SETTING UP A LICENSED BUREAU DE CHANGE (BDC) IN NIGERIA UNDER THE NEW CBN REGULATIONS – ALL YOU NEED TO KNOW.
Introduction:- The Central Bank of Nigeria (CBN), pursuant to its powers granted by the Banks and Other Financial Institutions Act (BOFIA) on the 23rd of February,2024 released a draft for a new set of regulations for the licensing, regulation & supervision of bureaux de change(BDCs) in Nigeria.
It is to be understood that with the exception of a few modifications based on inputs from relevant stakeholders in the financial services sector, these draft regulations will ,going forward, repeal the former Bureau De Change regulations and will take effect this year.
It is thus important to understand what these regulations say regarding:-
-What a BDC is.
-Who is ineligible to promote,own or operate a BDC in Nigeria.
-Permissible & non -permissible activities of BDCs in Nigeria.
-Permissible sources of foreign currency/FX for BDCs in Nigeria.
-Rules for the sale of foreign currencies by BDCs in Nigeria.
-BDC license categories in Nigeria.
-Financial requirements for BDC licensing in Nigeria.
-Franchising standards for BDCs in Nigeria.
-Required functional units for BDC operations in Nigeria.
-Branch expansion.
-Change of ownership.
What is a bureau de change (BDC)?
-A BDC is a company licensed to carry out retail FX (foreign exchange) business operations in Nigeria.
Which persons or entities are deemed ineligible to promote a BDC in Nigeria?
The following persons/entities are deemed ineligible to promote and by extension, own or operate BDCs in Nigeria:-
-Commercial banks, merchant banks, non-interest banks, and payment service banks (PSBs).
-Other Financial Institutions (OFIs) , including holding companies and Payment Service Providers (PSPs).
-Serving staff of financial service regulatory and supervisory agencies.
-Serving staff of regulated financial services providers.
-Governments at all levels.
-Public officers under the 5th schedule, Part IV of the Constitution Of The Federal Republic Of Nigeria 1999(as amended).
-Non-Governmental Organizations(NGOs).
-Charitable organizations.
-Academic & religious institutions.
-Co-operative societies.
-Non-Nigerian non-resident natural persons.
-Non-Nigerian resident natural persons.
-Telecommunications service providers.
-Sanctioned individuals & entities.
-A shareholder in another BDC.
-Any other entity named by the CBN.
What are the permissible & non-permissible activities for BDCs in Nigeria under the new regulations?
Permissible Activities
-The acquisition of FX from sources allowed by the CBN.
-The sale of FX as allowed by the CBN.
-The opening of FX and Naira accounts with commercial and non-interest banks
-Collaborations by BDCs with their banks to issue prepaid cards.
-Serving as cash-out points for International Money Transfer Operators (IMTOs).
Non-Permissible Activities
-Street trading.
-Maintaining any type of account for any member of the public, including accepting any asset for safe-keeping custody.
-Taking deposits from or granting loans to members of the public in any currency and in any form .
-Retail FX sales to non-individuals(except for Business Travel Allowances/BTA).
-International outward transfers.
-Engaging in offshore business or maintaining foreign correspondent relationships with any foreign establishment.
-Opening or maintaining any account with any bank or financial institution outside Nigeria.
-Acting as an FX custodian for customers.
-International inward transfers, except for operations that serve as cash-out points for IMTOs.
-Giving plans or advances in any currency.
-Establishing subsidiaries.
-Financing political activities.
-Selling FX on credit.
-Dealing in gold and other precious metals.
What are the permitted sources of FX for BDCs in Nigeria under the new regulations?
-FX sales allocations from the CBN.
-Tourists.
-Diaspora returnees.
-Expatriates with FX inflows from work, travel, investment or their domiciliary accounts.
-Embassies.
-IMTOs.
-Hotels authorized to buy FX.
-The Nigerian Foreign Exchange Market.
What is the basic Anti-Money Laundering threshold for BDCs?
-Sellers of the equivalent of $10,000.00 and above are required to declare the source of FX and comply with all Anti-Money Laundering regulations and FX laws and regulations currently in force in Nigeria.
What are some of the regulations on electronic transfers for BDCs in Nigeria?
-Customers can transfer FX from their individual domiciliary accounts with Nigerian banks to BDCs.
-All digital/transfer purchases of FX shall be credited to the Nigerian domiciliary accounts or BDCs.
-Payments for all digital/transfer purchases of FX by a BDC shall be by transfer to the customer’s Naira account.
-Payments to customers for cash purchases of FX or the equivalent of $500.00 and below may be made in cash.
-If a customer or non-resident (whether Nigerian or not), a BDC may issue the customer a prepaid Naira card with relevant maximum credit and cumulative limits,in line with applicable Know-Your-Customer (KYC) requirements.
-Payments to customers for cash purchases of FX,the equivalent of $500.00 and above, shall be by transfer to the customer’s Naira bank account. If the customer is non-resident, a BDC shall issue the customer a prepaid Naira card with applicable relevant maximum credit and cumulative limits in line with KYC requirements .
What are the permissible purposes of sales for BDCs?
The following purposes for sales are permitted by the CBN:-
-Personal Travel Allowance (PTA) purchases.
-Business Travel Allowance (BTA) purchases, provided that a person who receives BTA on behalf of a non-individual entity shall not be entitled to PTA purchases for the same period.
-Payments for medical bills.
-Payments for school fee obligations.
-Repurchase of unused Naira from a non-resident from whom the BDC has sourced FX in the course of that visit.
It should be noted that under the CBN regulations:-
-A beneficiary of BTA or PTA shall receive up to 25% of the FX in cash , with the rest to be transferred to the customer’s Nigerian domiciliary account or prepaid card.
What are the license categories for BDCs in Nigeria under the regulations?
The following categories and their features are established under the CBN regulations:-
1).The Tier 1 BDC Category :-BDCs in this category are allowed to:-
-Operate nationwide.
-Open branches and appoint franchisees(suitable for start-ups with BDC minimum share capital challenges) , subject to the approval of the CBN.
-As franchisors, exercise supervisory oversight over its franchisees.
-All franchisees under Tier 1 BDCs shall adopt the corporate names, branding, technology platform and rendition requirements of their franchisors.
2.The Tier 2 BDC Category:- BDCs in this category are allowed to:-
-Operate only in one (1) state or the Federal Capital Territory.
-Have 1 head office and 2 branches in a state subject to CBN approval.
-Tier 2 BDCs are not allowed to appoint franchisees.
What are the financial requirements for BDC licensing in Nigeria minus legal costs under the regulations?
1). Tier 1 BDCs
-A minimum share capital of 2 Billion Naira.
-A 200 Million Naira mandatory caution deposit.
-A 1 Million Naira non-refundable application fee.
-A 5 Million Naira non-refundable license fee.
-A 5 Million Naira non-refundable annual license renewal fee.
2). Tier 2 BDCs
-A minimum share capital requirement of 500 Million Naira.
-A 50 Million Naira mandatory caution deposit.
-A 250 Thousand non-refundable application fee.
-A 2 Million Naira non-refundable license fee.
-A 1 Million non-refundable annual license renewal fee.
What are the required functional units of a BDC in Nigeria for operational purposes?
A BDC in Nigeria must have the following units:-
-An operations unit.
-A compliance unit.
-A risk management unit.
-An internal audit unit.
-An Information Technology (IT) unit.
-A Legal services unit.
How many directors are required for BDCs in Nigeria?
-A Tier 1 BDC is required to have 5-9 directors while a Tier 2 BDC is required to have 5-7 directors.
Can a BDC license be revoked and on what grounds if it can?
-A BDC license can be revoked on grounds that include the following:-
1). FX forgery, alteration or mutilation.
2). Multiple BDC ownerships by the same person.
3). Obtaining FX from an ineligible source or in a fraudulent manner from an eligible source.
4). Failure to commence business 6 months after getting a BDC license.
5). Failure to render regulatory returns for 3 months.
6). Operating from an unapproved location.
What are some of the basic Anti-Money Laundering requirements for BDCs in Nigeria?
-Every BDC shall comply with the requirements of The Money Laundering (Prevention & Prohibition)Act 2022 as well as The Terrorism (Prevention & Prohibition)Act 2022.
-The following are also required of BDCs:-
1). An AML/ CFT/CPF Policy (To be prepared by a legal practitioner).
2). A designated compliance officer.
3). Conduct of Customer Due Diligence (CDD).
4). Suspicious Transaction Report (STR) monitoring and filing with the Nigerian Financial Intelligence Unit (NFIU).
5). Record-keeping.
6). AML/CFT/CPF employee training programmes.
What are the stages of BDC licensing under the regulations?
-BDC licensing is in two stages namely:-
1). The Approval-In-Principle (AIP) stage.
2). The Final Licensing stage.
Emmanuel Ifeanyi Ogbuka, Esq,a legal practitioner/consultant & practice manager of I.OGBUKA LEGAL, writes from Lagos, Nigeria.
Email :- info@ogbukalegal.com
*******PLEASE NOTE******* This article is strictly for informative purposes and neither constitutes legal advice nor a valid lawyer/client relationship.