With investors’ confidence in traditional markets waning in the wake of COVID-19, there is the question whether investments in virtual currencies would rise as an alternative. In Africa and Nigeria, the public awareness of virtual currency is certainly growing, but are the Nigerian regulators considering more oversight of the sector for investors’ protection?

Nigeria Warns On Cryptocurrency

Nigeria has at different times issued warning statements against transacting in virtual currencies. In January 2017 the CBN issued a circular (2017 Circular) warning against any transactions in virtual currencies, by circulating a statement to all banks in the country of the risk of dealing in  virtual currencies on the ground that the currency is unregulated, largely untraceable and susceptible to abuse by criminals.

By the “2017 Circular” the Anti-Money Laundering  and Countering Financing of Terrorism (AML/CFT) controls was directed to be put in place to facilitate customer identification, verification and monitoring of transactions, and for suspicious transactions to be reported to the Nigerian Financial Intelligence Unit. The AML and CFT controls for any existing customer that is a virtual currency exchanger in line with the Central Bank of Nigeria (Anti-money Laundering and Combating the Financing of Terrorism in Banks and other Financial Institutions in Nigeria) Regulations 2013 governs the financial technology, pending a substantive regulation or decision by the CBN on virtual currency.  

Again, 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. The Securities and Exchange Commission (SEC) in 2017 by a public notice made a statement warning virtual currency traders to exercise caution in such trade.

The Nigeria Deposit Insurance Corporation (NDIC) also by a press release in July 2019 advised Nigerians to exercise maximum caution in the adoption of crypto-currencies as their preferred mode of financial transactions as those who patronize them risk losing their savings since it is largely unregulated and without support from traditional Central Banks in almost all financial jurisdictions. The NDIC is a safety net for depositors and aims to protect/insure the banking system from instability or loss.

Leanings Towards Cryptocurrency Regulation

There seems however to be an interest by the government in regulating virtual currency technology in Nigeria. The CBN Guideline on Nigerian Payments System Risk and Information Security Management Framework and its innovation seem to include the adoption of digital currency. The scope of the framework also includes any payment system based or operated in Nigeria that engages in the settlement of non-Naira transactions operating within Nigeria and those that operate across the Nigerian borders cross border payment systems, along with their infrastructure providers and the Payment Service Providers (PSPs) that make up these systems.

The Nigerian House of Representatives had in 2018 called on the CBN and the NDIC to come up with a regulatory framework for blockchain technology in Nigeria after adopting a bill titled “Need to regulate blockchain applications and Internet technology” Again, in 2019 the Speaker Nigerian House of Representatives called for a legal framework for cryptocurrencies as

it has become widely adopted, adding that the House is ready to expand NDIC’s statutory functions in order to ensure that its roles did not overlap with that of CBN.

The Nigerian Senate also in 2018 launched an investigation committee (Committee on Banking and other Financial Institutions) into the viability of bitcoin as a form of investment, and to come up with recommendations on how to control its trade, although it urged the CBN, NDIC and SEC to launch a campaign against the risk of trading bitcoin. 

In April 2019 under the Fintech Roadmap for the Nigerian Capital Market set to be implemented by the Securities and Exchange Commission (SEC), the Fintech Roadmap Committee in its report to SEC addressed and recommended some fintech challenges adding that SEC needs to decide on its preferred classification of crypto-currencies either as Commodities, Securities but not as Currency, and that SEC should amongst other recommendations be responsible for the regulation of Virtual Financial Assets Exchanges and develop a framework around it. The Securities and Exchange Commission is however yet to implement this Roadmap.

Some Regulatory Cryptocurrency Market Framework

The Commonwealth in October 2019 published a regulatory guidance on virtual currencies (Regulatory Guidance on Virtual Currencies) stating that member countries should be encouraged to consider the application of their existing legal frameworks to virtual currencies and where appropriate adapt them or enact new legislation to regulate virtual currencies in response to cybercrime, to ensure that their authorisation regimes for virtual currency exchange facilitate appropriate standards of consumer protection, assess tax treatment of virtual currencies, include virtual currencies within the scope of money laundering and terrorism financing offences, maintain AML/CFT requirement and KYC information etc.

Recently and although crypto currency exchanges is not considered a legal tender in Canada, the Canadian Securities Administration (CSA) in January 2020 issued new guidelines for cryptocurrency trade titled Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets to the effect that platforms trading crypto assets will now become subject to the securities legislation to facilitate immediate delivery of crypto assets rather than allow such platforms to provide users with a mere contractual right or claim to an underlying crypto asset. The CSA Regulatory Sandbox under the guideline and in a bid to support innovative fintech businesses like crypto assets allows firms to register and/or obtain exemptive relief from the securities law in order to test their products, services and applications throughout the Canadian market.

It May Be Time to Regulate

It may be more practical for Nigerian regulators to consider the Commonwealth Regulatory Guidance on Virtual Currencies or legal frameworks of jurisdictions who have successfully put in measures to protect the growing numbers of financial institutions and customers interested in virtual currency against cyber-attacks and potential fraud risks in the digital currency space.

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