CBN raises capital requirement for BDCs, sets other guidelines
The Central Bank of Nigeria on Friday announced that the minimum capital requirements for BDC operators in Nigeria will be N2 billion for Tier 1 license holders.
The bank added that the requirement for a Tier 2 licence would be N500 million, marking a departure from the previous threshold of N35 million for a general license.
The new directives are contained in the CBN’s revised Regulatory and Supervisory Guidelines for Bureau de Change (BDC) Operations in Nigeria, according to the powers conferred to the central bank under Section 56 of the Banks and Other Financial Institutions Act, 2020 (BOFIA).
According to a circular released by Haruna Mustapha, director of Financial Policy and Regulation Department, the guidelines are designed to enhance the regulatory framework amidst ongoing reforms in the foreign exchange market.
Key areas addressed in the revised guidelines include permissible activities, licensing requirements, corporate governance standards, and anti-money laundering provisions for BDCs.
Capital Requirement
According to the central bank, Tier 1 BDCs authorized nationally can open branches and appoint franchisees with CBN approval. They can oversee franchisees who must adopt their branding while Tier 2 BDCs, limited to one state, can have three locations but cannot appoint franchisees.
In the previous guideline that took effect in January 2016, the non-refundable application fee and licensing fee were N100 thousand and N1 million respectively. The mandatory caution deposit was N35 million and the annual licensing renewal fee was N250,000.
With the revised guideline, Tier 1 operators must now deposit a N200 million caution deposit, with application and license fees of N1 million and N5 million respectively, and an annual renewal fee of N5 million.
Tier 2 operators will deposit N50 million for caution, with application and license fees of N250,000 and N2 million respectively, and an annual renewal fee of N1 million.
According to Paul Alaje, the Chief Economist at SPM Professionals, the new grouping is a good development but will come with its challenges. He said the increased barrier to entry for owning a BDC license makes it harder, especially during the current economic crisis.
Board Requirement
In the previous guidelines, the board of a BDC is expected to be made up of a minimum of three directors and a maximum of five.
“The number of independent non-executive directors shall be at least 2 for tier 1 BDCs and 1 for tier 2 BDCs, provided that where a BDC is publicly listed, it shall comply with the applicable provisions of CAMA 2020. A tier 1 BDC shall have an Executive Director other than the MD/CEO. A tier 2 BDC may have an ED apart from the MD/CEO,” it said.
The new guideline forbids a one-gender board while encouraging women’s economic empowerment in line with the Nigerian Sustainable Banking Principles. It also mandates prospective and current directors of a BDC to disclose their board memberships in other entities.
According to the guideline, resigning directors citing concerns about the BDC’s operations must submit a written statement to the chairman, forwarding a copy to the CBN. If a non-executive director resigns, the board must appoint a replacement within 90 days to ensure they remain the majority.
“Where a merger, acquisition, take-over, or any form of business combination involves the appointment of a director from the Board of the legacy institution, the length of service of such director shall include both the periods served pre and post-combination,” it said.
Operation
It said all transactions by residents shall only commence after electronic retrieval of the potential customer’s BVN or Tax Identification Number (TIN) from the NIBSS or Federal Inland Revenue Service (FIRS) databases, and the details confirmed to match with the potential customer’s standard identification document.
For foreign currency cash purchases, BDCs are mandated to ask sellers of $10,000 and above to declare the source of the foreign exchange.
Mr Alaje said this move will bring transparency to the market and curb money laundering. He is, however, concerned that people could still exchange cash without the BDC knowing, highlighting a challenge in implementation.
“The challenge is that of implementation, two persons can meet in any corner of any room and exchange cash without BDC explaining. Recall that the former CBN Governor has done a similar reform where BDCs will need to report to whom they gave money but BDCs did not completely comply and there was no punishment.
“With this new regulation whether there will be punishment or not is another kettle of fish. If there is punishment for instance punishment could be no supply of FX to such BDC that faulted the law” he said.
He suggested that the CBN may have to adjust the guidelines in the coming period.
The CBN also stipulated that all Naira proceeds from customer-present transactions be electronically credited or transferred to the customer’s naira account or prepaid card.
At Border Control Areas, BDCs are expected to transfer Naira to the customer’s naira account or prepaid card for Nigerians. Non-resident visitors without active accounts must receive a prepaid Naira card with set limits, obtained from a licensed body, while international passports or valid travel documents are necessary for forex transactions with BDCs.
In addition to the conditions listed in the previous guidelines, the revised guidelines noted that the license of operators who use unauthorised accounts for BDC transactions will be revoked. The same penalty awaits BDCs that exceed specified foreign exchange limits and fail to acquire required transaction documentation.
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The Central Bank of Nigeria on Friday announced that the minimum capital requirements for BDC operators in Nigeria will be N2 billion for Tier 1 license holders.
The bank added that the requirement for a Tier 2 licence would be N500 million, marking a departure from the previous threshold of N35 million for a general license.
The new directives are contained in the CBN’s revised Regulatory and Supervisory Guidelines for Bureau de Change (BDC) Operations in Nigeria, according to the powers conferred to the central bank under Section 56 of the Banks and Other Financial Institutions Act, 2020 (BOFIA).
According to a circular released by Haruna Mustapha, director of Financial Policy and Regulation Department, the guidelines are designed to enhance the regulatory framework amidst ongoing reforms in the foreign exchange market.
Key areas addressed in the revised guidelines include permissible activities, licensing requirements, corporate governance standards, and anti-money laundering provisions for BDCs.
Capital Requirement
According to the central bank, Tier 1 BDCs authorized nationally can open branches and appoint franchisees with CBN approval. They can oversee franchisees who must adopt their branding while Tier 2 BDCs, limited to one state, can have three locations but cannot appoint franchisees.
In the previous guideline that took effect in January 2016, the non-refundable application fee and licensing fee were N100 thousand and N1 million respectively. The mandatory caution deposit was N35 million and the annual licensing renewal fee was N250,000.
With the revised guideline, Tier 1 operators must now deposit a N200 million caution deposit, with application and license fees of N1 million and N5 million respectively, and an annual renewal fee of N5 million.
Tier 2 operators will deposit N50 million for caution, with application and license fees of N250,000 and N2 million respectively, and an annual renewal fee of N1 million.
According to Paul Alaje, the Chief Economist at SPM Professionals, the new grouping is a good development but will come with its challenges. He said the increased barrier to entry for owning a BDC license makes it harder, especially during the current economic crisis.
Board Requirement
In the previous guidelines, the board of a BDC is expected to be made up of a minimum of three directors and a maximum of five.
“The number of independent non-executive directors shall be at least 2 for tier 1 BDCs and 1 for tier 2 BDCs, provided that where a BDC is publicly listed, it shall comply with the applicable provisions of CAMA 2020. A tier 1 BDC shall have an Executive Director other than the MD/CEO. A tier 2 BDC may have an ED apart from the MD/CEO,” it said.
The new guideline forbids a one-gender board while encouraging women’s economic empowerment in line with the Nigerian Sustainable Banking Principles. It also mandates prospective and current directors of a BDC to disclose their board memberships in other entities.
According to the guideline, resigning directors citing concerns about the BDC’s operations must submit a written statement to the chairman, forwarding a copy to the CBN. If a non-executive director resigns, the board must appoint a replacement within 90 days to ensure they remain the majority.
“Where a merger, acquisition, take-over, or any form of business combination involves the appointment of a director from the Board of the legacy institution, the length of service of such director shall include both the periods served pre and post-combination,” it said.
Operation
It said all transactions by residents shall only commence after electronic retrieval of the potential customer’s BVN or Tax Identification Number (TIN) from the NIBSS or Federal Inland Revenue Service (FIRS) databases, and the details confirmed to match with the potential customer’s standard identification document.
For foreign currency cash purchases, BDCs are mandated to ask sellers of $10,000 and above to declare the source of the foreign exchange.
Mr Alaje said this move will bring transparency to the market and curb money laundering. He is, however, concerned that people could still exchange cash without the BDC knowing, highlighting a challenge in implementation.
“The challenge is that of implementation, two persons can meet in any corner of any room and exchange cash without BDC explaining. Recall that the former CBN Governor has done a similar reform where BDCs will need to report to whom they gave money but BDCs did not completely comply and there was no punishment.
“With this new regulation whether there will be punishment or not is another kettle of fish. If there is punishment for instance punishment could be no supply of FX to such BDC that faulted the law” he said.
He suggested that the CBN may have to adjust the guidelines in the coming period.
The CBN also stipulated that all Naira proceeds from customer-present transactions be electronically credited or transferred to the customer’s naira account or prepaid card.
At Border Control Areas, BDCs are expected to transfer Naira to the customer’s naira account or prepaid card for Nigerians. Non-resident visitors without active accounts must receive a prepaid Naira card with set limits, obtained from a licensed body, while international passports or valid travel documents are necessary for forex transactions with BDCs.
In addition to the conditions listed in the previous guidelines, the revised guidelines noted that the license of operators who use unauthorised accounts for BDC transactions will be revoked. The same penalty awaits BDCs that exceed specified foreign exchange limits and fail to acquire required transaction documentation.
Support PREMIUM TIMES’ journalism of integrity and credibility
Good journalism costs a lot of money. Yet only good journalism can ensure the possibility of a good society, an accountable democracy, and a transparent government.
For continued free access to the best investigative journalism in the country we ask you to consider making a modest support to this noble endeavour.
By contributing to PREMIUM TIMES, you are helping to sustain a journalism of relevance and ensuring it remains free and available to all.
Donate
TEXT AD: Call Willie – +2348098788999
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