The Central Bank of Nigeria (CBN) has reportedly restricted some Bureau De Change (BDC) operators’ access to the official foreign exchange (FX) market for alleged non-compliance with the trading rules with the attendant implications for abuses.
Although the apex bank has not made any statement to this effect, some BDC operators confirmed the suspension of the traders from the official FX market.
A news report from Nairametrics, an online medium, on Tuesday indicated that some of the traders confirmed the restriction due to the monetary authorities’ concerns that some practices like arbitrage and round-tripping among the traders, could undermine efforts to stabilize the local currency’s exchange rates in the FX market.
According to the news medium, the FX traders say the CBN’s cautious regulatory position in the FX market is driven by concerns over regulatory control and risks associated with the BDC segment.
- Advertisement -
A top official of the Association of Bureau De Change Operators of Nigeria (ABCON) , whose identity was not reflected in the news report, was quoted as saying that “the characterization and generalization of lack of compliance measures to Anti-money laundering and Terrorism financing rank the sector highly risky, resulting in CBN preference for fewer channels to achieve tighter control and the over preference of bank-led foreign exchange intermediation by the CBN.’’
Similarly, another FX trader, Umar Barkinzuwo, reportedly said: “The issue appears to revolve around concerns over control and past market abuses… authorities have preferred to channel foreign exchange through the banking system, where oversight is more centralized.”
It would be recalled that the BDC operators had always remained at the apex bank’s FX market monitoring radar over the past few years over market guidelines abuses.
For instance, in July 2021, the CBN stopped FX sales to BDCs, accusing them of championing illicit financial flows and money laundering in the financial system.
But then, the FX traders have been arguing that excluding them from the official FX market has limited liquidity at the retail end of the market and sustained exchange rate pressure on the parallel market, thereby heightening the volatility of the exchange rates over the years.
To frontally tackle the volatility problem, the CBN in June 2023 introduced the unification of Nigeria’s FX market, which merged multiple windows into a single system.
Although FX sales to the BDC traders briefly resumed in February 2024 after the revocation of over 4,173 licences, the arrangement was later discontinued.
In February this year, the apex bank approved limited participation, allowing BDCs to access up to $150,000 during weekly trading sessions in the market.
As expected, the BDC operators still complained that access to FX remained constrained, alleging that the deposit money banks are not adequately serving the retail FX demand thereby sustaining volatility in the parallel market.
