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Another look at CBN’s new guidelines for BDC operations

Another look at CBN’s new guidelines for BDC operations

By Kayode Adebiyi, News Agency of Nigeria (NAN)

Recently, the Central Bank of Nigeria (CBN) released draft revised guidelines that will help bolster the regulation of Bureau De Change (BDC) operations in the country.

The apex bank was responding to the incessant volatility of the naira which, at some point, depreciated by 60 per cent at the official market and 50 per cent at the black market.

In response to the poor performance of the naira, the bank came up with several measures to correct the anomaly, including a comprehensive strategy to enhance liquidity in the forex market.

It also embarked on unifying FX market segments, clearing outstanding FX obligations, and enforcing the Net Open Position limit for commercial banks and adjusting the remunerable Standing Deposit Facility Cap.

It also reversed the dollar-for-dollar policy and made sure that International Oil Companies only repatriate 50 per cent of proceeds.

In furtherance of its new operational mechanism for BDC operators, the CBN’s Revised Regulatory and Supervisory Guidelines for Bureau De Change Operations in Nigeria Exposure draft was released on Feb. 26, 2024.

Under the new guidelines, the apex bank is proposing an increase in the minimum capital requirements for BDC operators in the country to N2 billion and N500 million for Tier 1 and Tier 2 licenses respectively.

Before now, the minimum capital requirement used to be N35 million for a general license.

“Tier 1 operators must maintain a minimum share capital of N2 billion and also submit a Mandatory Caution Deposit of N200 million.

“In Tier 2, operators are required to possess a minimum share capital of N500 million and maintain a Mandatory Caution Deposit of N50 million,” the new regulation stated.

Another crucial provision of the new regulation is the listing of sources of forex for BDCs.

The new guidelines listed sources from where BDCs can get forex. They include tourists, returnees from the diaspora, International Monetary Transfers Operators, and Embassies.

This is a major shift from the past, where the Foreign Exchange Act allowed for nondisclosure of sources of any foreign currency to be sold in the market.

Quoting the Foreign Exchange Act of 1995, BusinessDay newspaper reported that the 2002 and 2015 regulations allowed private sources to provide a gateway for money laundering and round-tripping of forex sourced in the official market.

“Except as required under any enactment or law, a person executing a transaction in the Market shall not be required and, if required, shall not be obliged, to disclose the source of any foreign currency to be sold in the Market…

“No foreign currency imported under this Act shall be liable to seizure or forfeiture or to suffer any form of expropriation by the Federal or a State Government except as provided under this Act,” the 1995 Foreign Exchange Act stated.

The constitution of boards was also reviewed by the CBN.

“The number of independent non-executive directors shall be at least 2 for tier 1 BDCs and 1 for tier 2 BDCs, provided that where a BDC is publicly listed, it shall comply with the applicable provisions of CAMA 2020.

“A Tier 1 BDC shall have an Executive Director other than the MD/CEO. A tier 2 BDC may have an ED apart from the MD/CEO,” it said.

Under the new rules, prospective and current directors of a BDC are to disclose their board memberships to other entities.

The new guidelines also took the issue of gender and representation seriously because they prohibit a one-gender board and encourage women’s economic empowerment following the Nigerian Sustainable Banking Principles.

Also, as part of the new guidelines for BDC regulation, they are now to have external auditors.

The CBN said by making provisions for external auditors, it is trying to boost corporate governance and ensure a proactive approach to compliance.

It also said that the tenure of an external audit firm in any BDC shall not exceed 10 consecutive years, subject to the rotation of audit engagement partners at least once every five years.

Such firms, it continued, shall not be re-appointed until after a cool-off period of five consecutive years.

“The external auditors shall be appointed by the Board, subject to ratification by shareholders at a general meeting. The external auditors shall not resume until the BDC has obtained approval of the CBN,” it said.

In addition, the apex bank has mandated that going forward, transactions will require BVN or TIN from domestic customers and passports from foreign customers which is a global industry standard.

“All transactions by residents shall only commence after electronic retrieval of the potential customer’s BVN or Tax Identification Number (TIN) from the NIBSS or Federal Inland Revenue Service (FIRS) databases, respectively, and the details confirmed to match with the potential customer’s standard identification document.”

Another important provision of the draft guidelines is the full digital integration of the operations of BDCs with the CBN within the foreign exchange market as a prerequisite to enhance market transparency and promote effective price discovery.

The central bank said the integration will provide it with comprehensive, real-time insights into the volume and flow of transactions within the parallel market.

Data on transaction origin and destination will improve regulatory oversight and support more accurate market valuations.

“Upon the grant of provisional approval, promoters of the proposed BDC shall submit an application for final license within sixty (60) days, documents including; Concluded integration with the CBN: System integration with the CBN will cover connectivity with its extranet gateway (virtual private network) and relevant systems such as the returns rendition system, Financial Institutions Foreign Exchange Reporting System (FIFX), Financial Analysis (FinA), Centralised AML/CFT/CPF rendition platform (CARP), Tax Identification Number Verification Portal of Federal Inland Revenue Service, among others.”

Some financial experts have commended the CBN for unveiling the revised regulatory guidelines.

The said further regulation of the activities of BDCs would help fight illicit financial flows and curb terrorism financing in Nigeria. (NANFeatures)

**If used please credit the writer and the News Agency of Nigeria (NAN).

Naira and Dollar
Features

FG’s multi-pronged, multi-agency approach to stabilising the Naira

By Kayode Adebiyi, News Agency of Nigeria (NAN)

In a country that has its legal tender, it is surprising how the dollar and its exchange rate determine almost every transaction in Nigeria to the detriment of the local currency – the naira.

More surprising is how the same foreign exchange has two different values, depending on where it is being traded.

As a result of the exchange rate volatility of the naira, President Bola Tinubu announced the floating of the Nigerian currency to peg the activities of unwholesome middlemen in his inaugural speech on May 29, 2023.

The idea of floating the naira means that people can get forex at the banks at affordable rates.
Banks and other institutions can buy and sell dollars at their rates.

Financial experts say, ordinarily, this should have been sufficient enough to boost the power of the Nigerian currency.

Welcomed by many, the measure failed to produce the desired result and seemed to plunge the Nigerian currency into further deep against major foreign currencies.

In response, the Central Bank of Nigeria (CBN) initiated a comprehensive strategy to enhance liquidity in the forex market, including unifying FX market segments, clearing outstanding FX obligations, and introducing new operational mechanisms for Bureau De Change operators.

Others are enforcing the Net Open Position limit for commercial banks, and adjusting the remunerable Standing Deposit Facility Cap. Yet, the naira keeps dropping in the forex market.

The apex bank also said that Nigerians spent about $98bn on foreign trips, medical tourism, and overseas education, which was by far more than the total foreign exchange reserves it had.

Also, it was realised that merchants on crypto platforms list their exchange rates for buying US dollars for naira and aim to attract sellers by proposing high naira values for the US dollar.

To remain competitive and attract sellers, merchants advertise higher dollar-to-naira rates than they are willing to pay, causing the visible dollar rate to increase and the implied value of the naira to decrease.

Worried by the continued depreciation of the Nigerian currency, the federal government decided to make further concerted efforts to safeguard Nigeria’s foreign exchange market and combat speculative activities.

Central to those efforts is a multi-pronged and multi-agency approach, which saw the Office of the National Security Adviser (ONSA) and the CBN joining forces to address challenges impacting the nation’s economic stability.

The collaborative approach to tackle these infractions also involves a coordinated effort with key law enforcement agencies, including the Nigeria Police Force (NPF), the Economic and Financial Crimes Commission (EFCC), the Nigeria Customs Service and the Nigeria Financial Intelligence Unit (NFIU).

Indeed, the decision to join forces to tackle the challenge at hand is in line with the provisions of Nigeria’s National Security Strategy (NSS 2019).

Chapter Five of the document spells out measures to achieve economic security.

“Our overall national security agenda, including sustainable development, prosperity and external influence is dependent on a viable and prosperous economy.

“We will integrate our economic potential and opportunities with other components of national security for the prosperity of our people…

“We will uphold the principle of free enterprise; and create an equitable business environment to promote an efficient, dynamic, and self-reliant economy.”

Most importantly, it emphasises the need for collaboration: “All relevant Ministries, Departments and Agencies (MDAs) or institutions established for national economic management will collaborate to ensure effective and efficient implementation of the economic objective of this Strategy.”

In a 2021 article on the NSS, Chukwuemeka Uwanaka almost predicted the scenario that called for the multi-agency response against naira depreciation when he wrote: “On the economy, the ONSA should play a more collaborative role in the fight against financial crimes and official corruption.

“This will ensure that the increased expenditure and appropriation in the social sector are not lost in the procurement process.”

Authorities said the primary objective of the multi-agency and multi-sector collaboration was to systematically identify, thoroughly investigate and appropriately penalise individuals and organisations involved in wrongful activities within the FX market by leveraging the expertise of these agencies.

The CBN maintained that, despite proactive and commendable measures taken to stabilise the foreign exchange market and stimulate economic activities, the effectiveness of its initiatives was being undermined by the activities of speculators.

These speculators, it said, operate through various channels, thereby exacerbating the depreciation of the Nigerian Naira and contributing to inflation and economic instability.

In what has been hailed as a decisive action to address the depreciation of the naira against the dollar, the Nigerian government blocked the online platforms of Binance and other crypto firms.

This move aimed to prevent further manipulation of the forex market and curb illicit fund movements. Other platforms blocked include Forextime, OctaFX, Crypto, FXTM, Coinbase, and Kraken, as part of the government’s efforts.

The government also disclosed its intention to raise $10 billion to enhance liquidity in the foreign exchange market, indicating its commitment to addressing the challenges faced by the currency.

On its part, ONSA issued directives to law enforcement agencies to take strict actions against individuals involved in speculation in the foreign exchange market.

Before then, the Economic and Financial Crimes Commission (EFCC) raised a 7,000-man special task force across its 14 zonal commands to clamp down on dollar racketeers.

While answering questions from journalists on the recent restriction on Binance and other cryptocurrency platforms, the CBN Governor, Olayemi Cardoso, said, in the last year, more than $26 billion was funnelled through Binance without a trace.

He added that the CBN was moving to a very aggressive regulatory environment.

“Tolerance for people who will not abide by the regulations that are coming out is zero. People will have to comply with our regulations or face the consequences for not doing so,” he said.

Bayo Onanuga, Special Adviser to the President on Information and Strategy, said in an interview that by taking these measures, the federal government is trying to prevent economic saboteurs from ruining the country.

“We have saboteurs. Look at what Binance is doing to our economy. That is why the government moved against Binance.

“Some people sit down using cyberspace to dictate our exchange rate, hijacking the role of the CBN. They just sit down and fix anything they like. It’s sabotage, and we are trying to prevent that from happening henceforth,” he said.

The considerable results these various measures of government have produced within a short time not only point to a right step in the right direction. They also show the ability of the present administration to respond adequately to Nigeria’s economic and other challenges.(NANFeatures)
**If used please credit the writer and News Agency of Nigeria

Naira and Dollar
Features

NEWS ANALYSIS: What forces are aiding the free fall of the Naira?

By Ismail Abdulaziz, News Agency of Nigeria (NAN)
Inspite of all efforts made by the Central Bank of Nigeria (CBN) to address the exchange rate volatility of the naira since the Bola Tinubu administration announced the floating of the Nigerian currency to peg the activities of unwholesome middlemen, stakeholders continue to wonder why the naira is still in free fall.

The CBN had initiated a comprehensive strategy to enhance liquidity in the forex market, including unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for Bureau De Change operators, enforcing the Net Open Position limit for commercial banks, and adjusting the remunerable Standing Deposit Facility Cap.
Yet, the naira keeps dropping in the forex market.

Indeed, there are palpable factors that have aided the fall of the naira, as explained by the CBN. For instance, the apex bank reported that Nigerians spent about $98 billion on foreign trips, medical tourism, and overseas education, a figure the bank said was more than the total foreign exchange reserves of the apex bank.

Responding to that alarm, the Economic and Financial Crimes Commission (EFCC) raised a 7,000-man special task force across its 14 zonal commands to clamp down on dollar racketeers and reduce the pressure on the naira.

The floating of the naira means people can get forex at the banks for whatever rate the banks can afford to sell it. Banks and other institutions can buy and sell dollars at their rates.

Financial experts say, ordinarily, this should have been sufficient enough to boost the power of the Nigerian currency.

However, in spite of all these measures, it appears that the unfortunate crisis bedeviling the naira has the voice of Jacob, but the hands of Esau.

According to a document obtained, recent intelligence reports have highlighted continued illicit activities within the Nigerian foreign exchange market, in both virtual and in physical transactions, and one name has been a reoccurring decimal – Binance.

The Binance platform describes the organisation as a cryptocurrency exchange that lists more than 350 cryptocurrencies globally. In addition to cryptocurrency trading, it offers several services that enhance the experience for users and blockchain developers.

The report said the crypto platform’s merchants list their exchange rates for buying US dollars for Naira and aim to attract sellers by proposing high Naira values for the US dollar.

To remain competitive and attract sellers, the report said merchants advertise higher dollar-to-naira rates than they are actually willing to pay, causing the visible dollar rate to increase and the implied value of the naira to decrease.

“This practice has contributed to the Naira’s 113.1 per cent devaluation against the US dollar from February 9, 2023, to February 15, 2024. This implies an average daily depreciation rate of 0.3 per cent over the last 371 days – a period of high activity on the Binance platform,” the report said.

In June 2023, The Securities and Exchange Commission (SEC) ordered Binance, which happens to be the world’s largest cryptocurrency exchange, to halt its operations in Nigeria for courting investors through an illegal website.

“Binance Nigeria Limited is hereby directed to immediately stop soliciting Nigerian investors in any form whatsoever,” SEC said.

Sources close to forex regulators in Nigeria said the government had sought several avenues to reach a middle ground between an outright ban on Binance crypto assets and their unregulated use, but the platform has been adamant, continuing its manipulation of the nation’s forex market and illicit movement of funds.

Curiously, the Nigerian regulators were not acting alone. That same week, the U.S. Securities and Exchange Commission sued Binance and Coinbase for allegedly breaching its rules.

Scores of other countries have either outrightly banned or restricted the operations of Binance, including the UK, Japan, Singapore, Canada, The Netherlands, China, Turkey, Indonesia, and Nigeria’s neighbours, Ghana.

There are specific country-by-country examples of how Binance has been violating regulatory standards and undermining legitimate forex trade.

In November 2023, Binance and its CEO pleaded guilty to federal charges in the US for violating anti-money laundering laws and facilitating transactions with sanctioned entities and individuals.

They agreed to pay over $4 billion in fines and forfeitures.

In June 2020, Binance was accused by the Japanese Financial Services Agency of operating in Japan without a license and enabling money laundering activities. Binance denied the allegations and claimed to have no exchange business in Japan.

In February 2020, Binance was accused by the Brazilian tax authorities of evading taxes and laundering money through its platform. Binance denied the allegations and claimed to comply with local regulations.

In April 2019, Binance was blacklisted by the French financial regulator, Autorité des Marchés Financiers, for offering crypto derivatives products to French investors without authorization.

In July 2020, Binance was warned by the UK Financial Conduct Authority for operating in the country without a license and posing a risk to consumers and the financial system.

According to sources, the list of countries that have taken action against Binance is endless.

However, some financial experts say what worries monetary regulators the most is how the continued use of digital currencies such as Binance raises concerns about potential exploitation for money laundering and a means for receiving proceeds of crime by criminal groups in the country.

They say recent events have indicated that the decentralised nature of crypto poses a risk for exploitation in financial exchanges.

It is easy to see why criminals, including terrorists and cybercriminals, can convert illicit funds into cryptocurrencies, transfer them across borders, and then convert them back into conventional currencies, making it difficult for authorities to trace the origins of the funds.

It can also offer a means for corrupt officials and businesses to siphon and clean up the proceeds of corruption.

The world over, cybercriminals exploit the lucid nature of crypto to receive proceeds of crime mostly from unsuspecting victims; an occurrence for which Binance has been punished or banned in many countries.

No doubt, the digital currency ecosystem offers substantial economic growth opportunities. However, as the creation of tech personalities for financial exchange, operating independently of any central regulatory framework or authority means that it is exposed to exploitation for money laundering and financial crimes.

It is therefore important for platforms such as Binance to operate responsibly and support the financial stability of countries where they operate rather than undermine it.
**If used, credit the writer and the News Agency of Nigeria (NAN)

General News

2023 Hajj: Gov. Yusuf  rewards casual worker for returning missing $16,000

By Aminu Garko
Gov. Abba Yusuf of Kano State has offered a permanent and pensionable appointment to a casual worker at the state Pilgrims Welfare Board, Dayyabu Haladu, who returned missing $16,000 during the last Hajj operation in Saudi Arabia.
This is contained in a statement by his Press Secretary Malam Bature Dawakin Tofa in Kano on Tuesday.
Gov. Yusuf also offered him a gift of N1 million and automatic slot for the forthcoming Hajj.
The governor disclosed this while receiving the report of the board for the 2023 Hajj.
He expressed appreciation to the casual worker for displaying self contentment.
He said such character displayed by Dayyabu was an excellent behaviour worthy of emulation by all and sundry.
“As a casual staff whose allowance is nothing to take home about, this gentleman managed to return the lost money.
“It shows how this person has a fear of Allah and he deserved to be celebrated,” he said.
 Yusuf called on the people of Kano to maintain the hard-earned reputation of the state by showcasing the good virtues of trustworthiness, self discipline and contentment so that they could live a happy life.
Responding, Dayyabu revealed that he returned the lost money to the state Pilgrims Welfare Board for the fear of Allah, knowing well that it is not proper to use what does not belong to him in spite of the current economic hardships.
He expressed gratitude to the governor for the gesture, saying that it was the most joyful moment of his life.
Meanwhile, the governor has promised that the famous tricyclist, Auwalu Salisu, who returned a missing N16m belonging to a foreigner, will soon be honoured by the government.
The governor said pointers have been indicating significant improvement in showing the extreme level of trustworthiness by the people of Kano, which by extension, was projecting the good image of the state. (NAN)(www.nannews.ng)
Edited by Idris Abdulrahman
Naira and Dollar
Economy/Business

Naira appreciates at I&E window

By Lydia Ngwakwe

The naira on Thursday gained against the dollar as it exchanged at N736.62 at the Investors and Exporters window.

The local currency appreciated by 4.53 per cent compared to the N771.59 it exchanged for the dollar on Wednesday.

The open indicative rate closed at N774.74 to the dollar on Thursday.

A spot exchange rate of N799.90 to the dollar was the highest rate recorded within the day’s trading before it settled at N736.62.

The naira sold for as low as 700 to the dollar within the day’s trading.

A total of 66.43 million dollars was traded at the investors and exporters window on Thursday. (NAN) (www.nannews.ng)

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Edited by Oluwole Sogunle