Nigeria: Crypto enthusiasts await CBN’s response to SEC regulation of digital assets

The Securities and Exchange Commission’s recent rules to regulate digital assets including cryptocurrencies in Nigeria have brought the CBN’s stance on digital assets into doubt.

The SEC’s action effectively legalizes digital assets such as cryptocurrencies and NFTs in Nigeria, where the central bank had imposed an indefinite prohibition ascribing them as securities and not currencies.

But will this new guideline trigger a response from the apex bank? Digital asset enthusiasts are eagerly awaiting the response of the apex bank as they digest the regulation just released on Friday.

While the SEC has effectively given this sector a legal status, it will need the central bank to allow banks to facilitate crypto transactions.

The Nigerian Central Bank has maintained a tough stance on cryptocurrency for the past five years, with the first blow struck on the 12th of January 2017.

• Mr. Kelvin Amugo, Director, Financial Policy and Regulation Department, CBN, who announced the ban, stated that it was necessary due to money laundering and terrorism financing threats inherent in virtual currency operations.
• In 2018, the CBN issued another statement reiterating that cryptocurrencies are not a legal tender and as such are illegal.
• The apex bank also sent another reminder on the 5th of February 2021 to Nigerian commercial banks to stick to the 2017 derivative of the crypto ban.

Why the CBN banned cryptocurrency?

The apex bank released a 5-page document outlining the rationale behind the ban of cryptocurrency in Nigeria.

• The central bank started by saying that the cryptocurrency ban was in line with other countries and advice from the international community.

Would the CBN change its stance?

The Securities and Exchange Commission (SEC) issuance of rules for Digital Assets has raised the need for clarity from the apex bank especially as the regulator classified it as a security that can be invested in, just as equities or debts.

• However, the central bank is yet to issue an official response which many think is imminent.
• Nairametrics reached out to officials of the regulator for comments but we got no response.
• It is expected that unless the apex bank regularizes with SEC, banks are still banned from facilitating cryptocurrency transactions.

Nonetheless, we believe that the new rule would make the CBN revert its existing ban.

What happens if the CBN maintains its crypto ban?

Despite the SEC’s new guidelines, the central bank may decide to maintain the crypto ban. As a result, even if crypto firms could legally exist with SEC permission, they would be unable to enable transactions with Nigerian banks.

• This would be similar to the Central African bank’s crackdown on Bitcoin transactions after the Central African Republic recognized Bitcoin as legal tender without consulting its regional monetary authority.
• The International Monetary Fund has also stated that the adoption of Bitcoin as legal tender by the Central African Republic presents several challenges.
• The difference is that SEC did not recognize digital assets as a legal tender.
• Nevertheless, any decision made by the central bank would have to be carefully calculated in order to safeguard the financial stability of Nigeria.