IMF Warns Nigeria on Risks Arising from Central Digital Currency eNaira

Richard Marley
February 24, 2022
2 minutes read
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The IMF has warned the Central Bank of Nigeria (CBN) about the risks of money laundering and terrorist financing with the use of the central bank digital currency (CBDC) eNaira.

The IMF has cautioned the Central Bank of Nigeria and suggests the implementation of close monitoring systems for their central bank digital currency (CBDC).

In its Article IV on Nigeria, the IMF stated that even though there are several potential benefits of the eNaira, it brings risks of financial crime in case of wide adoption. The IMF pointed out the need to find solutions for the existing deficiencies in the Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT) framework that could elevate these risks.

“While preventive measures and the planned AML/CFT regulations for eNaira intermediaries are welcome, a money laundering/terrorist financing risk assessment of domestic and cross-border uses of eNaira and the adoption and implementation of the regulation along with putting in place risk-sensitive mitigation measures should be a priority.”

Earlier on, the Fund had stated that the “recent introduction of the eNaira promises several potential benefits, including higher financial inclusion, but poses some risks. Staff welcomed the gradual rollout of the CBDC and highlighted the need for vigilance to various risks, including monetary policy implementation, bank funding, cyber security, operational resilience, and financial integrity and stability, through regular risk assessment and contingency planning.”

“The launching of eNaira could bring significant benefits, including higher financial inclusion over time and efficient delivery of social assistance, and close monitoring of risks is recommended. The eNaira offers low-cost and phone-enabled financial transactions outside established channels. This could potentially increase financial inclusion over time in rural areas and help meet the authorities’ ambitious target to increase the share of financially included adults to 95 percent.”

The IMF also added that the CBDC is vulnerable to cyber security risks, unforeseen legal issues, and financial integrity risks.“There are cyber security risks associated with the eNaira. Unforeseen legal issues, including for private law aspects of its operations (e.g., the exact nature of the legal relationship between the wallet providers and CBDC holders), may subject eNaira to litigation and operational risks”

Disclaimer: No warranty is herein provided that the information contained in this document is accurate, up-to-date, and/or complete. In no circumstance(s), does such information constitute legal or any other advice. Any person who intends to use, rely, pass-on, or re-publish the information contained herein in any way is solely responsible for the same. We suggest to verify the information and/or obtain expert advice independently if required.

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IMF Urges Central Bank of Seychelles to Upgrade Transparency and AML Controls
The Central Bank of Seychelles (CBS) has been advised by the International Monetary Fund (IMF) to have transparent practices and AML controls.

The International Monetary Fund (IMF) has urged CBS, the Central Bank of Seychelles, to incorporate refined practices in different accountability and governance areas. These include confidentiality, supervisory & confidentiality policies along with internal AML/CFT protocols.

According to the statement by IMF, CBS is giving information regarding legal structure, mandate, and a few key elements related to anti-corruption arrangements, risk and human resource management, and accountability on its website.

The review of IMF stated, “To better support the public’s perception of the CBS as a well-governed institution, it should consider highlighting these aspects in its annual report, and/or provide additional information on its website, particularly on human capital management, anti-corruption policies and decision-making arrangements.”

As per IMF’s review, CBS needs to work on several elements, including information’s accessibility to its internal governance arrangements. It could be done by maintaining the Annual Report’s respective sections and website. Moreover, it must overhaul the proceedings by publishing its Code of Conduct and Ethics.

“The legal mechanism for confidentiality issues has been established, but the dissemination and disclosure of the confidentiality framework could be enhanced. The CBS discloses basic information on its AML/CFT supervisory powers and policies, as well as on its related internal control framework, but disclosures on the processes and outcomes of its AML/CFT external policies and internal controls are limited,” said CBS Transparency Code Review of IMF.

IMF review said that the ensurance of transparency practices with new functions and powers by CBS would be effective for its own benefit. The practices adopted by CBS must comply with the powers acquired by the coming legislative act.

IMF’s CBS Transparency Code Review said, “In the last few years, the CBS’s regulatory powers have been substantially expanded with the adoption of AML/CFT Act and Financial Consumer Protection Act. Moreover, the forthcoming Financial Stability Act is expected to provide a transparent legal basis for the CBS’s (and other financial sector regulators) actions on financial stability. These legislative acts will require an expansion of the CBS’s transparency practices so that the related CBS activities continue to be appropriately disclosed to stakeholders.”

The review aims to identify the strength and improvement areas of CBS by allowing it to evaluate its transparency practices. The review presents the map of CBS’s transparency choices in comparison to several practices in three different categories (core, comprehensive, and expanded).

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The banking sector has always remained a prime target of financial criminals due to its exposure to huge investments and funds. Criminals use a variety of advanced techniques to carry out money laundering inflicting a myriad of damages on the overall economic system. Several cases have been witnessed in the recent past where criminals were charged with committing bank fraud.

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IMF Warns Nigeria on Risks Arising from Central Digital Currency eNaira

An Overview of Perpetual KYC

The Need for Perpetual KYC in Banking Sector

Recent Crime Cases in the Banking Industry

Criminal Gang in US Charged with Bank Fraud and Money Laundering

Two Former Employees of Major Bank Charged with Loan Fraud

Global Regulatory Authorities Monitoring the Banking Sector

US

UK

Securing Banking Organizations Through Perpetual KYC

What Shufti Pro Offers?

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