• Nigeria’s central bank has unveiled a roadmap for banks to establish cryptocurrency accounts. This follows the lifting of the ban on financial institutions serving digital asset companies.
• Regulations aimed at steering the activities of virtual asset service providers (VASPs), lay down tight constraints on how these accounts can be utilized.

In February 2021, the Central Bank of Nigeria (CBN) prohibited banks and other financial institutions from engaging in or assisting with transactions involving cryptocurrency assets, and now, recently, the Nigerian central bank lifted the ban on crypto trading services on December 23, 2023.

Focused Regulatory Framework

The Central Bank of Nigeria (CBN) has taken a cautious approach to cryptocurrencies, initially prohibiting banks from facilitating transactions in digital assets in 2017. However, on December 22, the CBN reversed its stance, allowing banks to open accounts with cryptocurrency exchanges and other digital asset service providers. The new rules provide a framework for this activity, with the following key provisions:

• Naira-Based Accounts Only: Now, banks are required to maintain separate naira-denominated accounts for digital asset service providers. These accounts cannot be used for any other purpose and cannot be linked to personal or business accounts.
• No cash withdrawals: Cash withdrawals from cryptocurrency accounts are strictly prohibited. All transactions must be conducted through electronic transfers or other non-cash methods.
• Third-Party Checks Prohibited: Banks are not permitted to clear third-party checks through crypto accounts, as this provision is intended to prevent money laundering and other illicit activities.
• Limit on Withdrawals: Banks may only allow two withdrawals per quarter from crypto accounts. This has been made mandatory to prevent excessive withdrawals and ensure that these accounts are used primarily for legitimate business purposes.

Impact on Nigerian Cryptocurrency Landscape

The new guidelines will have major implications for the Nigerian cryptocurrency market, both positive and negative. On the other hand, they provide much-needed regulatory clarity for digital asset service providers, who have been operating in a legal grey area since the CBN’s initial ban.

The prohibition on cash withdrawals may make it difficult for users to access their funds in times of need, while the limits on withdrawals may discourage some from using these accounts at all. Critics argue that the restrictions could stifle innovation in Nigeria’s cryptocurrency sector by making it more difficult for startups to access banking services.