INTRODUCTION

The Central Bank of Nigeria (“CBN”) on February 23, 2024, issued a circular addressed to all Bureau De Change (BDC) operators and stakeholders in the financial services industry. The circular introduced the draft revised regulatory and supervisory guidelines for BDC operations in Nigeria (“Draft Guidelines”), and it is intended that the Draft Guidelines will significantly enhance the regulatory framework for the operations of BDCs as part of the ongoing reforms of the Nigerian foreign exchange market.

In this article, we highlight some of the introductions to the regulatory framework for BDC operators presented for consideration in the Draft Guidelines.

  1. Who Can Participate in the Ownership of BDCs?

The Draft Guidelines provides a list/categories of persons or entities who are prohibited from engaging in the ownership of BDCs, whether directly or indirectly. Such persons or entities include:

  1. Banks and other financial institutions, including holding companies and payment service providers;
  2. Existing employees of financial service regulatory and supervisory agencies;
  3. Existing employees of regulated financial service providers;
  4. Governments at all levels, and public officers of the Federal Republic of Nigeria;
  5. Non-governmental organizations, co-operative societies, charitable organisations, academic and religious institutions;
  6. Non-Nigerian natural persons, whether resident in Nigeria or not;
  7. Non-resident non-regulated companies;
  8. Telecommunication services providers;
  9. Sanctioned individuals and entities;
  10. A shareholder in another BDC (whether directly or indirectly); and
  11. Any other persons which the CBN may from time to time designate.
  1. What are the Permissible and Non-Permissible Activities?

Unlike the existing Guidelines for the Operation of Bureau De Change in Nigeria (“Prevailing Guidelines”) which only provide for non-permissible activities, the Draft Guidelines clearly provide for both permissible and non-permissible activities as follows:

a. Permissible activities: a BDC may-

  1. acquire foreign currency from the sources listed in the Draft Guidelines;
  2. sell foreign exchange;
  3. open foreign currency and naira accounts with commercial or non-interest banks;
  4. collaborate with their banks to issue prepaid cards; and
  5. serve as cash-out points for international money transfer operators (IMTOs).

 b. Non-permissible activities:  in addition to the list of non-permissible activities provided for in the Prevailing Guideline, the Draft Guidelines makes the following additions-

  1. maintaining any type of account for any member of the public, including accepting any assets for safe keeping/custody;
  2. taking deposits from or granting loans to members of the public;
  3. retail sale of foreign currencies to non-individuals except for BTA;
  4. acting as custodian of foreign currency on behalf of customers;
  5. borrowing sums which in aggregate exceed the equivalent of 30% of shareholders' funds unimpaired by losses;
  6. acting as custodian of foreign currency on behalf of customers;
  7. engaging in forwards, futures, options, or other derivative/speculative transactions;
  8. obtaining foreign exchange from other sources other than those listed in the Draft Guidelines;
  9. dealing in gold or other precious metals;
  10. financing political activities; etc.
  1. Where can BDCs Source Foreign Currencies?

The Draft Guidelines also make provisions on where BDCs may source foreign currencies from. BDCs are allowed to source foreign currencies from:

  1. Tourists
  2. Returnees from diaspora
  3. Expatriates and residents with foreign exchange inflow from work, travel, investments, or their domiciliary accounts;
  4. IMTOs, embassies, the Nigerian Foreign Exchange Market (NFEM)
  5. Hotels that are authorized to buy foreign currency
  1. What are the Conditions for Sale of Foreign currencies?

In order to legally sell foreign currencies, BDCs must ensure the following:

a. Purpose of the sale- the sale must be for at least one of the following purposes:

  1. Personal Travel Allowance (PTA) or Business Travel Allowance (BTA), provided that in the case of BTA, the person receiving it on behalf of an entity shall not be entitled to PTA within the same period;
  2. Payment of medical bills or school fees;
  3. Repurchase of unused Naira from a non-resident from whom the BDC has sourced foreign currency during the course of his/her visit.

b. Payments for the sale shall be by transfer to the BDC's naira account;

c. A beneficiary of BTA or PTA must receive up to 25% of the amount requested for in cash, and only 75% of the amount requested transferred electronically to the beneficiary's Nigerian domiciliary account or prepaid card. Where however the amount requested is the equivalent of $500, the beneficiary may receive it in cash.

  1. What are the Licence Categories?

Prior to the introduction of the Draft Guidelines, there had been no categorization of BDC licences. The Draft Guidelines however introduces 2 distinct licence categories thus:

  1. Tier 1 BDC– authorized to operate across the country. BDCs in this category are permitted to open branches (which is restricted under the Prevailing Guidelines) and appoint franchises subject to CBN's approval.
  2. Tier 2 BDC– authorized to operate only in one state or the FCT. It may however have up to 3 (three) locations (a head office and two branches) within the state subject to CBN's approval.
  1. What are the Provisions Regarding the Establishment of Franchises?

As stated above, only Tier 1 BDCs may be allowed to establish franchises and have multiple locations across the country, subject to the CBN's approval.

In maintaining a franchise, the franchisors are required to adhere to the following standards:

  1. each franchisor is required to have a franchising policy approved by the CBN;
  2. franchisors are primarily responsible for monitoring the operations of their franchisees to ensure alignment to the franchisor's standards;
  3. the franchisees must be registered limited liability companies, with “BDC Franchisee” in their names;
  4. a franchisor cannot appoint a franchisee in a state where it does not have a branch;
  5. the franchisee shall be bound to the same IT, AML/CFT/CPF, and other regulatory policies applicable to the franchisor;
  6. there can only be a maximum of 10 franchisees in one state; and
  7. the franchisor shall be responsible for submitting consolidated reports to the CBN on its operations and those of its franchisees.

CONCLUSION

The Draft Guidelines and the provisions are potentially subject to amendments following the receipt of comments and input from relevant stakeholders in the financial services sector.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.