The Central Bank of Nigeria or CBN has removed the ban on banks operating accounts for cryptocurrency service providers and facilitating crypto transactions in the country, according to a December 22 circular sent to banks.

According to the central bank, global trends necessitate regulating virtual assets service providers (VASPs) activities, which include cryptocurrencies and related assets. Financial institutions affected by the policy can open accounts for VASPs registered with the Securities and Exchange Commission (SEC), subject to stringent know-your-customer (KYC) and anti-money laundering checks.

However, the report also noted that VASPs are required to deposit a minimum of 500 million Naira (approximately $550,000) in a bank account to qualify for a license. This regulation could potentially impact smaller market players.

“In view of the foregoing, the CBN hereby issues this guideline to provide guidance to financial institutions under its regulatory purview in respect of their banking relationship with VASPs in Nigeria,” said Haruna Mustafa, the director of the Financial Policy and Regulation Department.

“From the commencement of these Regulations, Fl 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.”

Although the new policy allows banks to facilitate crypto transactions, they are still prohibited from directly engaging in holding, trading or transacting in virtual currencies through their accounts.

As a result, there are specific withdrawal restrictions, such as no cash withdrawals and limitations on third-party check clearances. The only exception is settlements related to virtual asset transactions, which must be done through designated transfers or Manager’s cheques.

The new policy is Nigeria’s latest effort to regulate digital assets in the country. In May last year, the SEC published regulations for digital assets in an effort to find a middle ground between a complete ban on crypto assets and their unregulated use.

Earlier this year, the Nigerian Federal Ministry of Communications and Digital Economy (FMCDE) also passed the National Blockchain Policy, aiming to facilitate the formal integration of blockchain technology within the country.

Leading crypto adaptors

This updated policy reverses the central bank’s prior directive from February 2021. At the time, it cautioned strict penalties for banks or financial entities that do not comply with the directive, and all accounts held by cryptocurrency businesses must be shut down. The earlier order was due to concerns regarding money laundering, terrorism financing risks, operational vulnerabilities, as well as the absence of regulations and consumer protection measures.

Despite the ban, Nigeria remains one of the global leaders in cryptocurrency usage, ownership and awareness. The country’s young, tech-savvy population actively embraces cryptocurrencies, often resorting to peer-to-peer trading through crypto exchanges to bypass the conventional financial sector.

A September report from New York-based blockchain research firm Chainalysis showed that Nigeria experienced a 9 percent year-over-year growth in crypto transactions, reaching $56.7 billion between July 2022 and June 2023. Among the top 50 countries globally, it stands as one of merely six nations where the volume of crypto transactions expanded during the time frame studied.

According to the firm, cryptocurrency presents a potential solution to Nigeria’s economic difficulties. The country has faced two recessions since 2016 due to political instability, the COVID-19 pandemic and plummeting oil prices. In addition, high unemployment, with over 20 million people seeking jobs in 2021, has prompted many Nigerians to consider relocating.

This situation led to a cash shortage, particularly impacting the unbanked population, and raised uncertainties about the use of older currency notes. Amid an election period and record-high inflation surpassing 20 percent in early 2023, Nigeria’s uncertain economic landscape has driven citizens to explore financial alternatives, including cryptocurrencies.