An Overview of The Central Bank of Nigeria’s Guidelines for Bureau de Change Operators

Contributor: Lilian Eku

INTRODUCTION

In modern society, foreign exchange (forex) stands as a pivot for a nation’s economy.^[1] As the world morphs into a global village, as enabled by technology, inter-connectivity not only makes international trade and investment possible but efficient. As the economy stands central to the existence and development of a nation, foreign exchange therefore, not only serves a pecuniary purpose but is also an agent of social order, justice, and equity.^[2] Thus, as the largest and the most liquid market in the world, the forex market holds several key participants that ensure its continued sustenance. One category of these is the Bureau De Change Operators category (BDC). BDCs are operators providing liquidity exchanges for persons and businesses operating on a retail scale in the market and as a result may not have access to banks and other large financial institutions.^[3] The role of BDC Operators in the forex market, particularly in emerging economies cannot be overlooked and therefore necessitates regulation. This is because retail trade and investment form the bulk of emerging economies and for an efficient market flow it is essential that liquidity be made available to retailers on a daily basis.^[4] This, in effect, will ensure the stability of the market and reduce the gap ‘between official and parallel market exchange rates.’^[5]

In Nigeria, the Central Bank, as part of its core responsibilities of maintaining financial stability regulates actors in the forex market. Having recognised the challenges which had hitherto bedeviled the operations of BDC Operators in the forex market, including illegal liquidity flow, ghost operations, and other unauthorised activities, and as a sequel to the mass revocation of BDCs earlier in the year,^[6] the Bank issued the Regulatory and Supervisory Guidelines for Bureaux De Change Operators to introduce new and updated requirements for licensing, new BDC categories and to revise the permissible activities of BDCs. To this end existing BDCs must re-apply for licenses in any of the available categories, having met the capital requirements for such categories within 6 months of the issuance of the guidelines.^[7] New entrants must, of a necessity meet all relevant requirements before issuance of license. Other areas addressed include corporate governance requirements, AML/CFT/CPF requirements, etc. The regulations, in effect, will reinforce accountability, promote financial transparency, and align the sector with global best practices. This article will explore its essential provisions.

Eligibility and Permissible Activities

The Guidelines define strictly, eligibility for application for a BDC license, barring participation from several entities and individuals to maintain the integrity of the forex market.^[8] Prohibited participants include banks, financial holding companies, non-financial institutions, international money transfer operators, government bodies, public officials, NGOs, and academic or religious institutions. In addition, foreign individuals, non-resident unregulated companies, telecommunication providers, and those already holding shares in another BDC are disqualified.^[9]

Moreover, operators are permitted to perform a range of activities that support regulated forex market operations.^[10] They may acquire foreign currency from approved sources and sell it in compliance with CBN guidelines. BDCs can open foreign currency and naira accounts with commercial or non-interest banks and work with these banks to issue prepaid debit cards. They are also permitted to act as cash-out points for International Money Transfer Operators (IMTOs) and engage in other activities explicitly allowed by the CBN, ensuring their role aligns with the broader objectives of the financial system.^[11] They are however, prohibited from engaging in activities outside their regulatory scope to maintain market order and integrity. Thus, they cannot conduct street trading of foreign currency, accept deposits or grant loans, or sell forex on credit. Activities such as international outward transfers, speculative transactions, trading in derivatives, or dealing in cryptocurrencies are explicitly disallowed. BDCs are further restricted from engaging in trade-related imports, financing political activities, or acting as custodians for public funds.^[12] They are also barred from offshore dealings, illicit financial transactions, or any activity not expressly approved by the CBN, ensuring that their operations remain strictly compliant with regulatory guidelines.

Permissible Sources of Funds and Sale by BDCs

BDC operators are authorized to source foreign currencies from multiple channels, including tourists, expatriates, diaspora returnees, IMTOs, embassies, authorized hotels, and the Nigerian Foreign Exchange Market (NFEM), subject to specific conditions. Sellers of amounts equivalent to 10,000 dollars or more must declare the source of funds and comply with AML/CFT/CPF regulations. Payments for foreign currency purchases above USD500 must be made via bank transfers or prepaid cards, while 500 dollars or below can be paid in cash.^[13] For selling foreign currencies, BDCs must adhere to permissible purposes such as for Personal Travel Allowance, Business Travel Allowance, overseas medical bills, school fees, and professional dues, with transactions channeled through the CBN’s Trade Monitoring System. Beneficiaries may receive up to 25% of funds in cash and the remainder on prepaid cards, ensuring compliance with regulatory frameworks and promoting accountability in forex transactions.^[14]

Licensing and Categorisation of BDCs

The Guideline classifies BDC licenses into two categories, i.e. Tier 1 and Tier 2.^[15] Tier 1 BDCs are permitted to operate across all states and the FCT, with the ability to establish branches and appoint franchisees, provided regulatory oversight and minimum distance requirements are maintained. Conversely, Tier 2 BDCs can operate within a single state or the FCT, limited to five branches without the option for franchising. Both tiers have specific financial obligations, with Tier 1 requiring a minimum capital of ₦2 billion and Tier 2, ₦500 million. Application and licensing fees differ, with Tier 1 operators paying higher amounts to reflect their broader operational scope.^[16] The licensing process involves two stages, starting with Approval-in-Principle (AIP), and final approvals.^[17] To obtain AIP, applicants must meet criteria such as proving the legitimacy of capital sources and ensuring alignment with CBN’s regulatory framework.^[18] Following AIP, a provisional license requires evidence of operational readiness, including infrastructure, IT integration with CBN and NIBSS systems, and adherence to anti-money laundering frameworks.^[19] Successful completion of these steps, including payment of non-refundable fees, culminates in the issuance of the final license, enabling the BDC to commence operations officially. This rigorous process ensures transparency, accountability, and compliance within the forex ecosystem.

Corporate Governance and Operations

BDCs must adhere to specific corporate governance standards for board composition. Tier 1 boards must have 5–7 directors, while Tier 2 requires 3–5, including at least one independent non-executive director (INED). Gender diversity is mandated, promoting inclusivity in line with Nigerian Sustainable Banking Principles. Tier 1 boards must include an Executive Director apart from the MD/CEO, while Tier 2 may do so. Directors must disclose other board memberships and obtain CBN approval for concurrent roles in financial entities. Resignations require a 90-day notice, with provisions for maintaining board compliance during transitions.

With regards to operations, BDCs must observe comprehensive guidelines ensuring transparency, compliance, and effective service delivery in the forex market. They may deal in banknotes, coins, and plastic cards while safeguarding customer information under the data protection laws. Transactions require stringent KYC processes, including BVN, TIN, or passport validation and all transactions must be accurately documented, electronically recorded, and made available to regulators. Operators are required to maintain politically exposed persons registers, comply with sanctions screenings, and operate solely through approved accounts, emphasizing integrity and operational accountability.^[20]

Franchising Standards for Tier 1 BDCs

The Guidelines permit Tier 1 BDCs to appoint franchisees under stringent franchising standards to ensure accountability and operational uniformity.^[21] Each franchisor must develop a CBN-approved franchising policy and secure written approval from the Director of Other Financial Institutions Supervision Department (OFISD) before appointing franchisees.^[22] Franchisees must be registered as limited liability companies, adopting the franchisor’s branding, IT infrastructure, and operational policies. They must clearly identify themselves as franchises of the parent BDC in their branding while aligning with all franchisor policies and procedures. The franchisor is responsible for oversight of franchise operations and must consolidate and submit reports on the activities of both the franchisor and franchisees to the CBN.^[23]

To maintain regulatory compliance and orderliness, the franchisor may appoint a maximum of five franchisees per state or the FCT and cannot establish franchisees in states where they do not already have a branch. Franchisees and branches must maintain a minimum distance of one kilometer from each other, except at airports. Monitoring of franchise operations is overseen by a local branch of the franchisor or a specialized unit at the franchisor’s head office, while the CBN reserves the right to conduct independent supervision of any franchisee.^[24]

AML/CFT/CPF Requirements

BDCs are mandated to adhere to anti-money laundering (AML), counter-financing of terrorism (CFT), and counter-proliferation financing (CPF) requirements under the relevant legislations.^[25] Compliance involves establishing robust AML/CFT/CPF policies, designating a Compliance Officer responsible for oversight, and ensuring cooperation with supervisory authorities. Operators must perform customer due diligence, monitor and report suspicious transactions to the Nigerian Financial Intelligence Unit, and maintain detailed transaction records while providing employees with regular AML/CFT/CPF training to foster awareness and strengthen regulatory adherence across their operations.^[26]

Revocation of License and Change in Ownership Structure

A BDC may have its license revoked if the operator or its directors engage in prohibited practices such as multiple ownership of BDCs, fraudulent forex transactions, falsifying documents, or collaborating with street traders.^[27] Additional grounds include operational failures, such as not commencing business within six months, rendering false or no returns, exceeding transaction limits, or failing to comply with CBN directives and legal provisions under BOFIA 2020, etc. Licenses may also be withdrawn if the CBN deems the operation of a BDC contrary to national interests.^[28]

Furthermore, changes in the ownership structure of a BDC, including mergers, acquisitions, sales, or the appointment of management agents, require prior approval from the CBN.^[29] This ensures that all ownership transitions align with regulatory standards and maintain the integrity of the market. Unapproved changes or unauthorized transactions involving the business or license of a BDC are strictly prohibited.

CONCLUSION

Regulatory and Supervisory Guidelines for Bureaux De Change Operators issued by the Central Bank of Nigeria represent a pivotal advancement in promoting transparency, accountability, and integrity within the foreign exchange market. By implementing distinct licensing requirements, robust governance frameworks, and stringent compliance protocols, these guidelines are designed to enhance investor confidence and elevate market practices. They simultaneously catalyze innovation and align the activities of BDC operators with Nigeria’s overarching economic objectives, thereby laying the groundwork for a sustainable and inclusive foreign exchange market.

SNIPPET

BDCs are operators providing liquidity exchanges for persons and businesses operating on a retail scale in the market and as a result may not have access to banks and other large financial institutions. The role of BDC Operators in the forex market, particularly in emerging economies cannot be overlooked and therefore necessitates regulation. This is because retail trade and investment form the bulk of emerging economies and for an efficient market flow it is essential that liquidity be made available to retailers on a daily basis.

KEYWORDS

Regulatory and Supervisory Guidelines for Bureaux De Change Operators, Nigerian foreign exchange, franchising standards, Nigerian foreign exchange market.

1. Dicks J., ‘Forex Trading Secrets-Trading Strategies for the Forex Market’ Mc Graw Hill Companies, 2010, available at https://thebakkes.net/BakkeVitals/BBCMG/Forex%20Trading%20Secrets%20-%20Trading%20Strategies%20for%20the%20Forex%20Market%20-%20James%20Dicks%20(2010)%20A4.pdf accessed November 2024. ↑
2. Ibid. ↑
3. See Okanya, O.C. and Paseda, O, ‘The Central Bank of Nigeria: History, Current Operations and Future Outlook.’ International Journal of Academic Accounting, Finance and Management Research, 3 (1):23-43 (2019), available at https://philpapers.org/go.pl?id=OKATCB&proxyId=&u=https%3A%2F%2Fphilpapers.org%2Farchive%2FOKATCB.pdf accessed November, 2024. ↑
4. Dealmakers Bureau De Change, ‘Foreign Exchange Stability: The Role of Bureau De Change’ (LINKEDIN, 2024) available at https://www.linkedin.com/pulse/foreign-exchange-stability-role-bureau-de-change-dealmakersbdc-forqf#:~:text=Published%20May%2021%2C%202024,effectively%20reducing%20volatility%20and%20uncertainty. Accessed November, 2024. ↑
5. Ibid. ↑
6. Angbulu S. and Olasupo A., ‘Why 4,173 Bureau De Change Operators’ Licenses were Revoked- CBN’ (PUNCH, 2024) available at https://punchng.com/why-4173-bureau-de-change-operators-licences-were-revoked-cbn/#:~:text=The%20Central%20Bank%20of%20Nigeria,%2C%20Corporate%20Communications%2C%20Sidi%20Hakama. Accessed November, 2024. ↑
7. Central Bank of Nigeria, ‘Circular to all Bureau De Change Operators and Stakeholders in the Financial Services Industry- Regulatory and Supervisory Guidelines for Bureau De Change Operations In Nigeria’ Financial Policy ad Regulation Department, 2024, available at https://www.cbn.gov.ng/Out/2024/FPRD/APPROVED%20BDC%20GUIDELINES%20May%2022%202024.pdf accessed November 2024. ↑
8. Para 3 of the Guidelines. ↑
9. Ibid. ↑
10. Para 4. ↑
11. Ibid. ↑
12. Ibid. ↑
13. Para 5. ↑
14. Para 6. ↑
15. Para 2 ↑
16. Para 7. ↑
17. Para 8 ↑
18. Ibid. ↑
19. Ibid. ↑
20. Para 10. ↑
21. See Para 2. ↑
22. Para 12. ↑
23. Ibid. ↑
24. Ibid. ↑
25. Para 16. ↑
26. Ibid. ↑
27. Para 19. ↑
28. Ibid. ↑
29. Para 20. ↑