CRYPTOCURRENCY CLAMPDOWN: CBN, FG IN POLICY SUMMERSAULTS

Government decisions should be well thought out and, based on research and expert opinions. They should not be knee-jack decisions and trial and error.

Four Nigerian fintech startups OPay, Moniepoint, Paga and Palmpay will block the accounts of customers dealing in cryptocurrency and report those transactions to law enforcement after Nigeria’s National Security Adviser (NSA) classified crypto trading as a national security issue.

That designation means a new crypto regulation that will ban peer-to-peer trading of cryptocurrencies is in the works

A person with knowledge of the conversations said a regulation to ban p2p trading will soon be made public.

If the ban happens, it will represent a major regulatory shift after the Bola Tinubu administration initially softened its stance on crypto.

In February 2021, the Central Bank of Nigeria issued a circular to deposit money banks (DMBs), non-bank financial institutions (NBFIs), and OFIs to close accounts of persons or entities involved in cryptocurrency transactions within their systems.

In December 2023, the administration of President Bola Tinubu lifted the two-year ban directing all banks and OFIs to carry out cryptocurrency services with the provisions of the guidelines to regulate the activities of virtual assets service providers.

The Central Bank then amended those rules, giving fintech startups a deadline of March 2024 to request identification for all classes of accounts.

The December circular also stated that it supersedes the ones from 2017 and 2021, which restricted banks and other financial institutions from operating accounts for cryptocurrency service provider

Yet, the early successes have been reversed and in the past two months, authorities have blamed a volatile FX regime on crypto speculators.

The rationale for a ban on p2p trading is linked to the Central Bank’s belief that crypto traders use peer-to-peer trading to manipulate the naira via a pump-and-dump strategy.

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In February 2024, the Central Bank Governor, Olayemi Cardoso, claimed $26 billion in untraceable transactions were processed by Binance.

It led to a crackdown on the global exchange Binance and the freezing of over 1,000 bank accounts involved in peer-to-peer transactions. Yet authorities have gone even further.

Last week, four prominent fintechs were directed to stop opening new customer accounts. At the time, it was unclear if the directive was from the Economic and Financial Crimes Commission or the NSA.

Following this regulatory action, major fintech firms, including Opay and PalmPay, sent emails to their customers on Friday, warning them against trading in cryptocurrency or any virtual currency on their apps, and threatened to block any accounts found engaging in such activities.

A spokesperson for the NSA denied any connection with the incident and refused to respond to reporters’ enquiries.

Tosin Eniolorunda, the CEO of Moniepoint, confirmed that the NSA ordered the pause in new customer signups.  “The NSA found a lot of accounts that were involved in crypto trading and blocked the accounts. They were worried that fintechs are rapid in opening accounts and told us to stop onboarding.”

These easy-to-open accounts, made possible by relaxed rules to enhance financial inclusion, have come under scrutiny in the last year. Traditional banks claimed that these accounts were often conduits for money fraudulently obtained by bad actors.

However, Nigerians, especially the P2P traders have begun to express displeasure at the new development by the Federal Government as many believe that cryptocurrency is legal and should not be seen as a factor behind the naira weakening.

The Federal Government may consider the suspension of the $56.7bn peer-to-peer cryptocurrency market after a crucial meeting between the Securities and Exchange Commission, and digital asset operators scheduled for Monday.

The CBN had earlier denied a report saying it issued a directive requiring all banks and financial institutions to identify individuals or entities engaging in transactions with cryptocurrency exchanges and to ensure that such accounts are put on “Post No Debit” instruction, a directive issued by a bank or financial institution to restrict certain transactions on a customer’s account, for six months.

Agencies of the Nigerian government seem not to work in synergy. It is confusing to know who the banks and financial institutions should take directives from: The NSA, the EFCC, the SEC or the apex CBN?

Without recourse to available information and statistics, the government reversed a subsisting two-year old directive restricting cryptocurrency activities. Less than three months after, the same government again reversed itself. The orders given came from different agencies and the tone and details of the orders were varied and inconsistent.

This smirks of a government whose activities are un-coordinated. The different MDAs act independently without adequate inter-agency coordination.

The CBN Governor, Olayemi Cardoso, is blaming P2P trading for fall in the value of the Naira instead of taking a look at the fiscal policies introduced by the Tinubu administration at inception.

His penchant for buck passing was also recently displayed in blaming the Palliative Programme of the same government he is serving in for the ravaging food inflation.

One wonders if the agencies of the Tinubu administration do inter-agency consultations before decisions are made or have a way of synergizing on critical policy decisions.

Government decisions should be well thought out and, based on research and expert opinions. They should not be knee-jack decisions and trial and error.

Now who is going to tell the President this?