The Central Bank of Nigeria (CBN) has issued a directive requiring Deposit Money Banks and all participants in the foreign exchange (FX) market to submit compliance reports related to the newly established FX Code by December 31, 2024. This initiative aims to bolster the integrity and efficiency of Nigeria’s FX market, aligning it with global standards.
Effective from October 14, 2024, the FX Code outlines a comprehensive set of principles designed to regulate the conduct of market participants, ensuring ethical and professional behavior within Nigeria’s FX landscape. According to the CBN, the FX Code is issued under the authority of the CBN Act of 2007 and the Bank and Other Financial Institutions (BOFIA) Act of 2020, which empower the Central Bank to set standards for foreign exchange operations in the country.
Market participants are required to conduct a self-assessment and submit a report detailing their level of compliance with the FX Code by the December deadline. Additionally, institutions must provide a detailed compliance implementation plan, approved by their boards, by the same date. Full implementation of the FX Code is expected by December 31, 2024.
The CBN has clarified that the FX Code applies to banks licensed under the CBN Act of 2007 and the Bank and Other Financial Institutions Act of 2020 that engage in wholesale foreign exchange activities in Nigeria. Non-compliance with these requirements may lead to sanctions, including monetary penalties, as stipulated in the CBN Act and BOFIA.
The FX Code introduces new governance structures and operational frameworks for banks and financial institutions involved in FX activities. Participants are expected to establish sound governance frameworks, uphold ethical standards, and effectively manage risks.
The CBN emphasized the importance of maintaining the highest professional standards, stating, “Market participants should strive for the highest professional standards.” Starting December 31, 2024, institutions will also be required to submit quarterly reports to the Financial Markets Department of the CBN, detailing their adherence to the FX Code to ensure ongoing compliance.
This quarterly reporting will serve as a continuous monitoring mechanism, promoting transparency and efficiency in the FX market. The first report is due on December 31, 2024, and subsequent reports must be submitted within 14 days after the end of each calendar quarter.
To address cases of non-compliance, the CBN has established enforcement mechanisms, including the potential for monetary penalties. The bank stated, “CBN may take appropriate enforcement and other administrative action, including monetary penalties, against any market participant for failure to comply with the FX Code.”
This initiative is part of the CBN’s broader strategy to foster a robust, fair, and liquid FX market that accurately reflects market information and supports Nigeria’s flexible exchange rate regime. Modeled after the globally recognized FX Global Code, the FX Code aims to integrate best practices into Nigeria’s foreign exchange market, ultimately creating a more transparent and resilient market infrastructure where participants can confidently engage in FX transactions at competitive prices.