Introduction
In an effort to improve foreign exchange liquidity in the country, the Central Bank of Nigeria (CBN), as the primary regulator of the Nigerian banking industry, has continuously introduced policies and issued circulars to financial institutions and foreign exchange operators. On January 31, 2024, the CBN published updated licensing and operational guidelines for International Money Transfer Operators (IMTOs) (them “Guidelines”), restricting some of their operations. Similarly, on June 24, 2024, the CBN issued a new circular (the “New Circular”) introducing measures aimed at facilitating remittance flows through official channels and improving the efficiency of the foreign exchange market.
This newsletter highlights some of the provisions of the New Circular and its implementation plan.
International Money Transfer Operators and the Scope of their Operations
International Money Transfer Operators (IMTOs) are companies authorized by the Central Bank of Nigeria (CBN) to facilitate the transfer of funds from individuals or entities abroad to recipients in Nigeria. They enable seamless cross-border financial transactions, providing a reliable means for people living overseas to remit foreign exchange to their families, friends, or business partners in Nigeria.
By the provisions of the Guidelines, IMTOs are only permitted to conduct inbound international money transfer transactions and other categories of transactions. They are specifically prohibited from conducting outbound transactions or buying foreign exchange from the domestic market for settlement. They must adhere strictly to these specified activities and are not allowed to engage in any other business.
Key Introductions in the New Circular
The CBN in the New Circular now provides that eligible IMTOs will be able to directly access the CBN window or operate through their Authorized Dealer Banks (ADBs) to execute and settle foreign exchange transactions. Therefore, IMTOs will be able to trade on the official market. This will enable the improvement of local currency liquidity.
The CBN in its circular outlined several requirements which IMTOs are required to comply with. They include;
- Transactions executed and confirmed on any trading day will have the option for same-day settlement, provided they are conducted before 12 noon on the same day.
- Transactions with the CBN shall be priced at the prevailing Nigerian Autonomous Foreign Exchange Market (NAFEM) rate.
- All participants, including IMTOs and ADBs, are mandated to submit dailyregulatory returns to the CBN. These reports must include comprehensive details on the sources of funds, ensuring accountability and regulatory compliance.
- IMTOs interested in taking advantage of the provisions of the New Circular are required to confirm their partner ADBs and provide them with standard settlement instructions.
These requirements are intended to provide a seamless implementation of the new measures and ensure operational processes.
Conclusion
The provisions of the New Circular represent a significant step towards ensuring foreign exchange liquidity. By providing IMTOs with direct access to the CBN window and enforcing stringent regulatory and reporting requirements, the CBN intends to improve efficiency and operations of IMTOs in the Nigerian market. These initiatives are expected to streamline remittance flows, ensuring that funds are swiftly and securely channeled through the official channels.
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