The Central Bank of Nigeria (CBN) has intensified its oversight of the nation’s foreign exchange (FX) market, setting a firm deadline for compliance reports from financial institutions. As part of its broader efforts to foster transparency, ethical practices, and good governance, the CBN has mandated that all market participants submit their self-assessment reports on adherence to the newly introduced Nigeria FX Code by January 31, 2025. This significant move reflects the bank’s commitment to cleaning up the foreign exchange sector, ensuring fair practices, and boosting investor confidence.
A Move Toward Transparency and Governance
The newly implemented Nigeria FX Code, which came into force on December 2, 2024, sets out comprehensive guidelines designed to regulate the operations of entities engaged in wholesale FX activities within Nigeria. The code is tailored to ensure that market practices align with global best practices, while addressing the unique challenges posed by Nigeria’s FX environment.
In a statement released earlier this week, the CBN outlined the compliance expectations. “Market Participants will be required to conduct a self-assessment and submit to the CBN a report on the institution’s level of compliance with the FX Code by January 31, 2025. This report must be signed off by the institution’s board of directors, along with an action plan to address any gaps in compliance,” the statement read.
The CBN’s directive is aimed at ensuring that the foreign exchange market operates on a foundation of sound ethics, proper governance, and accountability. The FX Code itself covers several critical areas, including risk management, information sharing, transaction execution, and settlement processes. By adhering to the FX Code, market participants are expected to elevate their operations, aligning more closely with international standards of fairness and transparency.
Compliance and Implementation: What Institutions Need to Know
All authorised dealers licensed under the CBN Act of 2007, as well as other entities involved in wholesale FX trading, are required to submit their compliance reports. The self-assessment must reflect the institution’s current adherence to the code, and it must include a detailed implementation plan for addressing any shortcomings.
Importantly, the reports must be endorsed by the institution’s board of directors. This ensures a top-down commitment to compliance, with board members held accountable for the institution’s approach to implementing the FX Code. Furthermore, institutions are required to submit extracts from board meeting minutes, providing evidence of board oversight in the process.
“The goal of this initiative is not just about following the letter of the law, but embracing a culture of integrity in Nigeria’s FX market,” said a senior CBN official in a press briefing. “By requiring the endorsement of these reports by the board of directors, we ensure that leadership is directly involved in fostering accountability and transparency at all levels of the institution.”
In addition to the initial submission due on January 31, 2025, the CBN has mandated quarterly compliance reports moving forward. These reports are to be submitted within 14 days after the end of each calendar quarter, with the first quarterly report due by March 31, 2025. The quarterly submissions are expected to provide an ongoing review of compliance and allow the CBN to monitor trends and identify any emerging issues that may need attention.
Enforcement and Penalties: No Room for Non-Compliance
The CBN’s push for stringent compliance is supported by the enforcement mechanisms outlined in both the CBN Act of 2007 and the Bank and Other Financial Institutions Act (BOFIA) of 2020. The central bank has made it clear that non-compliance will result in financial penalties, signaling that it will not hesitate to take action against erring institutions.
“The CBN has always stressed that maintaining a stable and transparent FX market is crucial for the economy,” said a regulatory expert. “The penalties for non-compliance will serve as a deterrent, ensuring that financial institutions take their obligations under the FX Code seriously.”
These measures come amid growing concerns about unethical practices in Nigeria’s FX market, including issues related to misreporting, unfair trade execution, and opaque transactions. The CBN’s directive is expected to help restore credibility in the sector and improve investor confidence, particularly at a time when global financial observers are closely monitoring Nigeria’s economic policies.
Global Standards: Adapting to Nigeria’s Unique Challenges
The Nigeria FX Code is based on the Global FX Code, a set of standards established by the Bank for International Settlements (BIS) and the Global Foreign Exchange Committee (GFXC) to guide market conduct worldwide. However, the Nigerian code is customized to address specific local challenges, such as the high volatility of the naira, inflationary pressures, and the country’s unique economic context.
“The Nigerian FX Code takes into account global best practices while recognizing the distinct dynamics of Nigeria’s market,” explained a financial analyst. “By aligning with international standards, the CBN is not only addressing local challenges but also ensuring that Nigeria’s FX market remains competitive on the global stage.”
The CBN’s push for compliance also comes in the wake of significant reforms in Nigeria’s financial sector, particularly following the introduction of several measures aimed at stabilizing the value of the naira and curbing speculative activities. The central bank’s focus on enhancing the regulatory environment within the FX market is seen as a natural extension of these broader reforms.
