By Damilola A. Oyebayo & Rilwan Shittu


Put simply, cryptocurrency is digital money, i.e. money that is only accessible and useful through software platforms and cannot be held physically (like fiat/paper money). It serves as; a medium of exchange; a unit of account; and a store of value. Cryptocurrency (cryptos) relies on a decentralized network, it is transferred directly between peers i.e. users, unlike traditional payment network system which allows a third party—a central server or financial institution, to keep records of balances and transactions, and also controls user funds and personal details. Cryptocurrency is accessible to all users and confirmed through a process known as mining (by miners who prevent double spending of cryptocurrency) on a database which could be built on a technology like Blockchain.

Given that many countries in the world were not prepared for the incursion of this digital currency, states are grappling with the effective way to regulate this ‘disruptor’ and Nigeria, like many other countries has not accepted it as a legal tender or security. In this vein, on 28th February, 2018, the Central Bank of Nigeria (CBN)—the apex financial regulator in the Nigerian financial sector, issued a press release to Nigerians stating that cryptocurrencies such as Bitcoin, Ripples, Monero, Litecoin, Dogecoin, Onecoin, etc. are not legal tender in Nigeria, and consequently, no Virtual Currency Exchange (VCE) platform is licensed or regulated by the CBN. This directive follows the Circular issued on the same subject matter on 12 January 2017 by the CBN and similar recent warnings by the Securities and Exchange Commission (SEC) and Nigeria Deposit Insurance Commission (NDIC).

We believe it is imperative to examine this new directive and the justification for its issuance as well as its potential effect(s) for the stakeholders involved in the sector. For the purpose of this article, we have categorized the concerned stakeholders into the following; the CBN and other financial regulatory bodies; Virtual Currency Exchangers; Users i.e. the public; and Investors.

The CBN and other financial regulatory bodies

The CBN is an independent body established under the Central Bank of Nigeria Act, 2007 and its principal objects as provided under the Act include, among other things; ensuring monetary and price stability in the Nigerian economy; and promoting a sound financial system for Nigeria. It is in exercise of these functions that we believe CBN issued the Directives on Cryptocurrency. Primarily, the CBN Directives are simply to the effect that cryptocurrencies are not legal tender or licensed or regulated by the CBN and that dealers and investors deal/trade cryptos at their own risk. The circular however noted that where financial institutions (FIs) in Nigeria have customers that are Virtual Currencies Exchangers (VCEs), the FIs must ensure that the VCEs comply with the controls and requirements, specifically related to customer identification, verification and transaction monitoring requirements contained in the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) Regulations, 2013. The CBN also mandates the FIs to report suspicious transactions by the VCE to the Nigerian Financial Intelligence Unit (NFIU).

This implies that the CBN recognizes that Virtual Currencies Exchangers (VCEs) do exist and does not proscribe them from operating. However, cryptocurrency presents an opportunity for users to trade anonymously without any form of monitoring from a centralized body and it can be leveraged by Nigerians to commit financial crimes and illegal activities, like money laundering (a phenomenon popular in the country), trading in drugs, terrorism etc. Therefore, it became necessary for the CBN to mandate financial institutions in the country to ensure that VCEs in the country comply with AML/CFT requirements and are thus mandated to report any suspicious transactions to the NFIU—this could be seen as an indirect way of regulating cryptocurrency in the country.

Perhaps this also follows the recent global trend by financial regulators such as the Financial Conduct Authority (FCA) in the UK who have issued similar directives recently in response to the recent growth and popularity of cryptocurrencies as a digital means of exchange. However, while other countries such as Bangladesh have expressly held that cryptocurrencies are illegal, others such as the US & the Philippines for example are more open to it and are even putting together legislation for same. For instance, very recently, the U.S. Securities and Exchange Commission warned that many online trading platforms serving as venues for digital assets that are securities should register with the agency a national exchange, or qualify for an exemption. The rationale given by the agency is that since many platforms refer to themselves as “exchanges”, this can give the wrong impression to investors that they are regulated or meet the regulatory standards of a national securities exchange.

Cryptocurrencies are extremely high-risk speculative products, so it is no surprise that the regulators are beginning to step in to issue directives, regulations and even laws to protect state economic interests.

What does this mean for Virtual Currency Exchangers?

As stated above, it appears the Directives issued by the CBN do not preclude VCEs from ‘legitimately’ operating in Nigeria as long as they comply with relative requirements prescribed by the financial institutions with respect to AML/CFT Act. This Act provides for “Know Your Customer” (KYC) requirements which require that the FI shall not establish a business relationship until the relevant parties to the relationship have been identified, verified, the nature of the business they intend to conduct ascertained and expected or predictable pattern of transactions. The KYC process requires the FI to verify the identity of the founders of the VCE through issued ID cards or passports so as to discourage money laundering.

Similarly, we are of the opinion that to the extent that these platforms only facilitate the exchange of digital currencies, there is no need to obtain any payments or other necessary licenses or permits from the CBN or other regulatory bodies. However, where the platform seeks to facilitate the exchange of digital currency for fiat currency, there may be a need to either partner with a technical service provider or apply for relevant licenses or permits from the appropriate regulatory bodies, although we recognize that whether or not same will be granted is still open to debate.

In summary, for VCEs, our position is that provided they comply with these regulations and requirements, they are free to register with Financial Institutions for the purpose of facilitating the exchange of digital currencies in Nigeria (which must be legal), notwithstanding the CBN directive.

Users (i.e. the public)

For the users, the message is simple, bearing in mind that the directives do not expressly make it illegal to trade in digital currencies but only speaks to the effect that such trades are not regulated by any regulatory body in Nigeria, in the event of any crash in the value of cryptos or other related financial and investment issues, they bear the largest quantum of risk. More importantly, the global crypto market remains very volatile, it responds to all forms of speculations, events and regulations periodically. This goes to the value of cryptos, as such, returns on investments are highly uncertain. Therefore, it is important that before any investment is made into cryptocurrency on platforms domestically owned, an individual should conduct necessary due diligence in order to ensure that such platform is legal. A thorough background check of the VCE by the User will also give the User an opportunity to be able to take an action against the VCE in case of any dispute.


Primarily, investors also need to be careful when taking up investments in VCEs in form of debt or equity. They suffer the same fate like the users to the extent that asides that they do not enjoy any formal protection from regulatory bodies in Nigeria, the global crypto market is volatile. Therefore, a potential investor in the Nigerian crypto market is expected to conduct necessary due diligence before committing financially to any VCE.

Closing Thoughts

It is our view that the CBN Directive is a right step in the right direction, at least, pending a holistic evaluation and a comparative analysis (with other jurisdictions) of the pros and cons of the adoption of cryptocurrency in Nigeria. This will determine whether or not a regulatory framework should be developed in the near future, although, we suspect this might not happen anytime soon given how heavyweights (like the CBN governor) appear to be skeptical about cryptos in general.


Damilola A. Oyebayo and Rilwan Shittu are associates at Olaniwun Ajayi LP. The article was first published by the authors on LinkedIn. is happy to have the authorial permission to publish it. Views are those of the authors only.

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