Against the backdrop of increasing appetite for digital assets, particularly cryptocurrency, and its economic potentials as well as drawbacks, the financial regulatory bodies must brace up the challenge and work together to evolve a formidable framework to manage players in the segment, writes James Emejo
The CBN apparently stirred the hornet’s nest when it directed banks and other financial institutions last Friday to immediately close any accounts used to transact in cryptocurrency or facilitate payment for crypto currency exchange.
The pushback, which trailed the directive from stakeholders and members of the public had been swift and also understandably so.
After waiting for several years for a clear regulatory path for the operation of digital currencies in the country – and following the momentum which cryptocurrency had so far gathered – the latest announcement by the apex bank was least expected by digital assets enthusiasts.
The circular, addressed to banks and signed by the CBN Director, Banking Supervision, Mr. Bello Hassan and Director, Payments System Management Department, Mr. Musa Jimoh, further mandated the financial institutions to expose any individual and entity operating such accounts, warning that failure to adhere to the directives would attract strict sanctions.
The CBN further drew attention of the public to the risks associated with transactions in cryptocurrency.
However, analysts have blamed the regulators including the CBN, Securities and Exchange Commission (SEC), and the Nigeria Deposit Insurance Corporation (NDIC) for their failure to deliberate and forge a framework for the operation of digital currency, which is estimated at over $500 billion in market size.
Essentially, cryptocurrency (or crypto) is a digital unregulated currency that can be used to buy goods and services, but uses an online ledger with strong cryptography to secure online transactions.
Much of the interest in the currency, not backed by any government, is to trade for profit, with speculators at times driving prices skyward.
While some stakeholders have attribute the seeming lack of traction in cryptocurrency adoption in the country on absence of foresight, both the CBN and NDIC have continued to raise grave concerns over the patronage of digital currency, at least for the time being.
Both had insisted that at their present state and form, crypto currencies in particular and emerging disruptive technologies as well as others forms of digital financial assets, despite seeming benefits, have the potential to distort economic and monetary stability as well as broaden concerns over money laundering and other corruption related activities.
However, in what could assuage and well as put stakeholders at crossroads about the direction of regulatory authorities towards cryptocurrency adoption, the CBN Governor, Mr. Godwin Emefiele, at a seminar with the theme, “Understanding the Interface Between Cryptocurrency and Money Laundering in Abuja, in 2018, had indicated that cryptocurrency, though currently unregulated in the country, is neither permitted nor prohibited.
He said: “In spite of the above developments and the global push for regulation, the cryptocurrency market in Nigeria is currently unregulated and relevant stakeholder- agencies are currently under-studying the phenomenon.
“Presently, there is no legal framework for the regulation of cryptocurrencies in Nigeria. Based on existing legislation, the usage of cryptocurrency in Nigeria is neither permitted nor prohibited.”
According to him, the global use of cryptocurrency with the associated inherent risks continue to gather momentum, the need for legislative frameworks to address the challenges became imperative.
Emefiele therefore tasked financial institutions to prepare and protect themselves against both direct and indirect vulnerabilities, pointing out that there is need to understand the money laundering/terrorist financing risks as well as the inherent risks associated with virtual currency and attack vectors.
He said: “It is evident that criminals have already adapted their attacks to include vulnerable platforms wherever and when the opportunity manifests itself. Risks associated with the use of virtual currency and exchange would need to be nipped in the bud, if the safety and soundness of the financial system are to be sustained.