Friction in Forex Market: BDCs Resist CBN’s Licensing Overhaul

The Central Bank of Nigeria (CBN) has directed all existing Bureau De Change (BDC) Operators to re-apply for new licenses under revised guidelines.

This directive was issued in a circular on Wednesday signed by Haruna Mustafa, the Director of the Financial Policy and Regulation Department at the CBN. The new licensing guidelines aim to streamline BDC operations and enhance financial accessibility, although BDC operators have expressed concerns, arguing that the guidelines diverge from global best practices.

The CBN emphasized that the adjustments are intended to ensure that BDCs adhere to corporate governance standards and comply with anti-money laundering, counter-terrorism financing, and counter-proliferation financing provisions.

These developments come on the heels of the Monetary Policy Committee’s decision to raise the benchmark lending rate to 26.25 percent to combat soaring inflation in the country.

Governor of the CBN, Olayemi Cardoso, explained during the meeting, “Members further observed the recent volatility in the foreign exchange market, attributing this seasonal demand, a reflection of the interplay between demand and supply in a freely functioning market system.”

The naira has seen significant depreciation since the CBN unified the country’s exchange rates, with trading levels ranging between 1,400/$ and 1,600/$ at both official and parallel markets in the last two weeks.

The revised guidelines, effective from June 3, remove the mandatory caution deposit that industry players had opposed. The CBN has introduced two new categories of licenses: Tier 1 and Tier 2 BDC licenses.

Under the new guidelines, a Tier 1 BDC can:

– Operate in any state of the Federation and the Federal Capital Territory (FCT).
– Establish branches and appoint franchisees in any state and FCT, subject to CBN approval.
– Maintain a minimum distance of one kilometer between branches and between branches and franchisees.
– Exercise oversight on franchisees, who must adopt the franchisor’s name, logo, branding, technology platform, and regulatory requirements.

A Tier 2 BDC license allows the operator to:

– Operate from only one state of the federation or the FCT.
– Establish up to five branches in the state of operation, subject to CBN approval.
– Maintain a minimum distance of one kilometer between branches and is not allowed to appoint franchisees.

Existing and new BDCs are required to meet the capital requirements for their license category within six months. Tier 1 BDCs must have a minimum capital base of N2 billion, while Tier 2 BDCs require a minimum capital base of N500 million.

President of the Association of Bureau de Change Operators of Nigeria (ABCON), Aminu Gwadebe, expressed concerns over the stringent requirements, arguing that they do not align with global practices. He also highlighted the short deadline given to BDCs for compliance.

“When you are giving other sectors one or two years, why the rush with the sub-sector? The deadline is quite short and not feasible,” Gwadebe cautioned, noting the potential unintended consequences on money laundering risks.

The guidelines also allow BDCs to participate in the Nigerian foreign exchange market as dealers upon application and approval by the CBN’s Trade & Exchange Department for an authorized dealership license.

Additionally, BDCs can source dollars from individuals, provided sellers declare the source of the foreign exchange and comply with all regulatory and foreign exchange laws.