Cryptocurrency exchanges in Nigeria are taking measures to ensure a safe trading environment for investors with upgraded security protocols. The need to control scam activities like fraudulent transactions, is sequel to pressure being mounted on industry stakeholders, from regulators such as the Central Bank of Nigeria (CBN) over the high-risk nature of the market to investors. This is partly behind the recent decision by the CBN to place prohibitions on financial services from supporting cryptocurrency transactions in Nigeria.
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.
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.
“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,” Luno, one of the channels for crypto business, noted in a post.
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.
However, despite the pressure, Vice President Yemi Osinbajo, recently became the most important voice in the government on the side of the crypto market in Nigeria. During a recent presentation at the Bankers’ Committee conference, Osinbajo suggested that the country’s financial regulator, the CBN might 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 recently 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.