Is It Time for Nigeria To Regulate Cryptocurrency?

Abstract

The digital and tech industry of Nigeria woke up to what could be better termed 'nightmare at dawn' in the early hours of Friday 5 February 2021 following the letter from the Central Bank of Nigeria (CBN) to all deposit money banks, non-bank financial institutions and other financial institutions in which the CBN referred them to the CBN circular of 12 January 2017 wherein the CBN cautioned all deposit money banks (DMB), non-bank financial institutions (NBFIs), other financial institutions (OFIs) and members of the public on the risk associated with transactions in crypto currency. In the letter, the CBN further to the directive on the circular, called the attention of regulated institutions that dealing in crypto currencies and facilitating payments for cryptocurrency exchanges is prohibited in Nigeria. Flowing from the above, CBN directed regulated institutions listed above to identify persons and or entities transacting in or operating crypto currency exchange within their systems and ensure that such accounts are closed immediately. News of the CBN's decision to prohibit banks from facilitating crypto-related transactions through the banking system has since gotten very harsh reactions on social media, the tech and digital market with many condemning the policy as a deliberate attempt by the government to impoverish young Nigerians who have been able to create wealth for themselves through crypto trading. Following the outburst on social media, the CBN did a press release on 7 February 2021 therein they stated that they are not an outlier in its decision and further listed countries and prominent investors who share the same opinion on crypto currency. In the press release, the CBN announced that the major reasons backing up their decision on banning transaction on cryptocurrencies are potential risk of loss of investments, money laundering, terrorism financing, illicit fund flows and criminal activities. These reasons are only reasonable as the crypto currency market is not regulated and can be manipulated in many ways. Some have also noted the lack of policy cooperation between financial regulators in Nigeria due to the fact that the SEC had only a few months ago proposed a new set of rules that will regulate crypto-token or Crypto-coin investments when the character of the investment qualifies as securities transactions. Flowing from this, SEC did a press release clarifying that they are not in any contradiction with CBN and are currently engaged with the CBN and agreed to work together to further analyze, and better understand the identified risks to ensure that appropriate and adequate mitigants are put in place, should such securities be allowed in the future. SEC has also by the press release stated that they have put on hold assessment of all persons (and products) seeking admittance into the SEC Regulatory Incubation Framework who are affected by the CBN letter of 05 February 2021. The entire situation has gotten the attention of the Nigerian Senate who has mandated its Committees on Banking, Insurance and Other Financial Institutions, ICT and Cybercrimes and Capital Market to invite the Governor of CBN as well as the Director General of SEC to brief it on the recent ban on cryptocurrency in the country. It explained that the information that would emanate from the briefings from the two regulatory bodies would assist the Senate to determine the opportunities and threats of the cryptocurrency on the nation's economy and security. Crypto exchange, Binance had taken to Twitter to urge their Nigerian customers to “Withdraw your NGN as early as possible to avoid potential channel issues,” while also noting that the new CBN law is a “one step back” on crypto adoption in Nigeria. Cambridge dictionary defined cryptocurrency as a digital currency produced by a public network, rather than any government, that uses cryptography ro make sure payments are sent and received safely. QUARTZ AFRICA listed Nigeria as the second highest market of crypto in the world. This article intends to discuss issues that bother Nigerians as it relates to the CBN circular and cryptocurrency in general such as where trading of crypto currency occurs (whether multi-jurisdictional or jurisdictional), whether cryptocurrency is a property, the outlook of other countries to cryptocurrency, etc.