In January 2017, the Nigerian Central Bank issued a statement banning any transactions in Bitcoins by financial institutions. The banks’ regulator circulated a statement to all banks in the country warning them against facilitating the trading of Bitcoins in the country.
Then, in November 2017, the Senate President stated that the “Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Commission (NDIC) have set up a committee to look at the use of bitcoin in this country …as there is clearly a need to establish a framework for the regulation of bitcoin and other cryptocurrencies.”
In Nigeria, it may be advisable to not deal in virtual currencies until a regulatory regime is put in place by the relevant regulatory bodies.
Nigeria recorded its first case of bitcoin fraud/litigation earlier in 2017. In that case, the local bank account of one of the more popular bitcoin exchange platforms, whose services are available in Nigeria, was frozen, following an order of court, ordering that the account be frozen and with the effect that Naira withdrawals and deposits were disabled and couldn’t be processed by the exchanger’s platform. In that case, a fraudster stole the identity of a Nigerian bank customer and then, accessed the said customer’s bank account. The fraudster then created an account on the exchanger’s platform, using the customer’s identity, the transferred the customer’s money to the bitcoin exchanger and converted it to bitcoin.
Although the Central Bank of Nigeria has issued a regulation that relates to cryptocurrencies, the relevant CBN Regulation does not prohibit the operation of crypto-businesses in Nigeria. The Securities and Exchange Commission (SEC) also issued a public notice warning the public to exercise caution with regards to making investments in cryptocurrencies. There is yet no definitive regulation from the SEC on investment in crypto-businesses or on Initial Coin Offerings (ICOs).
In point of law, cryptocurrencies, as a subject matter for regulation, will appear to transcend the regulatory competence of the CBN and is ideally, initially, a matter for legislative consideration and review. The debate at that level needs be centred on the determination of whether cryptocurrencies should be classified as a currency or as a commodity. Although we have a view on this point, there are differing implications that a classification will engender. Where it is decided that cryptocurrencies be classified as currency, CBN will rightly exercise regulatory control; otherwise, not. There are also tax considerations that arise from a classification, either way. For instance, if bitcoin or other cryptocurrencies is considered a commodity, this classification may trigger sales tax obligations. Also, a classification as a commodity will take bitcoins (and other cryptocurrencies) out of the Exclusive Legislative List in the Nigerian constitution — not being legal tender- and provide state governments with the legislative competence to regulate cryptocurrencies. From a property rights perspective, a commodity classification for bitcoin establishes it as a definite form of property over which specific title can be exercised. A ‘currency’ classification, will however be considered in law as a mere claim for value.
In point of substance, what the relevant CBN Regulation does is to prohibit Banks and Financial Institutions (BFIs) from investing in cryptocurrencies and from carrying on business as a virtual currency exchange. The CBN regulation also requires BFIs to ensure that operators of crypto-currency exchanges comply with standard AML/CFT requirements.
For investors and businessmen looking to set up cryptocurrency services/ businesses in Nigeria, crypto-businesses are generally permissible under Nigerian law. However, it is incorrect to assume that there exists no legal framework for regulation of crypto-businesses in Nigeria. Although the CBN is yet to issue generally-applicable guidelines specific to the trading of cryptocurrencies in Nigeria, there exists a discernible legal framework, with which investors and promoters of crypto-businesses must comply.
The existing regulations which persons engaged in crypto-businesses must comply with vary, depending on a number of factors. One of such factors, is the nature of the crypto-business. Where, for instance, it’s an exchanger business, defining factors will include:
Exchangers, whose services are currently available in Nigeria, regardless of the nature of their repositories, will need to review their operations to bring same in line with regulatory standards, prescribed under existing laws, which are applicable to crypto-businesses in Nigeria.
Cryptocurrencies and blockchain are now firmly on the radar of the CBN and under consideration. We expect that the CBN will issue regulations on the operation of cryptocurrency businesses before the 2nd quarter of 2018. At the very minimum, we expect that the regulations will make provisions regarding:
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