Regulatory Roundup for the Month of October.

The country's financial sector witnessed significant regulatory changes geared towards enhancing the foreign exchange market. The Central Bank of Nigeria (CBN) introduced the "Nigerian FX Code" to bolster the integrity of the foreign exchange market, particularly amidst ongoing challenges. To streamline foreign exchange transactions, the CBN also launched the Electronic Foreign Exchange Matching System (EFEMS). This platform mandates all authorized dealers to conduct foreign exchange transactions exclusively through EFEMS. The regulatory push to enhance financial accessibility extends to Nigerians in the diaspora. The Nigeria Inter-Bank Settlement Payment System (NIBSS) is set to launch a Non-resident Bank Verification Number (BVN) platform in December 2024. This platform will empower diaspora Nigerians to remotely manage their local bank accounts and seamlessly complete Know-Your-Customer (KYC) processes. To delve deeper into these regulatory developments and their implications for individuals and businesses, please continue reading.

The Nigerian Foreign Exchange Code (FX Code)

The CBN has introduced the Nigerian Foreign Exchange (FX) Code to strengthen the country's foreign exchange market. The code aims to improve market integrity and efficiency, promote fair practices, and foster a conducive environment for market participants. By setting clear standards and guidelines, the FX Code seeks to enhance the overall functioning of Nigeria's foreign exchange market and support the country's flexible exchange rate regime. The Code, effective since October 14, establishes a robust framework for Market Participants including Bureau de Change (BDC) operators, International Money Transfer Operators (IMTOs), FinTechs, and others.

Principles of The FX Code

The FX Code, based on principles from the FX Global Code and best practices in leading jurisdictions, is maintained by the Global Foreign Exchange Committee (GFXC). It is designed to foster ethical conduct and enhance efficiency within Nigeria's foreign exchange market. The Code is structured around six core principles: Ethics, Governance, Execution, Information Sharing, Risk Management and Compliance, and Confirmation and Settlement Processes. These principles uphold high standards of ethical behavior and operational excellence while ensuring a transparent, competitive, and fair market environment.?

Compliance Requirements Under The FX Code

To ensure that the Market Participant complies with the provisions of this code, the FX Code has set out compliance requirements to promote accountability, and transparency, and uphold ethical standards. The requirements are as follows:?

1. Self-Assessment: Market Participants are required to complete a self-assessment and submit a report on their institution’s compliance with the FX Code to the CBN by December 31, 2024. Following this, all Market Participants are required to submit to the CBN a detailed compliance implementation plan, approved by their Board, by the same date.
2. Reporting Obligations: Market Participants will be required to submit a quarterly compliance report on adherence to the FX Code to the Financial Markets Department (FMD) within 14 days after the end of each calendar quarter. The first report is due by December 31, 2024.
3. Implementation Mechanisms: The CBN may take appropriate enforcement and administrative actions, including imposing monetary penalties, as stipulated under the CBN Act 2007 and BOFIA Act 2020, against any Market Participant that fails to comply with the FX Code.?

The Code also outlines other compliance requirements, such as training and awareness, proper record keeping, and the implementation of a risk management framework.?

It is important for all Market Participants to familiarize themselves with the provisions of the FX Code and work towards implementing them in their various organisations.?

Electronic Foreign Exchange Matching System

On the 2nd of October 2024, the Central Bank of Nigeria (CBN) released a circular to authorised dealers in the foreign exchange market, announcing the introduction of the Electronic Foreign Exchange Matching System (EFEMS). The EFEMS for the Foreign Exchange transactions in the Nigerian Foreign Exchange Market (NFEM) is to be implemented by the 1st of December, 2024. Before this date, there will be a 2-week test run which will commence in November.? From the implementation date, all authorised dealers are directed to commence foreign exchange transactions on the EFEMS where all the transactions will be reflected immediately.?

According to the Circular, the CBN will also publish real-time prices and buy or sell orders from the EFEMS. The CBN also announced that it will collaborate with the Financial Market Dealers Association (FMDA) to publish rules for the EFEMS. The NFEM participants will also be guided by the Nigerian FX Code and the revised Marketing Operating Guidelines for the NFEM.?

NIBSS Set to Launch BVN Platform For Nigerians In Diaspora

CBN Governor Yemi Cardoso announced that by December 2024, NIBSS will launch a non-resident BVN platform. This initiative will enable Nigerians living abroad to operate their local bank accounts without the need for physical biometric verification. Speaking at the World Bank and IMF meeting in Washington D.C., Cardoso emphasized that the goal is to make it easier for Nigerians in the diaspora to engage with the Nigerian economy without unnecessary challenges.

Final Thoughts

The regulatory developments introduced by the CBN in October mark a significant shift in Nigeria’s foreign exchange and financial landscape. The Nigerian FX Code sets a robust framework to promote transparency, fairness, and ethical practices, while the Electronic Foreign Exchange Matching System (EFEMS) promises to streamline transactions and increase market efficiency. Additionally, the upcoming launch of the non-resident BVN platform by NIBSS highlights the CBN's commitment to ensuring financial inclusivity for Nigerians in the diaspora. As these initiatives roll out, Market Participants and individuals alike must stay informed and adapt to these changes to navigate the evolving regulatory environment successfully.