CBN mandates banks’ CEOs to attest to FX Code of Ethics

In a bid to strengthen the governance and transparency of Nigeria’s foreign exchange market, the Central Bank of Nigeria (CBN) has introduced revised guidelines for the Nigeria Foreign Exchange Market (NFEM).

A key feature of these guidelines requires the boards of banks, alongside their Chief Executive Officers (CEOs) and Chief Compliance Officers, to annually attest to the Nigeria FX Code of Ethics and Conduct. This attestation underscores their commitment to uphold market integrity and comply with all CBN-issued circulars and guidelines.

The revised guidelines aim to deepen the foreign exchange market following the consolidation of all official FX market windows. The circular, issued by Omolara Omotunde Duke, the Director of the CBN’s Financial Markets Department, supersedes prior directives, including the operational changes announced on June 14, 2023, and earlier circulars dating back to 2017.

Obligations for Authorised Dealers and Participants

Under the new framework, authorised dealers must facilitate FX transactions for firms and individuals while ensuring compliance with regulations. These dealers are tasked with conducting due diligence, providing transparent pricing, and offering market access through digital solutions.

Furthermore, all legitimate FX transactions must occur exclusively through authorised dealers, while dealings with unlicensed intermediaries are strictly prohibited.

Bureaux de Change (BDC) operators are also included in the revised guidelines. Licensed BDCs are allowed to purchase FX from authorised dealers to meet customer needs, within the limits set by the CBN. Similarly, all FX transactions conducted by BDCs, International Money Transfer Operators (IMTOs), and authorised dealers must adhere to the terms of their licenses and the Nigeria FX Code.

Eligible Transactions and Pricing Transparency

The CBN outlined permitted FX transactions, including all trade-backed (visible and invisible) transactions. Dealers are required to verify the necessary documentation before processing any transaction. Pricing for these transactions is to be conducted on the Electronic Foreign Exchange Matching System (EFEMS), which will also publish daily transactional rates to enhance market transparency. Any customer transaction conducted outside the EFEMS must align with prevailing NFEM rates, and negotiations outside the formal FX market are prohibited.

Interbank Trading Enhancements

Interbank trading is permitted under the revised guidelines, with authorised dealers required to comply with set credit limits. Market makers will now provide daily two-way quotes to ensure liquidity. Additionally, all interbank transactions must occur on EFEMS to maintain transparency and adhere to the Nigerian FX Code.

Authorised dealers are further mandated to maintain adequate risk management practices to mitigate exposure to price and liquidity risks. They must ensure compliance with stipulated Net Open Position (NOP) limits in all transactions.

Real-Time Reporting and Market Data Accessibility

To bolster monitoring and data accuracy, all FX transactions completed by authorised dealers must be reported to the CBN within 10 minutes. This includes transactions conducted via EFEMS, telephone, or chat-based platforms. Commercial, merchant, and non-interest-bearing banks are required to provide real-time reports to the FXBRS system through APIs.

BDC operators must also submit daily reports of their activities through designated portals. The CBN will act as the custodian of all transaction data, publishing reliable market information on its website to promote price discovery and market efficiency.

Commitment to Market Development

The CBN reaffirmed its dedication to fostering a well-regulated and functional FX market in Nigeria. By addressing market distortions and ensuring adherence to these revised guidelines, the apex bank aims to enhance governance and transparency while driving the evolution of the NFEM.

Market participants have been advised to strictly comply with the new regulations. For clarifications, the CBN encouraged stakeholders to reach out through its designated email.