Nigerian Central Bank Freezes Fintech Firms' Bank Accounts Accusing Them of Violating Forex Regulations

By Crypto Bucket

In August, the Central Bank of Nigeria (CBN) froze the bank accounts of four fintech firms. The bank suspended the accounts for 180 days. According to a report, it did so with an ex parte motion issued by the Federal High Court in Abuja. Nigerian chief Micheal Kaase Aondoakaa filed for the ex parte motion. He did so on behalf of CBN governor Godwin Emefiele. The freeze gives the CBN a chance to further investigate the firms' violations. Millions of dollars in assets are frozen in the meantime.

Why the Temporary Account Freeze?

Why has Nigeria frozen these fintech firms’ bank accounts? In an initial search, authorities found evidence of illegal activity. This prompted a desire to take further action. They suspected the four firms of engaging in unlicensed asset management. The central bank has also accused the four firms of using illegal forex to buy foreign shares.

The CBN seeks to further study their activities hoping to learn more. It also argued that the companies were harming the economy at large. A Nigerian prosecutor said that these companies’ asset trading lowered the naira's value. As a consequence, the judge decided to “block 15 of their accounts for about 180 days.”

Background on the Fintech Firms

These are the four fintech firms affected by the freeze:

  1. Rise Vest Technologies Limited
  2. Bamboo Systems Technology Limited
  3. Chaka Technologies Limited
  4. Trove Technologies Limited

Each of these firms is a big player in the Nigerian world of fintech. But what is the fintech field and what kinds of services do these firms offer?

Fintech refers to financial technology. It includes tech that offers financial services through the world of software. A growing field, this can range from online banking to crypto. In Nigeria, fintech affects payment services, securities trading, and bank accounts.

Founded in 2014, Rise Vest Technologies Limited is a fintech firm based in Lagos, Nigeria. It has four major investors. Bamboo System Technology Limited is a private software company based in Lagos. Founded in 2019, Chaka Technologies Limited is a fintech company with 8 investors. It offers access to more than 3,000 assets in over 40 different countries. Last, founded in 2018, Trove Technologies Limited is a fintech firm based in Lekki, Nigeria.

The Firm’s Response to the Freeze

Some of the firms are not worried about the latest restrictive measure from the Nigerian CBN. The CEO of Rise Vest Technologies Limited said the company would soon be back to business as usual. He was confident that the company would sort out trading with regulators in no time. Bamboo Systems Technology Limited said that the company was looking into it. It said that its legal teams would investigate the legality.

Crypto Regulation in Nigeria

Crypto's popularity has grown in Nigeria in recent years. This is in large part due to the depreciation of the country’s currency, the naira. The naira's value has fallen as a result of inflation and political turmoil.

With the naira’s value going down, consumers are looking for an alternative. Crypto is a natural choice for many. In investing, many seek a currency that exists outside of politics and regulation. Though it is risky, many see it as a way to take financial matters into their own hands. This is a common trend in countries across the world.

As a result of crypto’s growth, the CBN has added to its financial regulations. Compared to other countries, Nigeria has adopted a strict stance on regulation. This includes limiting the amount of foreign exchange that Nigerians can withdraw. In February 2021, the CBN banned lenders that service crypto exchanges. The CBN also restricted crypto firms’ access to the Nigerian banking system.

Despite the regulations, the naira is still sinking in value. It is also losing comparative value to other large currencies. In August, the exchange rate of the naira when compared to USD is 1:515 while the official rate is 1:411.

Why does the country want to regulate crypto trading? Nigeria has urged citizens to avoid crypto due to the risk and volatility. Because crypto works using a decentralized ledger, trades happen without government authority. This allows users to trade large amounts of money across borders without revealing their identities. This creates the potential for crime and black markets funded by crypto. It also allows users to build markets outside of governments. This was, in fact, a founding reason behind Bitcoin’s creation in 2009.

In spite of regulations and freezes, crypto continues to thrive in the country. Among African countries, Nigeria leads in crypto use. In 2020, Nigeria alone generated more than $400 million in crypto transactions. In 2021, users found ways to trade around the country's ban. This included direct payments and peer-to-peer trading.

Nigeria’s Securities and Exchange Commission set up a crypto fintech unit in September. The unit's goal is to first study crypto's use in the country and then create regulations. It will work alongside the CBN to regulate the industry.

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