The Central Bank of Nigeria (CBN) had to end its sale of foreign exchange to Bureau De Change (BDC) operators after the money traders failed to heed several warnings from the apex bank on the need to ensure that they also comply with regulatory requirements, writes TONY CHUKWUNYEM
In his speech at the general meeting of BDC directors organised by the Association of Bureaux De Change Operator of Nigeria (ABCON) held in April this year, the Director, Other Financial Institutions Department at CBN, Dalahatu Abubakar, called on the BDC directors to improve on their corporate governance responsibilities and ensure compliance with regulatory requirements.
Noting that one of the roles of BDCs is to aid the monetary authorities in checking money laundering and other criminal activities, Abubakar stressed that it was the duty of BDC directors to ensure that their companies are not used for any illegal activity. But that was not the first time the CBN would be harping on the need for BDCs to ensure compliance with regulatory requirements.
In December 2018, the apex bank threatened to sanction BDC operators that failed to submit their audited financial statements. Indeed, the regulator has, over the years, consistently had to threaten to wield the big stick to get BDCs to comply with regulatory requirements.
For instance, in 2008, during the tenure of then CBN Governor, Prof. Chukwuma Soludo, the regulator threatened to revoke the operating license of BDC operators that sell official foreign exchange above the two per cent maximum spread. At that time, the global financial crisis had resulted in a sharp drop in the price of oil (the commodity that accounts for about 90 per cent of Nigeria’s forex earnings) and the Soludo-led CBN was grappling with falling external reserves and a volatile exchange rate.
However, financial analysts have pointed out that the impact of COVID-19 crisis on Nigeria’s economy is even worse than what the country experienced during the global financial crisis of 2008/2009. With the price of oil dropping to record lows during the height of the pandemic in April last year, coupled with the exit of foreign portfolio investors, CBN has been under a lot of pressure trying to meet surging dollar demand in a country as heavily import-dependent as Nigeria and battling speculators that are hoping to take position against the naira. Clearly, CBN was expected to take drastic measures when it discovered that licensed BDC operators were actively involved in activities detrimental to naira.
Thus, the announcement by CBN Governor, Mr. Godwin Emefiele, while briefing journalists at the end of the Monetary Policy Committee (MPC) meeting, last Tuesday, that the regulator had ended its forex sales to BDCs, was widely welcomed by most Nigerians. Emefiele said that the apex bank took the decision because the currency dealers had deviated from the reasons they were licenced, adding that the BDCs abandoned their role in the financial system and now act as agents that facilitate graft and corruption in the country. “We cannot continue with the bad practices that are happening at the BDC market,” the CBN governor said.
In addition, he said the decision to end FX sales to BDC operators was also necessitated by their dubious and unwholesome practices, pointing out that the operators have gone beyond their primary role of being retail dealers of FX to wholesale dealers. According to the CBN governor, rather than catering for the retail users who required about $5,000 to meet their FX needs, the BDCs were transacting in millions of dollars. Noting that there has been a surge in the number of BDCs in recent times, Emefiele said that there was evidence of prevailing ownership of several BDCs by the same promoters to procure multiple FX from the apex bank, adding that CBN receives close to 150 new applications for BDC licenses every month.
He disclosed that “several international organisations and embassies patronise BDC through illegal forex dealers to fund their institutions,” warning that CBN “will deal ruthlessly with Nigerian banks that deal with illegal BDCs and we will report foreign organisations patronising them.” Emefiele also announced that with the stoppage of its forex sales to the BDCs, CBN had directed all commercial banks to immediately create designated branches for the sale and disposal of FX to customers who deserve it for legitimate purposes. According to Emefiele, CBN will now channel weekly FX allocations hitherto meant for BDCs to commercial banks. He also said commercial banks were now permitted to begin accepting FX cash deposits from their customers.
Furthermore, he said CBN will no longer process or issue new licences for BDC operations in the country, adding that all licences being currently processed, regardless of the stage, had been suspended. In a circular it issued 48 hours after Emefiele’s announcement of the stoppage of forex sales to BDCs, CBN said it would immediately commence the refund of capital deposits and licencing fees, where applicable, to BDC promoters who had pending license applications with the bank. As earlier stated, the CBN’s move against the BDCs was widely welcomed by many Nigerians.
For instance, a past president of the Chartered Institute of Bankers of Nigeria (CIBN), Okechukwu Unegbu, expressed support for CBN, saying that discontinuation of forex sales to BDCs was meant to “discipline” the money traders. He said that BDCs have been abusing the naira by engaging in round-tripping and all forms of illegal activities, adding that CBN needed to take a drastic measure to call them to order. Similarly, Dr. Boniface Chizea stated that while the CBN’s action would lead to some temporary difficulties for Nigerians, it was for the overall good of the country.
He said: But as we groan and complain, it is incumbent upon us to rise, smell the coffee and be accountable. We must imbibe the patriotic mindset to make whatever little contributions we can make in our little corners to contribute to a solution, even if it is only a little orientation in our consumption habits, for a preference for made in Nigeria. We must accept that all hands must be on deck for us to achieve the desired result of a stable rate of exchange.”
Bank CEOs pledge support
Also reacting to the new FX measures, the Chairman, Body of Bank CEOs, Herbert Wigwe, said authorised financial institutions in the FX market would ensure full compliance with the CBN directives in order to ensure FX stability. Wigwe said customers could walk into their banks to purchase dollars for legitimate transactions. He noted that the banks had agreed that the process would start immediately, following a meeting with CBN. Wigwe, who is also Group Managing Director of Access Bank Plc, said the banks were ready to meet the mandate of CBN, adding that they have more than enough capacity to deliver.
He explained that the process would be centralised to avoid abuse. The Access Bank GMD pledged that the banks would ensure that the measures that had been put in place were not disrupted and abused, saying: “We will also be doing verification of the Bank Verification Number (BVN).” According to him: “The banking industry is willing and ready to carry out this function. As you are aware, the bank has very strict compliance measures in terms of Know Your Customer (KYC). For us at Access Bank, we will ensure that all our branches meet the requirements.”