At about 12:35am on Tuesday, one of my colleagues received an email from Ecobank.
It started with a few paragraphs reminding him of the Central Bank of Nigeria’s directive that banks should stop enabling cryptocurrency transactions. The crucial message was this:
“…please be informed that any account identified as transacting or operating in cryptocurrency exchanges within our system will be closed accordingly. We therefore request that you kindly use your account properly and for only permitted transactions.”
The email reads like a warning, informing customers of what will happen if they trade in cryptocurrencies henceforth.
That interpretation would be different from what we have seen from a few banks, particularly so-called Tier 1 commercial banks.
We reported ongoing account closures by Access Bank and Guaranty Trust Bank, where affected customers say they sent or received cash for cryptocurrencies through their bank accounts before February 5. We have not received a response from Ecobank on whether they have suspended customer accounts that traded cryptocurrencies before the CBN sent its circular on the 5th of February.
Given the apparent difference in interpretation, it is important to ask what exactly the CBN is directing banks to do.
So we sent a set of questions to six Nigerian law firms whose partners are familiar with banking and finance regulations in Nigeria. Four responded to us. We’ve categorized their responses according to the questions we sent and produced their responses as received, with some edits for clarity and brevity.
- Is the CBN’s circular of February 5 (and the follow-up explainer on February 7) a direct instruction to banks to close the account of every individual customer that has ever traded in cryptocurrencies?
“No. By my reading, the instruction was to close accounts associated with cryptocurrency exchanges,” says Adeoye Adefulu of Odujinrin and Adefulu.
Fred Onuobia of G. Elias & Co, says banks essentially have two options with respect to the CBN’s directive: either return transfers or deposits received for the purchase of cryptocurrencies or close accounts they reasonably believe are used to fund transactions in cryptocurrencies.
“Actions that a bank will take in this regard turns on the CBN’s interpretation of and the bank’s understanding of the purport of the CBN directives,” Onuobia says.
The response from lawyers at Olaniwun Ajayi LP unpacks two key words from the CBN directive:
“Given that the letter makes use of the terms “dealing in” and “facilitating” payments for cryptocurrency exchanges as a ground for the immediate closure of accounts, which connotes continuous, present activity, our view is that the letter should be read to mean closure of accounts currently dealing in or facilitating payments for cryptocurrency exchanges and does not operate with retroactive effect.
However, we expect banks to take whatever legal steps they deem necessary to ensure compliance even if such action is borne out of just erring on the side of caution.”
- What’s your view on whether this account closure amounts to retroactive punishment? The CBN’s last circular on crypto was from January 2017 and it did not restrict banks from enabling such transactions.
Our sample of lawyers here is small, but there is a consensus: the CBN’s directive on account closure should not apply retroactively.
“Based on the wording of the directive, the CBN does not intend that the closure of accounts will be retroactive,” Soyibo says.
“It simply implies that persons and entities facilitating payments for cryptocurrency exchanges on a going forward basis will no longer be able to carry out such transactions by utilizing their accounts with banks and will also have such bank accounts closed.”
The Olaniwun Ajayi team offers a similar opinion.
“To the extent that the letter is silent on the timeline of the applicability of the letter, the issue of retroactive interpretation or application therefore does not arise.
However, it may not be surprising to find financial institutions closing accounts of individuals that traded in cryptocurrency in the past on the basis that such accounts raise certain suspicions pursuant to the letter.”
Adefulu agrees with the views above. On the CBN’s insistence that the most recent directive is merely a reminder of the 2017 circular, he says:
“There is no other way to read the 2017 circular other than it permits banks to have crypto exchanges as customers as long as they ensure that they have effective [anti-money laundering] controls.
The only prohibition in that circular was against banks holding/trading virtual currencies with their own money.”
- What is the general due process for closing customer accounts? I ask because at least one bank does not appear to be notifying affected customers that their accounts are being closed.
The Olaniwun Ajayi team says banks are supposed to notify a customer whose account is about to be closed against their will:
“…the Bank notifies the customer of the infraction and can take the action, as a mode of restriction, to close the account. Where there are available funds in the account, the bank issues a bank draft in the name of the customer for the available funds.”
Soyibo says account closure processes may vary from one bank to another and that it is subject to the terms under which the account was opened. His view is that while banks generally inform a customer that their account will be closed, “the bank may not [be] obliged to give a reason for the closure of the account.
In such situations, Soyibo says “the [rationale] for such closure will be due to suspicious activity or transactions by the customer.”
- In your view, is it really necessary for banks to close accounts that may have traded in the past? What is the effect of potentially closing thousands of accounts in the banking system?
Soyibo gives a straight answer:
“In my opinion, I do not think it is necessary for banks to close the accounts of persons or entities that have traded in cryptocurrencies in the past particularly where there is no record repeated activity in trading in cryptocurrency transactions”
For the Olaniwun Ajayi team, the banks’ decision here is influenced by a preference to avoid CBN penalties and err on the side of caution.
“In the absence of an express interpretation of the phrase ‘dealing in’ or ‘facilitating’ payments with cryptocurrency exchangers, the banks would be required to decide whether accounts which have traded in the past would be caught by the provision and be liable to be closed.”
Also, banks may not be very bothered about the negative impacts of account closure if they believe there is a greater risk to the financial stability of the country to leave the accounts open and operational, the Olaniwun Ajayi team says.
In that case, it should not be a surprise if banks decide to proceed with retroactive account closures, whether or not they are questionable and done without prior information to customers.