The Central Bank of Nigeria (CBN), has released a new set of requirements for operators of Bureau de Change (BDC) to among other things curb abuses and equally protect the dollarisation of the Nigerian economy.
The new requirement is contained in circular to the operators and posted on the apex bank’s website yesterday signed by the bank’s Head of External Communications, Mr. Isaac A. Okarafor, for the Director of Communications of the apex bank.
According to the circular, the action was in a bid to correct observed deficiencies in the operation of Bureau de Change in Nigeria which had led to gross inefficiencies and sharp practices in the foreign exchange market, including “growing incidence of rent-seeking, depletion of external reserves, financing of unauthorised transactions and dollarisation, among others.”
The circular also listed the following observed abuses rampant among the operators of the bureau de change:
• Avalanche of rent-seeking operators only interested in widening margins and profits from the foreign exchange market, regardless of prevailing official and interbank rates;
• Weak and ineffective operational structure, resulting in the subsector completely abandoning the objectives for its establishment;
• Depletion of the country’s foreign reserves, in view of the unusually large number of BDCs;
• Potential financing of unauthorised transactions with foreign exchange procured from the CBN window;
• Gradual dollarisation of the Nigerian economy with attendant adverse consequences on the conduct of monetary policy and subtle subversion of cashless policy initiative; and
• Inadequate level of minimum paid-up capital. The required minimum paid-up capital of BDCs is set at N10 million. While the capital requirements of all other CBN-regulated entities have been reviewed upwards over the years, the one for BDCs has remained the same; and
• Prevailing ownership of several BDCs by the same promoters in order to buy foreign exchange multiple times from the CBN Window, which is clearly related to the low level of capital requirements for licensing BDCs.
Accordingly, to check against the afore-metioned abuses the apex bank immediately issued the following new rules according to the circular as it states: “The CBN’s expectation is to have BDCs that are properly structured, effectively regulated, and well-capitalised to meet the objectives for which operators are licensed. In particular, the CBN envisages the following:
• The emergence of well-capitalised and structured entities that can effectively perform the roles of Bureau De Change in the economy;
• Partnership between BDCs and renowned companies engaged in inward and outward money transfers in Nigeria. It is in expectation of this collaboration that the CBN as at June 18, 2014 approved the “Guidelines for International Money Transfer Services in Nigeria”. Under the Guidelines, Western Union, Moneygram and RIA Financial Services have been authorised to carry out inward and outward money transfer services in Nigeria.
• Creation of robust and sustainable business franchises that are not dependent on rent-seeking activities but are properly situated to compete in the foreign exchange market, and deliver superior values and returns.
“Consequently, the following circular shall henceforth guide the operation of Bureau de Change business in Nigeria:
In view of the background and vision provided above, and in order to ensure that only genuine companies operate as bureau de change in Nigeria, the CBN makes the following modifications to the “Bureau De Change Guidelines”:
• The minimum capital requirement for the operation of BDCs in Nigeria is reviewed to N35 million;
• The mandatory cautionary deposit is reviewed to N35 million and shall be deposited in a non-interest yielding account in the CBN upon the grant of Approval-in-Principle;
• The following fees shall apply to the licensing of BDCs: Application Fee – N100,000.00; Licensing Fee – N1 million; and Annual Renewal Fee -N250,000.00; and
• Ownership of multiple BDCs is not permissible, and would be punishable if detected.
All existing BDCs and those currently operating with a final approval letter are required to comply with the requirement on mandatory cautionary deposit by July 15, 2014 while all current applications are expected to comply with these new requirements.
Furthermore, the compulsory membership of the Association of Bureau De Change Operators of Nigeria (ABCON) is no longer a requirement for the licensing of BDCs.