The Central Bank of Nigeria (CBN) has launched what looks like a routine compliance exercise. In reality, it is a strategic move to safeguard Nigeria’s financial system and avoid slipping back into global regulatory trouble, especially after increased scrutiny tied to anti-money laundering controls.
At the heart of this move is a pilot supervision programme targeting a small group of Virtual Asset Service Providers (VASPs), including firms like Flutterwave, Paystack, and global crypto exchange KuCoin. But despite public attention around these names, the initiative is not about licensing or endorsement. It is about intelligence gathering, risk control, and regulatory preparation.
A learning exercise with high stakes
The CBN has been explicit: participation in the pilot does not grant any regulatory approval. Instead, it creates a controlled environment where regulators can study how digital asset firms operate, how money flows through them, how customers are onboarded, and how transactions are monitored.
This matters because virtual assets, ranging from cryptocurrencies to tokenised real-world assets are increasingly embedded in global finance. Yet they remain one of the most difficult sectors to regulate due to their cross-border and decentralised nature.
According to blockchain expert Obinna Iwuno, the pilot is less about enforcement and more about preparedness.
Iwuno explained that Nigeria is entering a critical phase ahead of another international review of its financial system. That review, known as a mutual evaluation, will assess how well the country is implementing global standards set by the Financial Action Task Force.
“Leaving increased monitoring is not the end. It is more like a probation period. You must sustain improvements or risk slipping back,” he added.
Why this matters now
Nigeria has faced pressure in recent years over weak controls on illicit financial flows. Being placed under enhanced monitoring, commonly referred to as the grey list, can deter foreign investment, slow cross-border payments, and increase scrutiny on financial transactions.
Avoiding a return to that list is now a key policy priority.
To achieve this, Iwuno said three institutions must align closely: the Central Bank, the Securities and Exchange Commission, and the Nigerian Financial Intelligence Unit. “Together, they are responsible for ensuring that financial flows, especially in emerging sectors like crypto, are transparent and traceable,” he asserted.
The pilot scheme fits into this broader effort. By engaging directly with VASPs, the CBN is trying to close a critical knowledge gap. Traditional banking supervision frameworks were not designed for blockchain-based systems, where transactions can move instantly across borders with limited intermediaries.
Inside the pilot: What firms must do
Participating companies are required to submit monthly compliance data, including key performance indicators tied to anti-money laundering and counter-terrorism financing efforts.
They must also undergo detailed reviews covering governance structures, customer verification processes, sanctions screening, and transaction monitoring systems.
A key focus is the so-called Travel Rule, a global standard requiring financial institutions to share sender and recipient information for certain transactions. While this is already common in banking, it is still being adopted across the crypto ecosystem.
For many VASPs, this represents a significant operational shift. “This is a two-way process. The regulators are learning about the industry, and the companies are learning what will be expected of them,” Iwuno stated.
Not a clash with SEC—but a parallel track
One source of confusion has been whether the CBN’s pilot overlaps with existing crypto-related initiatives by the Securities and Exchange Commission Nigeria, particularly its sandbox programmes for digital assets.
But Iwuno say the two efforts serve different purposes.
The SEC focuses on investor protection and market development, while the CBN is concerned with financial system stability and payment flows. The pilot, therefore, does not replace or override SEC frameworks.
Instead, it reflects a broader shift toward coordinated regulation, where multiple agencies oversee different aspects of the same ecosystem.
Why only a few companies?
The inclusion of a limited number of firms has raised questions, especially given the size of Nigeria’s crypto market. But the CBN has already clarified that the pilot is structured in phases, with future rounds planned.
The blockchain expert argues that the selective approach is deliberate. “Because the exercise is exploratory rather than regulatory, there is less need for broad participation. The goal is to generate insights, not to grant market access or approvals. If this were licensing, the selection process would be a major issue. But this is internal work, about building understanding,” Iwuno noted.
A shift in regulatory tone
The pilot also signals a subtle but important shift in the CBN’s approach to digital assets.
In earlier years, the regulator took a more restrictive stance, limiting banks’ involvement with crypto-related businesses. Now, the focus appears to be evolving toward engagement and risk management.
This aligns with global trends, where regulators are moving from outright caution to structured oversight of digital finance.
The bigger picture: Digital finance is unavoidable
Beyond compliance, the pilot reflects a deeper reality: digital assets are becoming central to modern finance.
From stablecoins used in cross-border payments to tokenised assets representing real estate or commodities, the ecosystem is expanding rapidly. Ignoring it is no longer an option.
“For Nigeria, one of the world’s most active crypto markets, the stakes are even higher. The country must balance innovation with oversight, supporting fintech growth while ensuring financial integrity,” Iwuno advised.
Read also: CBN tests new supervisory model for crypto market after FATF exit
What comes next
The pilot is only the first step. Its findings are expected to inform future regulatory frameworks, including how Nigeria integrates global standards into its financial system.
More importantly, it will shape how the country presents itself in upcoming international evaluations.
A strong showing could boost investor confidence and reinforce Nigeria’s position as a leading digital economy in Africa. A weak one could revive concerns about financial transparency.
“For now, the message from the CBN is that, this is not about endorsing crypto firms. It is about understanding them, before the next global test arrives,” Iwuno stated.
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
