Nigeria: Analysis Of Recent Changes In International Money Transfer Guidelines In Nigeria

Introduction

In pursuit of its goal to liberalize the Nigerian foreign exchange market, the Central Bank of Nigeria (CBN) issued the 'Guidelines for International Money Transfer Services in Nigeria (Revised Guidelines)' on January 31, 2024. This article examines the key operational changes introduced by the Revised Guidelines and their implications for investors in the international money transfer services sector.

Revised Licensing Requirements

The Revised Guidelines have revamped the licensing process, dividing it into two phases – approval-in-principle and final approval, along with a substantial increase in the application fee from N500,000 to N10 million. Foreign IMTOs face an increased minimum capital requirement of $1 million, potentially impacting their participation in the Nigerian market. Simultaneously, the removal of the seven-country requirement offers relief to IMTOs operating in fewer markets, encouraging potential growth in the sector.

Foreign Partnership Requirements and Fintech Restrictions

The Revised Guidelines eliminate the previous stipulation requiring foreign technical partners to possess a minimum net worth of $1 million. This modification grants IMTOs the flexibility to engage with any entity capable of providing a reliable payment platform, fostering a more inclusive landscape. However, a notable restriction emerges as fintech companies are barred from directly offering IMTO services. While deposit money banks can act as IMTO agents, several fintech companies, including eTranzact, Flutterwave, Interswitch, and Paga, hold existing IMTO licenses.

To navigate this restriction, fintechs may consider establishing separate subsidiaries under a general holding company structure to continue providing IMTO services while adhering to CBN guidelines. This nuanced approach ensures compliance with CBN regulations while maintaining operational continuity for fintech entities interested in retaining a presence in the IMTO sector.

Revised Business Model

The Revised Guidelines redefine the scope of permissible activities for IMTOs, limiting them to accepting money exclusively for inbound transfers. This contrasts with the 2014 rules, which allowed IMTOs to facilitate both inbound and outbound transfers, subject to a $2,000 maximum limit on outbound transactions. Additionally, the Revised Guidelines remove the previous restriction on serving only individuals on a peer-to-peer (P2P) basis, expanding IMTOs' clientele to include corporations. Consequently, IMTOs in Nigeria can now engage in P2P, business-to-person (B2P), and business-to-business (B2B) transfers.

Disbursements of Transfers

The 2014 rules stipulated that disbursements for inbound transfers were restricted to bank accounts or mobile money wallets. In contrast, the Revised Guidelines introduce the option for cash disbursements, limited to inflows not exceeding $200 or its equivalent, contingent upon the provision of valid identification. Acceptable means of identification include an international passport, driver's license, national identity card, or a permanent voter's card.

Unlike the previous rules, the Revised Guidelines do not provide for payments on behalf of a beneficiary to a current account holder in a bank if the beneficiary lacks a bank account or mobile money wallet. Consequently, beneficiaries of inbound transfers are now required to have bank accounts, with provisions for payments to be made to another account with a third-party bank in case of unavailability within the IMTO's agent bank.

Administration of IMTOs and Data Protection

Administrative changes introduced by the Revised Guidelines include a new obligation for IMTOs to inform the CBN of any change in their address, a requirement absent in the 2014 rules. The engagement of agents, as outlined in the 2014 rules, required the IMTO's and agent to include in their agreement, the CBN's unfettered access to the internal systems, documents, reports, staff, and premises of agents concerning money transfer business. The Revised Guidelines, however, omit this clause, although its essence was already incorporated in the Banks and Other Financial Institutions Act 2020. This Act empowers the CBN Governor to appoint examiners with unrestricted access to banks' books, accounts, and vouchers.

The Revised Guidelines also revise the contractual relationship between IMTOs and their agents concerning data ownership. While the 2014 rules stated that information collected by agents belonged to the money transfer operator, the Revised Guidelines emphasize that such information is collected on behalf of the IMTOs. This aligns with global and local data protection best practices, emphasizing that organizations do not 'own' data but are custodians, subject to lawful processing.

Furthermore, the Revised Guidelines mandate IMTOs to retain transaction information for at least five years, a requirement absent in the 2014 rules. The dispute resolution timeline is extended from one to two weeks, enhancing the framework for addressing disputes between IMTOs and their clients.

Reporting Requirements

The legal requirement to collect information about source of funds for each transaction was removed from the Revised Guidelines. However, reporting obligations for IMTOs and their agents have been expanded. Unlike the 2014 rules, which mandated returns to the Director of the relevant CBN department, the Revised Guidelines introduce a comprehensive reporting framework:

• IMTOs must submit daily, weekly, and monthly returns to the Director, Trade and Exchange Department, CBN.
• Suspicious Transactions Reports (STR) are required to be filed in the originating country within 24 hours of the transaction.
• IMTO agents must file weekly and monthly returns with the Director, Trade and Exchange Department, CBN.
• Agents are also obligated to submit weekly returns of trade sheets at the Nigerian Foreign Exchange Market and file STR with the Nigerian Financial Intelligence Unit (NFIU) within 24 hours.

For a nuanced understanding of what constitutes a suspicious transaction, reference is made to the Money Laundering (Prevention and Prohibition) Act 2022, which outlines criteria such as unjustifiable frequency, unusual complexity, lack of economic justification, inconsistency with known transaction patterns, or involvement in criminal activities.

Tackling Anti-Money Laundering (AML) Risk

The Revised Guidelines significantly enhance AML compliance measures compared to the 2014 rules, which simply required adherence to the CBN's AML/CFT in Banks and Other Financial Institutions Regulations 2013 (now 2022). The Revised Guidelines enumerate explicit AML obligations for IMTOs, emphasizing the adoption of policies, internal controls, and procedures to deter criminal activities. IMTOs are further mandated to comply promptly with AML requests, share information with relevant authorities, and foster cooperation with regulators.

Key AML obligations outlined in the Revised Guidelines include commitment to AML/CFT obligations, internal controls to prevent criminal activities, a risk-based approach to managing ML/TF/PF risks, compliance with AML/CFT/CPF regulations, and collaboration with regulators. IMTOs are also tasked with monitoring agent compliance, assessing AML/CFT measures, and ensuring employee understanding and adherence to AML/CFT/CPF programs.

General Revisions

Two notable omissions from the Revised Guidelines compared to the 2014 rules include the absence of customer consent powers for disclosure, previously available as an exception to confidentiality duties. The only exception now is at the behest of a relevant authority. Additionally, the Revised Guidelines do not mention the Bank Verification Number (BVN) as an acceptable means of identification, a departure from the 2014 rules. Accepted means now include an international passport, driver's license, national ID card, and the INEC voter card.

Conclusion

In conclusion, the Revised Guidelines represent a commendable effort by the CBN to further liberalize the foreign exchange market, promote transparency in IMTO operations, and encourage inbound remittances into Nigeria. While these developments are laudable, a nuanced examination reveals several concerns, including potential impacts of exchange rate volatility on incorporation requirements and IMTO operations. The restriction on outbound transfers may stabilize the local currency but may pose challenges for businesses and individuals utilizing IMTOs for outbound transactions. The fate of pending applications and the need for continuous updates from the CBN to provide clarity on evolving dynamics remain key areas of interest. As stakeholders navigate this new landscape, vigilance and adaptability will be paramount in ensuring the continued success of the international money transfer services sector in Nigeria.

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