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The apex bank gave the warning in a letter signed by Director of Trade and Exchange Department Ozoemena Nnaji, addressed to the DMBs.
Nnaji urged the banks to not only know their customers, but also know their businesses.
She said the directive was necessitated by recent occurrences in the FX market.
“The CBN wishes to remind all banks that it is their responsibility to not only know their customers (KYC requirements) but also know their customers’ businesses (KYCB requirements).
“Given this responsibility, and in view of recent occurrences in the market, the CBN will like to remind banks to desist from all forms of FX malpractices.
“We wish to reiterate that FX operating licences of any bank or banks that are found culpable with ongoing investigations will be suspended for at least one year,” the director said.
She urged all the DMBs concerned to take note and ensure compliance.
Nigeria’s apex bank had issued similar warnings earlier to micro-finance banks.
A few weeks back, the CBN warned micro-finance banks to desist from operations that had gone beyond their limits.
The apex bank specifically warned micro-finance banks to steer clear of wholesale banking and foreign exchange transactions.
The apex bank had, in a circular sent to all microfinance banks across the country with number: FPRD/DIR/PUB/CIR/01/020 and signed by a senior official at the Financial Policy and Regulatory Department Ibrahim Tukur, stressed that the apex bank would not hesitate to enforce regulatory sanctions on breaches of its extant regulations.
The CBN has warned micro-finance banks to desist from operations that had gone beyond their limit of operations.
The apex bank in the circular said,” Given the comparatively low capitalization of MFBs, dealing in wholesale and or foreign exchange transactions are a significant risk with dire consequences for financial stability.”
Informed experts, however, said the apex bank, beyond dishing out warnings to financial institutions, must address the weak supply side of the foreign exchange.
Founder and Managing Director of Cowry Assets Management Limited and Facilitator of Institute of Chartered Accountants of Nigeria (ICAN) Jonhson Chukwu told The ICIR that the apex bank must sustain reforms in the FX market and increase the supply side of dollar to the economy.
“The Central Bank of Nigeria must find a way to create platforms for several legitimate demands that find satisfaction in the parallel market. This would enable it to sustain the gains between the naira and the exchange rate,” he said.
“Beyond what they are doing presently, the central bank has to find a way of admitting some transactions that were accessing money from the BDC window or the parallel market window, to take out some of the pressure that will come in near future, since people are still monitoring the market to see its reactions in near future.”
He noted that the apex bank must encourage competitiveness in the export of commodities that Nigeria had a competitive advantage on, to increase the supply side of the dollar to the economy.
“That way, there would be more dollars into the economy,” he said.
Notably, the CBN has maintained multiple exchange rate markets, creating one window for investors and exporters, another window called NAFEX, and another window for religious travellers. Analysts and investors say this weakens investors’ confidence, creating uncertainty in the economy.
The LCCI is made up of over 3,000 investors and businesses. The body said the multiplicity of the exchange rate market was one big reason scaring investors.
“Lack of cohesion among policymakers sends a negative signal to the investment community, worsens uncertainty, and further dampens investor
confidence,” President of Lagos Chamber of Commerce and Industry (LCCI) President Toki Mabogunke said in an emailed press statement to The ICIR.
The chamber said it was critically important for policymakers to harmonise the multiple exchange rates into a single market-reflective rate, which was imperative in strengthening investor confidence and engendering macroeconomic stability.