In the bid to establish a more transparent and efficient framework for managing foreign exchange (FX) in Nigeria, the Central Bank of Nigeria (CBN) recently introduced revised guidelines for the Nigerian Foreign Exchange Market (NFEM) (“Guidelines”). These updates aim to address longstanding issues such as fragmented pricing, limited access to FX, and inefficiencies in the FX market operations.
In this newsletter, we will examine the highlights of the Guidelines and their implications for stakeholders.
Key Highlights of the Guidelines
- Authorized Dealers and Bureau de Change (BDC) Operators: One of the key provisions of the Guidelines is to reemphasize the prohibition of foreign exchange transactions involving unlicensed intermediaries. Under the Guidelines, authorized dealers (e.g. commercial banks, international money transfer operators) are tasked with facilitating FX transactions for individuals and businesses, conducting due diligence, and adhering to all applicable laws and guidelines. They are also required to provide convenient digital channels for market access and ensure transparent pricing practices.Unlike the previous guidelines, licensed Bureau de Change (BDC) Operators are now permitted to buy FX directly from authorized dealers to meet customer needs. However, this is subject to a monthly cap set by the CBN. This inclusion is to improve retail access to FX.
- Electronic Foreign Exchange Matching System (EFEMS): Developing on the unification of all FX market windows, the Guidelines introduced the Electronic Foreign Exchange Matching System (EFEMS). The EFEMS is a centralized platform for pricing and executing FX transactions. To ensure transparency and consistency across the FX market, the Guidelines provide that all FX transactions are to be priced through EFEMS and prohibits the negotiations of FX rates outside the FX market. Additionally, through this system, FX markets statistics including daily transaction rates of all qualifying transactions on NFEM will be publicly available to guide market participants on the CBN website. The EFEMS is the centerpiece of the Guidelines as it not only improves the efficiency of the market but also ensures transparency and consistent pricing.
- Interbank Trading: The interbank FX market is another important component of the new system. The Guidelines permits the trading of FX in the interbank market between authorised dealers. This is, however, subject to set credit limits as presented by the CBN circular on the Implementation of the Bloomberg BMATCiH for Foreign Exchange Trading issued November 25, 2024. Furthermore, designated market makers are mandated to provide daily two-way quotes to improve liquidity and market efficiency. Additionally, CEOs and compliance officers of authorized dealers must annually attest to compliance with the Nigerian FX Code.
- Reporting and Compliance: Real-time reporting is now a mandatory requirement for all FX transactions. The Guideline requires authorized dealers to report transactions to the CBN within 10 minutes of execution, including those conducted via EFEMS, telephone, or chat-based platforms. BDC operators and other participants are also required to submit daily activity reports using digital platforms, reinforcing the CBN’s commitment to monitoring and transparency.
Conclusion
The Central Bank of Nigeria’s revised guidelines for the Nigerian Foreign Exchange Market is a strategic step towards a more transparent, efficient, and inclusive FX ecosystem. For businesses, investors, and individuals, these updates present new opportunities for growth and engagement in the FX market. However, they also require stakeholders to align with stricter compliance standards and adopt best practices to remain competitive.
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