The Central Bank of Nigeria (“CBN”) on 23 February 2024 released an exposure draft of the Revised Regulatory and Supervisory Guidelines for Bureau De Change Operations (“BDCs”) in Nigeria (the ‘’Draft Guidelines’’). The Draft Guidelines seek to amend the extant guidelines for BDCs in Nigeria made in 2015 (the “2015 Guidelines”).

The Draft Guidelines form part of CBN’s unwavering effort to significantly reform the foreign exchange market in Nigeria. The Draft Guidelines, if issued in the present format, will provide more robust requirements for BDCs. The Draft Guidelines specify among others, the permissible activities, licensing requirements, corporate governance and Anti-Money Laundering, Combating the Financing of Terrorism and Countering Proliferation Financing of Weapons of Mass Destruction (“AML/CFT/CPF”) provisions for Bureau De Change (“BDCs”). The Draft Guidelines also set out new record-keeping and reporting requirements.

We have highlighted the key provisions of the Draft Guidelines below:

Prohibited Persons

The Draft Guidelines seek to prohibit certain entities / persons from having ownership stake in BDCs either directly or indirectly. These include among others:

a) Commercial, merchant, non-interest and payment service banks ;

b) Other Financial Institutions (OFIs), including holding companies and payment service providers;

c) Serving staff of financial services regulatory and supervisory agencies;

d) Serving staff of regulated financial services providers;

e) Governments at all levels

f) Telecommunication services providers;

g) A shareholder in another BDC (whether directly or indirectly).

Categories of Licence

The Draft Guidelines seek to introduce two (2) categories of licences for BDCs as follows: a Tier 1 BDC and a Tier 2 BDC. A Tier 1 BDC will be authorised to operate on a national basis and can open branches and may appoint franchisees subject to the approval of the CBN. The Draft Guidelines if approved in its current form, will effectively repeal the 2015 Guidelines which prevent BDCs from operating branch offices and make no provision for franchise operations.

A Tier 1 BDC shall have a minimum capital requirement of N2,000,000,000,000.00 (Two Billion Naira), however this may be varied at the discretion of the CBN.

A Tier 2 BDC is authorised to operate only in one state or the Federal Capital Territory (FCT). It may have up to three locations- a head office and two branches, subject to the approval of the CBN. Worthy of note is the provision which prevents it from appointing franchisees unlike a Tier 1 BDC. A Tier 2 BDC shall have a minimum capital requirement of N500,000,000.00 (Five Hundred Millon Naira) which may also be varied at the discretion of the CBN.

Application for Licence

The Draft Guidelines retain the two level approval process in the 2015 Guidelines: Approval-in-Principle (AIP) and Final Approval. In addition, the grant of the Final Licence shall be in two sub-stages namely: Provisional Approval and Final Licence.

Upon notification of the CBN to grant a Final Licence, the proposed BDC shall pay the non-refundable licence fee of N5,000,000.00 (Five Million Naira) for Tier 1 BDCs and N2,000,000.00 (Two Million Naira) for Tier 2 BDCs. This marks a significant increase than the current N1,000,000.00 (One Million Naira) that is obtainable in the 2015 Guidelines.

Asides from the non-refundable licencing fee, proposed BDCs are to pay a mandatory caution deposit in the sum of N200,000,000.00 (Two Hundred Million Naira) for Tier 1 BDC and N50,000,000.00 (Fifty Million Naira) for Tier 2 BDCs.

Annual Renewal Requirements

The Draft Guidelines increase the annual renewal fee of BDCs from N250,000.00 (Two Hundred and Fifty Thousand Naira) to N5,000,000,000.00 (Five Million Naira) in the case of Tier 1 BDCs and N1,000,000.00 (One Million Naira) for Tier 2 BDCs.

Every licence shall expire on 31 December of each year and shall be renewed within the first 31 days of the subsequent year with the annual renewal licence fee. Where any BDC licence is not renewed after expiration of the timeline, it shall be deemed to have lapsed.

Permissible and Non-Permissible Activities of BDCs

Although, the 2015 Guidelines provide for non-permissible activities of BDCs, there are no express provisions on the permissible activities that licenced BDC operators can engage in. Thus, to rectify that gap, the Draft Guidelines have provided for the permissible activities of BDCs.

Under the Draft Guidelines, a BDC may:

• a) acquire foreign currency from-

i) tourists;

ii) returnees from the diaspora;

iii) expatriates with foreign exchange inflows from work, travel, investment or their domiciliary accounts;

ix) international money transfer operators (IMTOs);

v) embassies;

vi) hotels that are authorised buyers of foreign currencies;

vii) the Nigerian Foreign Exchange Market (NAFEM) and

viii) any other source that the CBN may specify.

• b) sell foreign currency as for the purpose of:

i) personal travel allowance (PTA);

ii) business travel allowance (BTA), provided that a person who receives BTA on behalf of a non-individual entity shall not be entitled to PTA for the same period;

iii) payment of medical bills;

iv) payment of school fees;

v) repurchase of unused naira from a non-resident from whom the BDC had sourced foreign currency in the course of that visit.

c) open foreign currency and naira accounts with Commercial or Non-Interest Banks (CNIBS);

d) collaborate with their banks to issue prepaid cards; and

e) serve as cash-points for IMTOs.

Non-Permissible Activities

The Draft Guidelines expand the scope of activities which BDCs or their franchisees are not permitted to participated in. These activities include among others:

1. a) street trading;
2. b) maintaining any type of account for any member of the public, including accepting any asset for safe keeping/custody;
3. c) taking deposits from or granting loans to members of the public in any currency and in any form;
4. d) retail sale of foreign currencies to non-individuals except for BTA;
5. e) opening or maintaining any account with any bank or financial institution outside Nigeria;
6. f) acting as custodian of foreign currency on behalf of customers;
7. g) international inward transfers, except for operators that serve as cash-out points for IMTOs;
8. h) borrowing sums which in aggregate exceed the equivalent of 30 per cent of its shareholder’s funds unimpaired by losses in the BDC’s audited financial statements of the preceding year;
9. i) granting of loans and advances in any currency;
10. j) selling foreign exchange on credit to any customer;

Operations of BDCs

The following are the key requirements to note in relation to the operations of BDCs:

1. – BDCs may sell foreign currency in the equivalent of USD4,000 and USD5,000 for PTA or BTA, respectively, to an individual once every six months.
2. – BDCs may sell foreign currency up to the equivalent of USD5,000 to a customer for medical bill once a year.
3. – BDCs may sell foreign currency up to the equivalent of USD10,000 to a customer for school fee once a year. Such fee shall be transferred from the BDC’s domiciliary account with a Nigerian bank, and shall be paid directly to the school.
4. – A beneficiary of foreign currency sale by a BDC may receive up to 25 per cent of the amount in cash, while at least 75 per cent shall be transferred electronically to the beneficiary’s domiciliary account or prepaid travel card.
5. – Sales of the equivalent of USD500 and below by a BDC may be settled by the buyer in cash, while sales above USD500 shall be settled by electronic transfer to the BDC’s Naira account.
6. – BDCs can participate in the Nigerian Foreign Exchange Market as an authorised dealer upon obtaining a licence in that regard by the CBN.
7. – Every BDC is required to conspicuously display its buying and selling rates, which shall apply throughout all its branches, and where applicable, its franchisees. The draft Guidelines prohibit disclaimers or statements by a BDC to the effect that an exchange rate indication is not to be relied on.
8. – No BDC shall have any business relationship with a street trader in foreign currency.

Corporate Governance Requirements

The Draft Guidelines specify the following corporate governance requirements for BDCs:

1. a) both Tier 1 and Tier 2 BDCs shall maintain a minimum of five (5) directors. However, for Tier 1 BDCs, a maximum of nine (9) directors is allowed, while Tier 2 BDCs are allowed a maximum of seven (7) directors;
2. b) the number of independent non-executive directors (INEDs) shall be at least two (2) for Tier 1 BDCs and one (1) for Tier 2 BDCs, provided that where a BDC is publicly listed, it shall comply with the applicable provisions of the Companies and Allied Matters Act 2020;
3. c) a Tier 1 BDC shall have an Executive Director (ED) other than the Managing Director (MD)/Chief Executive Officer (CEO). A Tier 2 may have an ED apart from the MD/CEO;
4. d) no board of a BDC shall consist of only one gender;
5. e) prospective and current directors on the Board of a BDC are required to disclose potential and existing board membership of other entities. Where any of the entities are regulated by CBN, a written approval of the CBN shall be required for the prospective director or current director to continue in office;
6. f) in the event a director elects to resign his appointment on the Board, such director shall submit a written notice of resignation addressed to the chairman of the Board, ninety (90) days before the effective date of resignation;
7. g) where an INED elects to resign, and such resignation would result in non-compliance with the required number of INEDs, the Board shall within the ninety (90) days notice period appoint a replacement;
8. h) where a director elects to resign from the board on account of unresolved concerns pertaining to the running of the BDC, such director shall detail the concerns in a written statement to the chairman for circulation to the Board;
9. i) the director resigning shall within seven (7) days of the notice of resignation, forward a copy of the statement in (h) above to the Director, Other Financial Institutions Supervision Department, CBN;
10. j) where a NED resigns from the Board, and such resignation results in NEDs not being in the majority, the Board shall within the ninety (90) days’ notice appoint a replacement; and
11. k) where a merger, acquisition, take-over or any form of business combination involves the appointment of a director from the Board of the legacy institution, the length of service of such director shall include both periods served pre and post-combination.

Franchising Standards

As noted above, only Tier 1 BDCs are allowed to appoint franchisees. All franchisees shall adopt their franchisor’s name, branding, technology platform and rendition requirements.

Where franchisees are appointed, the franchisors (Tier 1 BDC) shall be guided by the following standards:

• each franchisor shall have a franchising policy to be approved by the CBN;
• franchisors shall be primarily responsible for monitoring the operations of their franchisees to ensure that they align with the franchisor’s standards;
• franchisees shall be limited liability companies and have the words ‘’BDC Franchise’’ in their names;
• the same Information Technology (IT) requirements shall apply to franchisees as they do to branches of the franchisors;
• the franchisor shall be responsible for submitting consolidated reports to the CBN on its operations and those of its franchisees;
• the franchisor and its franchisees shall have the same branding standards. Notwithstanding, a franchisee shall clearly display prominently in its office that it is a franchise of the franchisor;
• the same AML/CFT/CPF and other regulatory policies shall apply to the franchisor and its franchisees;
• a franchisor shall appoint a maximum of ten (10) franchisee in each state;
• a franchisor shall not appoint a franchisee in a state where it does not have a branch;
• monitoring of all franchisees in a state shall be handled by a branch of the franchisor in the state or a dedicated unit in the Head Office responsible for monitoring all franchisees; and
• except at airports, there shall be a distance of at least three (3) kilometres between a branch of a BDC and another branch or any of its franchisees. Similarly, there must be a distance of at least three (3) kilometres between franchisees of the same BDC.

 Preservation of Records

The Draft Guidelines reduce the number of years BDCs are to maintain documents obtained from customers to five (5) years as opposed to the current record keeping timeline of six (6) years.

 Prudential Requirements

Every BDC is required to observe the following prudential requirements among others:

1. a) ensure Net Open Position (NOP) limit in foreign currency of the equivalent of 30 per cent of its shareholders’ funds unimpaired by losses;
2. b) fixed assets to shareholders’ funds ratio of a maximum of 50 per cent;
3. c) limit total borrowing to 50 per cent of shareholders’ funds unimpaired by losses;
4. 4) maintain sufficient insurance cover over cash (both Naira and foreign currency) in office and in transit, fire and staff fidelity;
5. 5) maintain statutory reserve by transferring out of its net profits for the year before any dividend is declared:
6. 5i) where the balance in the statutory reserve account is less than the paid up capital of the BDC, a sum not less than 30 per cent of the net profit;
7. 5ii) where the balance in the statutory reserve account is up to paid up capital of the BDC, a sum not less than 15 per cent of the net profit;
8. 6) ensure that no dividend is paid until:
9. 6i) all its preliminary expenses, organisational expenses, shares selling commission, brokerage, amount of losses incurred, and other capitalised expenses not represented by tangible assets have been completely written off;
10. 6ii) it has met the required minimum capital for the category of the BDC;
11. 6iii) adequate provisions have been made to the satisfaction of the CBN, for actual and contingent losses on assets, liabilities, off balance sheet commitments and such unearned incomes as are derivable therefrom; and
12. 6iv) it has satisfied corporate governance and prudential requirements stipulated by the CBN.

AML/CFT/CPF Requirements

The Draft Guidelines will significantly enhance AML compliance measures compared to the current 2015 Guidelines. The Draft Guidelines require BDCs to comply with the Money Laundering (Prevention and Prohibition) Act 2022 and any other relevant laws

Other provisions in the Draft Guidelines include revocation of licence of BDCs, change in ownership structure, accounting and audit of financial statements

Conclusion

The Draft Guidelines, like the name is, are still in draft form. The CBN has asked relevant stakeholders to forward comments or inputs to the Director, Financial Policy, and Regulation Department of the CBN by March 4, 2024.

Authors: Oludare Senbore, Partner | Adeyemi Ayeku, Associate | Esther Yugbovwre, Associate