The Central Bank of Nigeria (CBN) has issued a crucial mandate requiring all Deposit Money Banks and participants in the foreign exchange (FX) market to submit compliance reports concerning the FX Code by December 31, 2024. This initiative is a strategic effort by the CBN to enhance the integrity and efficiency of Nigeria’s foreign exchange landscape, ensuring its alignment with global practices and standards. The FX Code, which becomes effective on October 14, 2024, lays down an extensive set of principles that dictate the ethical and professional conduct expected from market participants, thereby reinforcing a more accountable FX market.
The FX Code is rooted in the authorities granted to the CBN by the CBN Act of 2007 and the Bank and Other Financial Institutions Act (BOFIA) of 2020. It empowers the CBN to issue directions for the conduct of foreign exchange transactions in Nigeria. As part of the compliance requirements, market participants are to perform a self-assessment and submit a report detailing their adherence to the FX Code by the designated deadline. In addition, they are mandated to prepare and submit a comprehensive compliance implementation plan that has been board-approved by that same date. The CBN emphasizes the importance of full compliance with the FX Code by the end of 2024, underscoring a commitment to fostering transparency and professional standards.
The CBN has clearly defined the scope of the FX Code, stating that it applies to all banks licensed under the appropriate acts that engage in wholesale foreign exchange transactions as part of their business operations in Nigeria. Notably, the CBN stresses that failure to adhere to these requirements may result in penalties, including monetary fines as stipulated under both the CBN Act and BOFIA. This establishes a firm regulatory framework, reinforcing accountability within the FX market and ensuring that market participants are compelled to uphold the integrity of their operations.
The introduction of the FX Code heralds new governance structures and operational guidelines for banks and financial institutions engaged in foreign exchange transactions. Institutions will be expected to implement a sound governance framework while upholding ethical standards and managing risks diligently. The CBN has underscored the imperative for market participants to pursue the highest professional standards in their dealings, thus advocating for an environment that nurtures ethical conduct and reduces the risks inherent in FX trading activities.
Additionally, starting from the compliance deadline of December 31, 2024, institutions will be required to provide quarterly reports to the CBN’s Financial Markets Department, detailing their adherence to the FX Code. This section of the directive emphasizes a continuous monitoring framework, where market participants will submit their compliance reports within 14 days after the conclusion of every calendar quarter. The inaugural quarterly report will coincide with the compliance deadline, marking the beginning of a structured oversight mechanism designed to maintain transparency and operational efficiency in the FX market.
Finally, the CBN has put in place specific enforcement mechanisms to tackle instances of non-compliance, ensuring that sanctions can be enforced when necessary. The bank has indicated that it will take appropriate administrative measures, including monetary penalties, against any participants that fail to adhere to the FX Code. This proactive approach is part of the CBN’s broader strategy to cultivate a robust and fair FX market that accurately reflects market information and supports Nigeria’s flexible exchange rate regime. By modeling the FX Code on the globally recognized FX Global Code, the CBN aims to integrate best practices into Nigeria’s foreign exchange market, fostering a transparent and resilient infrastructure where participants can confidently conduct FX transactions at competitive rates.
