…Bans unapproved tokens, tightens crypto oversight
To strengthen oversight of digital assets, the Central Bank of Nigeria (CBN) has introduced stricter regulatory requirements for the operation of non-security virtual assets in the country.
Under the new rules, naira-backed stablecoin issuers must maintain a minimum capital of N10 billion, while operators issuing foreign currency-backed stablecoins are required to have N15 billion.
Other virtual asset service providers (VASPs), including businesses offering payment, transfer, custody, wallet and related services, must maintain a minimum capital of N1 billion. Their operations will also be subject to licensing, supervision and reporting requirements.
The regulations prohibit individuals and corporate organisations from issuing, distributing, exchanging, facilitating or providing regulated virtual asset services in or from Nigeria, or targeting Nigerian customers, without the appropriate CBN licence or authorisation.
The framework, titled “Regulations for the Operations of Non-Security Virtual Assets in Nigeria”, establishes a risk-based system for regulating stablecoins, Deposit Money Tokens (DMTs) and other digital tokens primarily designed for payments, settlement and the transfer of value.
The CBN said the regulations are intended to promote innovation in digital payments, remittances and commerce while protecting consumers, preserving financial stability, strengthening monetary policy and preventing money laundering, terrorism financing and other financial crimes.
However, virtual assets classified as securities, investment contracts and other capital market products will remain under the regulatory jurisdiction of the Securities and Exchange Commission (SEC).
The regulations classify stablecoins into two categories: Class 1, covering naira-referenced stablecoins, and Class 2, covering foreign currency-referenced stablecoins.
Class 1 stablecoins must maintain a one-to-one relationship with the naira and be fully backed by eligible naira-denominated reserve assets. Class 2 stablecoins must reference currencies other than the naira and comply with applicable foreign exchange, reserve, liquidity and redemption requirements.
The CBN has prohibited algorithmic stablecoins, which depend mainly on computer programmes and changes in token supply to maintain their value without adequate reserve backing.
Other prohibited tokens include those backed mainly by other virtual assets, those issued by sanctioned persons or entities in sanctioned jurisdictions, and instruments marketed as stablecoins without giving holders an enforceable right to redeem them at their stated value.
The Bank also warned that lending or borrowing regulated virtual assets would require separate regulatory approval. Operators are prohibited from using customers’ assets or stablecoin reserves for unauthorised investment or lending activities.
A major requirement is that stablecoin issuers must establish locally incorporated companies and obtain the appropriate CBN licences before operating in Nigeria.
The regulations make clear that foreign regulatory approval, registration or an arrangement with a Nigerian intermediary cannot replace the country’s incorporation and licensing requirements.
The minimum paid-up capital is N10 billion for Class 1 issuers and N15 billion for Class 2 operators. Other VASPs must maintain at least N1 billion, although the CBN may impose higher requirements depending on the size and risk profile of their operations.
For companies already licensed by the Securities and Exchange Commission (SEC), the N1 billion requirement for non-security virtual asset services will be additional to their existing SEC capital obligations. Financial institutions seeking to offer virtual asset payment services must also obtain CBN approval and provide the additional capital required.
Issuers must further maintain sufficient liquid assets to cover at least six months of projected operating expenses or the cost of an orderly shutdown, whichever is higher.
To protect customers against losses arising from insolvency or poor reserve management, the regulations prescribe strict rules for assets backing stablecoins.
Issuers cannot create new tokens without first receiving equivalent eligible reserve assets. This means they cannot issue stablecoins based on expected future deposits or anticipated payments.
Reserve assets must be kept separate from issuers’ operational funds and other corporate assets. They must also be held under arrangements that protect stablecoin holders and give them priority claims over the reserve pool if an issuer becomes insolvent.
For naira-backed stablecoins, eligible reserves include deposits with the CBN, short-term Federal Government securities and naira deposits with licensed commercial banks, among other approved instruments.
Class 1 issuers must keep at least 20 per cent of their total reserve pool in a designated account with the CBN, although the Bank may prescribe a higher percentage.
Reserves for foreign currency-backed stablecoins must be held in the relevant reference currency. They may comprise cash deposits with approved banks, short-term sovereign securities and qualifying overnight repurchase agreements.
Issuers must also maintain an additional two per cent in overcollateralisation above the full reserve-backing requirement.
The regulations prohibit issuers from paying interest or yield to stablecoin holders. They also bar operators from advertising stablecoins as bank deposits or presenting them as products covered by the Nigeria Deposit Insurance Corporation (NDIC) deposit insurance scheme.
Before commencing issuance, operators must publish approved white papers explaining their products, reserve arrangements, redemption procedures, risks, governance structures and regulatory status.
Stablecoin holders are entitled to redeem their tokens at par in the currency to which they are referenced, subject to applicable requirements. However, redemption and settlement involving foreign currency-backed stablecoins must comply with Nigeria’s foreign exchange regulations and may be required to pass through authorised dealers or other approved channels.
The framework also strengthens customers’ right to seek redress over service failures. Issuers must acknowledge complaints within two business days and provide final responses within 20 business days, unless a longer period is agreed with the complainant in writing.
Peer-to-peer (P2P) virtual asset platforms will also require CBN approval. They must identify and verify customers, monitor transactions and prevent the use of third-party, fictitious or improperly attributed accounts and wallets.
Such platforms are prohibited from facilitating transactions designed to evade foreign exchange rules, customer limits, anti-money laundering requirements or regulatory reporting obligations.
The CBN has introduced enhanced supervision for stablecoins considered capable of posing systemic risks to the financial system.
A stablecoin may be designated as systemic if its naira-equivalent circulating supply exceeds N500 billion daily for 30 consecutive days or if more than five million people in Nigeria hold or use it.
The Bank may also consider transaction volumes, the concentration of users and the proportion of the token’s activities linked to Nigeria.
Operators must comply with customer identification, transaction monitoring, sanctions screening and suspicious transaction reporting requirements. They must also observe the Financial Action Task Force’s Travel Rule, which requires prescribed information about senders and beneficiaries to accompany qualifying virtual asset transfers.
The regulations empower the CBN to conduct inspections, demand records and information, impose additional operational requirements, restrict business activities, suspend or withdraw licences and impose administrative monetary penalties for violations.
Other enforcement measures include ordering corrective action, requiring restitution where appropriate and referring suspected criminal conduct to law enforcement agencies. The Bank may also publish sanctions imposed on erring operators.
The framework is expected to bring stablecoin issuance and virtual asset payment services under closer regulatory supervision by setting minimum financial, operational and consumer protection standards while allowing digital financial services to develop within a more structured environment.