On the last Friday in February 2021, the Vice President of Nigeria, Prof. Yemi Osinbajo became the most important voice in the government on the side of the crypto market.
During a presentation at the Bankers Committee conference, he suggested that the country’s financial regulator, the Central Bank of Nigeria (CBN) may be acting in fear rather than knowledge in putting prohibitions on financial services to the market.
According to the VP, the most sensible approach to the market is a robust regulation since it is impossible to enforce a total ban.
“Cryptocurrencies in the coming years will challenge traditional banking, including reserve banking, in ways that we cannot yet imagine, so we need to be prepared for that seismic shift,” Osinbajo said in a video posted on his official Twitter handle.
The CBN had said the directive became necessary to protect the financial system and the generality of Nigerians (including the youth population) from the risks inherent in crypto assets transactions. The regulator claimed the risks have escalated in recent times and have dire consequences for the integrity of the financial system and financial stability.
The market’s link with criminals is not a surprise for cryptocurrency exchanges. It is a reality many of them have taken measures to address. Their efforts have ensured that Nigeria does not feature on the list of countries considered a haven for money laundering, illicit transactions, and terrorism financing.
“Nigeria is one of the safest crypto markets in the world when it comes to the use of cryptocurrencies. Nigeria is not even on the map for illicit transactions for cryptocurrency transactions, but you find the likes of the US, Russia, Germany, and Vietnam,” Senator Ihenyen, President of Stakeholders in Blockchain Association of Nigeria (SiBAN) said in an interview.
In view of the delay by regulators to sanitise the market, exchanges that operate in the country have been self-regulating their operations. Self-regulation in the context of exchanges is the establishment of guidelines and a code of conduct for market participants to operate businesses within the ecosystem. Those guidelines span a broad spectrum, from knowing your customers (KYC) to maintaining transparency to ensuring security against hacks.
The guidelines employed by crypto exchanges often align with elements defined by the International Organisation of Securities Commissions (IOSCO) in a 2000 paper. The elements include transparency and accountability, contractual relationships, and coordination, and information sharing.
Users who register on Binance, for instance, have to provide their government-issued ID or BVN, and also pass a 3D liveliness test or Selfie amongst others, and accept the Terms, the Privacy Policy, and other Binance Platform Rules. They also have to agree to provide complete and accurate information when opening a Binance account and agree to timely update any information they provide to Binance to maintain the integrity and accuracy of the information.
“We are now required to comply with Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) legislation in several of the countries we operate in. Where that’s not yet the case, we have clear guidance from the Financial Action Task Force (FATF) to measure our approach against,” Luno noted in a post.
The London-based exchange said it applies robust AML and CFT controls that, wherever possible, are based upon the laws and regulations that apply to the financial services industry.
Local exchange, Quidax said its commitment to maintaining the best standards of KYC and AML is to prevent the abuse of its products and services for money laundering.
BuyCoins also said it has been proactive about setting up KYC and AML frameworks to limit the extent to which its users can perpetrate fraud. Prior to trading on the platform, they are required to undergo an effective yet user-friendly verification process involving the submission of their Bank Verification Number (BVN), phone numbers, and other legitimate forms of identification (i.e. international passport, National Identity card, etc.)
The use of BVN and other forms of ID shows an alignment between crypto exchanges and the Central Bank of Nigeria when it comes to the safe and ethical movement of money. The initiative that Nigerian crypto exchanges have taken to ensure that users are trading safely and in compliance with general anti-money laundering policies indicates a clear readiness to cooperate with national regulators.
On their part, Ihenyen said SiBAN, as well as other blockchain associations, have from time to time engaged operators to ensure they are compliant with the best practices. In 2020, the Blockchain Industry Coordinating Committee of Nigeria (BiCCoN) working together with authorities set a task force to police crypto scams in the country.
Ihenyen says the measures already put in place could be the best place to start regulating the industry instead of a ban. A ban, experts say, would potentially expose customers to poorly regulated investment products in other jurisdictions, which could lead to fewer avenues for recourse and less protection for consumers.
