CBN’s effort to force financial institutions to close cryptocurrency accounts has sparked angry backlash.
The Central Bank of Nigeria (CBN) has renewed its efforts to clamp down on the rising use of cryptocurrencies in the country and has forced the Nigerian Securities and Exchange Commission (SEC) to rethink its plans to regulate them.
On February 5, the CBN ordered all financial institutions to close cryptocurrency accounts immediately or face “severe regulatory sanctions”.
The move highlights the two regulators conflicting positions around the use of cryptocurrencies which has led to confusion in the financial sector.
The SEC – which recognised cryptocurrencies as investments in September – has been planning a sandbox for fintechs to experiment with cryptocurrencies and has been looking into rules to govern cryptocurrency trading.
Prominent politicians blame digital currencies for the weakening of the Nigerian naira
The CBN said it had previously sent an order to banks in January 2017 banning them from engaging with cryptocurrencies and that the February missive was a reminder.
In response to the CBN’s clamp down, the SEC issued a statement: “For the purpose of admittance into the SEC regulatory incubation framework, the assessment of all persons (and products) affected by the CBN circular of February 5, 2021, is hereby put on hold until such persons are able to operate bank accounts within the Nigerian banking system.”
The SEC added that it was looking to provide regulatory certainty and acknowledged the CBN’s views that cryptocurrencies could threaten investor protection and financial stability.
“In light of these facts, we have engaged with the CBN and agreed to work together to further analyse, 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,” the SEC said.
A divisive issue
The CBN’s move sparked an angry response in Nigeria where the trading of cryptocurrencies is hugely popular. A number of social media campaigns have been launched in response to the ban, according to reports.
Cryptocurrencies are a divisive issue in the country with prominent senators blaming digital currencies for the weakening of the Nigerian naira while other politicians advocate their use to support the country’s booming fintech sector.
Critics of the CBN’s move claim the ban will stunt innovation in the country’s banks because digital currencies could be used to develop new products.
In response to the backlash, the central bank published another statement on February 7, seeking to justify its decision. The CBN pointed out that other central banks around the world have also expressed concerns about the risks involved with cryptocurrencies which can fluctuate heavily in price and can be used by criminals because of their anonymity.
The CBN cited quotes from legendary US investor Warren Buffett who has called cryptocurrencies “rat poison squared” and a “gambling device”.
The central bank reiterated that the use of cryptos in Nigeria is illegal and backed the argument that they could undermine the Nigerian naira.
In response to the ban, many Nigerians have started using online peer-to-peer exchanges to carry on trading cryptocurrencies, according to reports.
This article first appeared in The Banker’s sister publication Global Risk Regulator.
