Nigerian fintech lawyer Senator Ihenyen said the new central bank guidelines which bar the withdrawal of cash from accounts operated by virtual asset service providers (VASPs) seem “reasonable and understandable.” The lawyer however believes an “outright” prohibition of cash withdrawals from VASPs operated accounts may “be in conflict with the CBN’s own cashless policy.”
‘Fraudulent Leakages’
Nigerian fintech lawyer Senator Ihenyen has said that the new Central Bank of Nigeria (CBN) guidelines prohibiting cash withdrawals from bank accounts operated by virtual asset service providers may at first glance seem “reasonable and understandable.” Citing the central bank’s past circulars, Ihenyen suggested that the prohibition may be consistent with the CBN’s goal of combating the use of cash in funding criminal activities, as well as containing the high cost of handling cash.
The lawyer also highlighted the impact of cash transactions on monetary policy, as well as the effect of “fraudulent leakages” that crypto-to-fiat cash withdrawals may have on the financial system, as other possible reasons why the CBN has included the prohibition in the new guidelines.
As reported by Bitcoin.com News, the CBN has now lifted the prohibition which barred financial institutions from dealing with crypto entities. In its Dec. 22 circular, the Nigerian central bank suggested that the prohibition issued on Feb. 5, 2021, did not adhere to the Financial Action Task Force (FATF) recommendation 15 which calls for the regulation of VASPs to “prevent misuse of virtual assets for ML/TF/PF.”
Nevertheless, the latest CBN circular still stipulates that banks and other financial institutions are still “prohibited from holding, trading and/or transacting in virtual currencies on their own account.” This is in addition to the cash withdrawal prohibition.
CBN Cashless Policy
However, Ihenyen believes that the central bank should also consider its existing policy and other factors if it is genuinely interested in ensuring the soundness and safety of the financial system.
“An outright elimination of cash withdrawals from all accounts operated by VASPs may in fact be in conflict with the CBN’s own cashless policy. Under the cashless policy, cash withdrawal limits, not cash withdrawal prohibition, were introduced. In fact, the CBN cashless policy does not prohibit cash withdrawals above the stipulated limits,” Ihenyen told Bitcoin.com News.
The lawyer added that if these limits are exceeded, the cashless policy recommends imposing a cash handling fee. This policy applies to all accounts, including those operated by VASPs. However, government revenue-generation accounts, primary mortgage institutions, microfinance banks, and embassies are exempt from this policy.
Alternatively, VASPs may be required to hold all customer funds for transfers in a designated customer account, according to Ihenyen. Under this arrangement, customer funds will be domiciled with any deposit money bank in Nigeria.
This separation of the customer account from other accounts operated by the VASPs makes it easier for the VASP operator, the financial, and the CBN to manage the cash withdrawal limits regime.
Commenting on the importance of having engagements, the lawyer said:
“No doubt, as financial innovations evolve, regulation will gradually come along. With continual stakeholder engagements involving regulators, innovators, and users, I believe that the consumer—and Nigeria generally—will be the greatest winner.”
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