Nigeria: World Federation of Exchanges Advocates Stringent Regulations for Crypto Trading

In its recent report titled ‘Good Markets for Good Outcomes – the Role of Governance in the World’s Exchanges,’ the World Federation of Exchanges (WFE) has emphasized the necessity of subjecting Crypto-Asset Trading Platforms (CTPs) to stringent regulations similar to those governing existing regulated exchanges.

This statement from the WFE follows the Central Bank of Nigeria’s decision to lift the ban on cryptocurrency transactions, which had been in place since 2021 due to concerns about money laundering and terrorism financing risks.

The new circular from the Central Bank of Nigeria stated, “From the commencement of these regulations, FI shall not open or permit the operation of any account by any person or entity to conduct the business of virtual/digital assets unless that account is designated for that purpose and opened in line with the requirement of these Guidelines.” However, the CBN maintained the prohibition on banks trading, holding, or transacting cryptocurrencies.

Highlighting the failures of several crypto trading platforms, the WFE stressed the importance of regulating them similarly to established exchanges. The report stated, “The WFE supports governments and regulators in subjecting crypto-asset trading platforms to the rules and laws governing exchanges to achieve a technology-neutral approach to regulation.”

The WFE acknowledged the potential benefits of technological innovation in financial markets but cautioned against overlooking the failures in the crypto market. The report suggested adopting a regulatory approach consistent with the principles that govern traditional exchanges.

The call for increased regulation is based on concerns about market failures attributed to issues such as poor governance, lack of proper systems and controls, management inexperience, inadequate segregation of client assets, significant conflicts of interest, and potential fraud.

While global cryptocurrency market capitalization exceeds $1 trillion, the WFE underscores the need for a comprehensive regulatory framework to address failures in the market that are not necessarily related to crypto or its underlying technology.

In response to the crypto ban in 2021, the Securities and Exchange Commission (SEC) published regulations for digital assets in May 2022. The SEC is currently processing applications for digital exchanges on a trial basis, exploring ways to widen market participation and considering tokenized coin offerings backed by assets like equity, debt, and property.

A Chainalysis report from September revealed a nine percent year-over-year growth in crypto transactions in Nigeria, reaching $56.7 billion between July 2022 and June 2023.