The Central Bank of Nigeria (CBN) has released draft guidelines aimed at strengthening the regulation of Bureau De Change (BDC) operations in the country including increment in capital requirements.
The currency market has witnessed so much volatility in recent times and the naira has since depreciated by over 60 percent at the Nigerian Autonomous Foreign Exchange Market (NAFEM), also known as the official market. The currency has also plunged by 50 percent on the streets otherwise known as the black market.
The CBN chief has since come up with several means to correct the volatility and arbitrage such as a reversal of the dollar-for-dollar policy, the International Oil Company’s repatriation of only 50 percent of proceeds, ban on crypto platforms.
The most recent is the Revised Regulatory and Supervisory Guidelines for Bureau De Change Operations in Nigeria- Exposure draft released on Friday.
Kelvin Emmanuel, director of Obsidian Archenar Nigeria said that the revised regulatory guidelines are a masterstroke from Cardoso. He said that regulating BDCs is a key step in fighting illicit financial flows for terrorist financing in Nigeria.
“If these guidelines can be judiciously enforced without someone calling the Villa for a waiver, we will make headway with not just a semblance of stability in the FX market, but also be removed from the grey list for AML/CFT by the Financial Action Task Force (FATF),” he said
Here are five things you should know about the new CBN guidelines
Increase in capital requirements
The CBN in the draft mentioned a proposed increase in the minimum capital requirements for Bureau de Change (BDC) operators in the country to N2 billion and N500 million for Tier 1 and Tier 2 licenses.
This is a change from the previous requirement of 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 CBN draft noted.
Sources of foreign currencies
In the 2002 and 2015 regulations, the allowance of private sources provided a gateway for money laundering and round-tripping of FX sourced in the official market.
The Foreign Exchange Act of 1995 allowed for nondisclosure of sources of any foreign currency to be sold in the 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,” the Act states.
“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.
In the new guideline the CBN listed sources which BDCs can get FX, they include tourists, returnees from the diaspora, International Monetary Transfers Operators, and Embassies among a few others.
There are also restrictions on Net Open Positions to stamp out speculation. This generally refers to the difference between the total amount of FX BDCs being held (bought) and the total amount sold (but not yet repurchased). The new system aims to eliminate any prior inconsistencies in cash availability by BDCs.
Digital integration with the CBN
To enhance market transparency and promote effective price discovery, full digital integration with the Central Bank of Nigeria (CBN) will be a prerequisite for operating as a BDC
within the foreign exchange market. This integration will provide the CBN 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,” the draft said.
BDCs to have external auditors
A new development in the draft is for BDCs to have external auditors. CBN is trying to boost corporate governance and ensure a proactive approach to compliance.
“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,” the draft mentioned.
It also stated that the tenure of an external audit firm in any BDC shall not exceed 10 consecutive years, subject to the rotation of audit engagement partner at least once every five years, “Such firms shall not be re-appointed until after a cool-off period of five consecutive years.”
BVN requirements
All 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,” the draft stated
