Regulation
Nigeria adopts crypto regulation | Semafor
The new CBN rules reflect the demand for clarity and consumer protection from the public and the crypto industry. This change also appears to mark the regulator’s acceptance that a prohibitive approach to crypto was costly, both in terms of financial benefits to banks and effective regulation. This comes as the bank moves to expand licensing and anti-fraud measures in fintech in general while trying not to stifle innovation.
The initial ban relied heavily on the idea that crypto is a tool “meant to facilitate the scams we all commonly call 419 transactions,” as Emefiele, the former CBN chief, described it. But, rather than deter users, the ban appeared to lead to an increase in awareness and use of crypto during this period. Rising inflation and the continued devaluation of the local currency, the naira, against the dollar have made crypto, particularly bitcoin and stablecoins, an attractive hedge. Crypto transactions in Nigeria in the 12 months to June 2023 alone were worth $57 billionaccording to Chainalysis.
So while the lifting of the ban suggests an updated capacity to manage crypto risks, it “appears that the CBN and government as a whole are keen to curtail the lucrative crypto sector that is also being practiced,” David Omojomolo, emerging. market economist at London-based Capital Economics, told me.
Nigeria’s new tone “is also an attempt to remove itself from the FATF gray list,” says Gwera Kiwana, head of crypto at Onafriq, the pan-African payments company formerly called MFS Africa. The Financial Action Task Force assesses government compliance measures to combat money laundering and terrorist financing. The Paris-based body is asking countries to authorize and supervise virtual asset providers. Its “grey list” lists countries with gaps in their anti-fraud frameworks.
After being added last February, Nigeria remains on the FATF gray list. Gray-listed countries tend to be treated with skepticism by global banks who view the FATF guidelines as part of their due diligence processes. Being on the gray list correlates with decline in capital inflows of 7.6% of GDP, suggests a 2021 IMF working paper, and reduced development finance received, according to another study last year. South Africa, Senegal and eight other African countries are also on the gray list.
But beyond fraud prevention, Kiwana expects Nigeria’s new rules to produce “an increase in partnerships” between crypto-native companies and other institutions to increase use cases of cryptography. The CBN could then tailor what it sees as increased adoption to improve the eNaira, a digital currency from Nigeria’s central bank issued in 2021, Kiwana said.