New CBN Guidelines on Bureau De Change Operations and Impact on Fintechs

From 3 June 2024, the Guidelines will serve as the substantive regulation for BDC operations in Nigeria. The Guidelines contain extensive provisions for the licensing and operation of BDCs in Nigeria and provisions that impact fintech companies in Nigeria. We highlight some of these below.

Prohibition of IMTOs, PSBs, and PSPs from Operating as BDCs
The Guidelines list several entities that are ineligible to participate in the ownership of BDCs either directly or indirectly.  Some of these “non-eligible promoters” include Payment Service Banks (PSBs), Payment Service Providers (PSPs), Mobile Money Operators (MMOs), and International Money Transfer Operators (IMTOs).

The implication of this restriction is that fintech companies with any of the aforementioned licences available to fintechs cannot own BDCs. We note that the sample Articles of Association provided for adoption by BDCs in the Guidelines refer to BDC operators with IMTO licenses as a permissible activity. However, subject to clarification by the CBN, it is likely that this is a drafting error as no other provision in the Guidelines supports this particular reference.

Designation of BDCs as Cash-out Points for IMTOs
As part of their permissible activities, BDCs are allowed to act as cash-out points for IMTOs. This suggests that when IMTOs facilitate in-bound remittances, they can approach BDCs to convert their foreign currency into Naira.

BDCs are also prohibited from facilitating the inbound transfer of foreign currency except when they are acting as cash-out points for IMTOs. Importantly, the Guidelines recognise IMTOs as one of the sources of foreign currencies for BDCs. With these provisions, there is likely to be more synergy and increased collaborations between IMTOs and BDCs. However, both IMTOs and BDCs are prohibited from facilitating international outbound transfer of foreign currencies.

Digitalisation of BDC Operations
The Guidelines contain provisions that require digitalisation of BDC operations. Accordingly, payments for foreign currencies that were purchased digitally or by transfer are to be paid for by transfer to the customer’s Naira account. Where the customer is a non-resident i.e. Nigerians or foreigners that are not resident in Nigeria, the BDC can issue a prepaid Naira card funded with the value due to the customer. Similarly, payments to customers for purchases of foreign currency where the value exceeds USD500 will have to be by transfer to the customer’s Naira account. Finally, where the customer is a non-resident, a prepaid Naira card may be issued. It should be noted that the prepaid Naira cards are only to be issued through commercial or non-interest banks.

Conclusion
It is clear from the provisions of the Guidelines that the CBN contemplates that there will be more collaboration between BDCs and fintech companies, especially IMTOs. This creates a potential opportunity for fintechs and software providers. However, in providing these services, it is important for fintechs to operate strictly within the ambit of what is permitted under the applicable regulations.

Should you have any questions on this legal alert, please do not hesitate to contact Ajibola Asolo.