CBN’s New Stablecoin Rules Crack Down on Foreign Issuers

CBN’s New Stablecoin Rules Crack Down on Foreign Issuers

Quick Reads

• CBN’s New Stablecoin Rules require foreign stablecoin issuers to incorporate locally and obtain a CBN license before operating in Nigeria.
• Naira-backed issuers need ₦10 billion in capital, while foreign currency-backed issuers need ₦15 billion.
• The regulations ban algorithmic stablecoins, tokens that rely mainly on other virtual assets, and tokens without enforceable redemption rights.
• Issuers must hold full reserves separately, and holders gain priority claims if an issuer becomes insolvent.
• The CBN can designate a stablecoin as systemic and suspend licenses or impose penalties for violations.

CBN’s New Stablecoin Rules require foreign issuers to establish locally incorporated companies before serving Nigerians. The Central Bank of Nigeria (CBN) detailed the new framework for non-security virtual assets. Under the regulations, foreign approvals or Nigerian intermediaries cannot replace local incorporation and a CBN license.

The capital floors are steep. Naira-backed stablecoin issuers must hold ₦10 billion in paid-up capital. Issuers of foreign currency-backed tokens need ₦15 billion. Other virtual asset service providers, including wallet and custody firms, must hold at least ₦1 billion. The Sun reported that SEC-licensed firms must add that ₦1 billion on top of their existing SEC capital.

The CBN splits stablecoins into two classes. Class 1 covers naira-referenced tokens, which need full one-to-one backing in naira reserves. Class 2 covers foreign currency tokens, which must meet foreign exchange, reserve, liquidity and redemption rules. Meanwhile, the SEC keeps authority over virtual assets that count as securities.

Reserve rules also tighten. Issuers cannot mint new tokens until they receive matching reserve assets. They must keep reserves apart from operating funds. Holders also gain priority claims if an issuer becomes insolvent. Class 1 issuers must park at least 20 per cent of reserves in a CBN account. Foreign currency issuers must add two per cent in overcollateralisation.

The CBN also draws hard lines on what issuers can sell. It bans algorithmic stablecoins outright. It also bars tokens that rely mainly on other virtual assets and tokens from sanctioned entities. Furthermore, issuers cannot pay interest to holders or market tokens as bank deposits. Operators must publish approved white papers before they start issuance.

Consumers gain new protections too. Holders can redeem tokens at par, although foreign currency redemptions must follow Nigeria’s foreign exchange rules. Issuers must acknowledge complaints within two business days. They must then give final responses within 20 business days. Peer-to-peer platforms now need CBN approval and must verify customers.

The regulator also eyes big players. The CBN can label a stablecoin systemic if daily circulation tops ₦500 billion for 30 consecutive days. It can do the same if more than five million Nigerians use the token. In addition, the CBN can inspect operators, suspend licenses and impose monetary penalties.

For crypto startups, CBN’s New Stablecoin Rules significantly raise the cost of entry. However, they also give founders a clearer licensing path after years of regulatory uncertainty. Foreign issuers now face a simple choice: incorporate in Nigeria or stay out.