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CBN Introduces Sweeping Reforms To Sanitise BDC Operations

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As part of efforts to stabilise the value of the naira exchange rate, the Central Bank of Nigeria (CBN) on Friday, issued draft revised regulatory and supervisory guidelines for Bureau de Change (BDC) Operations in the country, in which it prescribed a minimum capital requirement of N2billion for Tier-1 firms in the sub-sector.

Under the new regulatory framework, tier-2 BDCs are expected to have N500 million as minimum capital requirement.

This comes just as the CBN, on Friday advised the Nigeria Customs Service (NCS) and other related parties to adopt the closing foreign exchange (FX) rate on the date of opening Form M for the importation of goods for import duty assessment going forward. 

The new regulatory guidelines for BDC significantly enhances the regulatory framework for the operations of BDCs as part of ongoing reforms of the Nigerian Foreign Exchange market.

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The document revises the permissible activities, licensing requirements, corporate governance and Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) provisions for the operators, and sets out new record-keeping and reporting requirements, among others.

These were contained in a circular addressed to BDCs and stakeholders in the financial services industry and signed by CBN Director, Director, Financial Policy and Regulation Department, Mr. Haruna Mustafa.

Under the new guidelines, the central bank introduced two categories of BDC licences including Tier 1 BDCs, which are authorised to operate on a national basis, and could open branches and may appoint franchisees, subject to approval of the CBN.

A Tier 1 BDC shall exercise supervisory oversight over its franchisees. All franchisees shall adopt their franchisor’s name, branding, technology platform and rendition requirements, with N2 billion as minimum capital requirement.

On the other hand, Tier 2 BDCs are authorised to operate only in one state or the FCT and may have up to three locations – a head office and two branches, subject to approval of the CBN, with N500 million as minimum capital requirement.

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The regulation, however, barred BDCs from engaging in street-trading, maintaining any type of account for any member of the public, including accepting any asset for safe keeping/custody; taking deposits from or granting loans to members of the public in any currency and in any form; retail sale of foreign currencies to non-individuals, except for BTA; international outward transfers; engaging in off-shore business or maintaining foreign correspondent relationship with any foreign establishment; and opening or maintaining any account with any bank or financial institution outside Nigeria among others.

It further barred the BDCs from borrowing sums which in aggregate exceed the equivalent of 30 percent of its shareholders’ funds unimpaired by losses, in the BDC’s audited financial statements of the preceding year.

The draft regulation further stipulated that sellers of the equivalent of $10,000 and above to a BDC were required to declare the source of the foreign exchange and comply with all AML/CFT/CPF regulations and foreign exchange laws and regulations going forward.

The document stressed that payments to customers for cash purchases of foreign currency, the equivalent of above $500, shall be by transfer to the customer’s Naira bank account, adding that if the customer is non-resident (whether Nigerian or not), a BDC shall issue the customer a prepaid NGN card.

The CBN said where such a card was issued, relevant maximum credit and cumulative limits, in line with relevant Know Your Customer requirements, shall apply.

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Furthermore, payments to customers for cash purchases of foreign currency of the equivalent of $500 and below may be made in cash.

Also, BDCs are required to limit the sale of FX to Personal travel allowance (PTA); Business Travel Allowance (BTA) – provided that a person who receives BTA on behalf of a non-individual entity shall not be entitled to PTA for the same period.

Sale of FX by BDCs shall also be for payment of medical bills, school fees; and repurchase of unused Naira from a non-resident from whom the BDC had sourced foreign currency in the course of that visit.

The bank said a beneficiary of BTA or PTA shall receive up to 25 percent of the foreign currency in cash. In other words, at least 75 percent of any sale of foreign currency by a BDC shall be transferred to the customer electronically (to the customer’s Nigerian domiciliary account or prepaid card).

The CBN on Friday advised the NCS and other related parties to adopt the closing FX rate on the date of opening Form M for the importation of goods for import duty assessment going forward. 

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Also, the central bank added that effective February 26, 2024, the new rate would remain valid until the date of termination of the importation and clearance of goods by importers.

The bank disclosed this in a circular dated February 23, 2024, titled, “Foreign Exchange Rates for Import Duty Assessment”, which was signed by CBN Director, Trade and Exchange Department, Dr. Hassan Mahmoud, and addressed to all authorised dealers, NCS, and the public.

The central bank noted that following the liberalisation of the FX market on the Willing Buyer-Willing Seller trading principle, the bank had noted the concerns of importers of goods and services in the irregular changes in the Import duty assessment levies applied by the customs.

The apex bank noted that these developments had further built uncertainties around the pricing structure of goods and services in the economy, creating abnormal increases in the final sale prices of items, which was largely driven by uncertainties, rather than traditional market fundamentals, with implications to near-term inflation trend.

The CBN however clarified that the new directive would enable the customs and importers to effectively plan appropriately and reduce the uncertainties around varying daily exchange rates in determining their revenue or cost structure, respectively.

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The circular stated that, “Effective February 26, 2024, the closing rate on the date of opening of Form M for the importation of goods and services would be the rates that would apply for the assessment of import duty.

“This supersedes the requirements of Memorandum 9, J (2) of the Central Bank of Nigeria Foreign Exchange Manual. (Revised Edition), 2018.”

The CBN stated that it was particularly mindful of the initial volatility and price distortions in the aftermath of the FX market liberalisation.

The bank, however, expressed confidence that the reforms in the FX segment would in the medium term, ensure stability in the market and entrench market confidence necessary to attract investment capital for the growth and development of the Nigerian economy.

James Emejo and Nume Ekeghe 

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