Fintechs to report crypto trades as regulators talk tough

Nigeria is tightening its grip on cryptocurrency transactions, instructing fintech companies to report all crypto trades to relevant authorities.

At least two fintechs have notified their customers of this new development. Sources close to the matter say it is connected to the recent freezing of 105 accounts across nine fintechs suspected of illegal activities like unauthorised forex dealings, money laundering, and terrorism financing.

The Economic and Financial Crimes Commission (EFCC) secured an interim court order on April 24, 2024, to freeze these accounts for 90 days while investigations continue.

After these freezes, several fintechs, including OPay, Moniepoint, PalmPay, and Kuda Bank, were asked to temporarily suspend the opening of new accounts pending the Central Bank of Nigeria’s evaluation of its Know Your Customer process.

The frozen accounts are part of a larger EFCC probe into 1,146 bank accounts suspected of manipulating the FX market through cryptocurrency platforms. The commission believes that the owners of some of these accounts exploited cryptocurrency platforms to manipulate the FX market.

Authorities are taking a hard line on crypto. In a recent notification, Moniepoint told customers that it would close the accounts of anyone engaged in crypto or other virtual assets transactions and share their details with relevant authorities.

Paga echoed this stance in an email to its customers: “As a Paga account holder, please ensure that your account is not used for crypto and virtual currency transactions. Paga accounts in violation of this regulation will be blocked,” it said.

At the Duale, Ovia, and Alex-Adedipe, TMT Business Law breakfast series 2024, on Thursday (May 2, 2024), Tosin Eniolorunda, founder and chief executive officer of Moniepoint, urged crypto Peer-to-Peer (P2P) participants to cease their activities due to its prohibition in the financial sector.

“If you are a peer-to-peer market player, you better stop it because it is prohibited in the financial sector, and you can get into trouble,” he warned.

His comments come amid recent moves by authorities in the fintech space. Eniolorunda linked the recent regulatory actions to the prevalence of fraud in fintech apps and stressed the renewed focus on KYC and Anti-Money Laundering (AML) for fintechs.

He alleged that some P2P crypto activities were a potential factor in the naira’s manipulation.

“This is a self-reflection of our industry. As you know, fintech apps are used for fraud. One of the things that led to the most recent announcement is that crypto players were manipulating the naira, especially with the P2P market,” he said.

According to him, some individuals exploit P2P platforms to pump and dump currencies, harming market liquidity. These activities, he argued, partly motivated the EFCC’s account freeze order.

The Moniepoint boss stated that because opening fintech accounts is easy, authorities were worried that if they shut down the suspected accounts, the alleged criminals would quickly return to the fintechs and open new accounts, leading to the suspension of new account openings.

He said: “The fintech industry has grown rapidly, and a lot of it has focused on growth, and part of it also included the fact that we are not aware of some of the cost compliance, or the need for prudential as we were growing.”

Sources familiar with the situation informed BusinessDay that these directives are industry-wide and concern national security. They noted that some fintech operators recently met with the Office of the National Security Adviser, who emphasised the national interest behind its actions.

Another source explained that the fintechs that are already affected are working overtime to reverse the temporary ban on account opening.

This new directive is part of a broader government crackdown on crypto platforms, particularly Binance, which began in February 2024. The crackdown forced Binance to halt naira operations and led to the arrest of two executives who visited Nigeria for discussions with authorities.

Authorities blame crypto platforms for aiding currency speculations and fueling the rapid devaluation of the naira. Olayemi Cardoso, governor of the Central Bank of Nigeria (CBN), recently stated that $26 billion flowed through Binance Nigeria in a year from unidentified sources.