staff from “opening any further designated account for individuals” for failure to comply with any provisions of the document.

More so, the guidelines also stipulated a monetary penalty not below the sum of N2,000,000.00 against a bank, members of its board, senior management, and any staff, for any infractions.

The CBN said defaulting banks will have their operating licence suspended.