The Central Bank of Nigeria (CBN) has released revised guidelines for the Nigeria Foreign Exchange Market (NFEM), signaling a major shake-up in the country’s FX operations.
The updates, contained in a circular dated November 29, 2024, consolidate all FX windows, redefine the roles of market participants, and introduce stricter compliance and transparency measures.
This latest move is part of the apex bank’s efforts to address long-standing inefficiencies in the FX market while creating a transparent, well-regulated system.
The revised guidelines cover a wide range of regulatory and operational aspects, touching on the roles of Authorized Dealers, Bureaux de Change (BDCs), pricing mechanisms, interbank trading, compliance, and reporting standards.
Key highlights of the regulation
Licensed BDCs back in action – One of the most significant changes in the revised guidelines is the inclusion of licensed Bureaux de Change (BDCs) in the official FX market.
- For the first time in years, BDCs are now allowed to buy FX directly from Authorized Dealers, subject to a monthly cap set by the CBN.
- The decision is expected to improve retail FX access, particularly for individuals and small businesses.
However, the CBN emphasized that all transactions involving BDCs must align with their licensing terms and be reported in real time.
All FX windows Consolidated – In a bid to simplify operations and improve price discovery, the CBN has unified all FX market windows into a single framework.
- This consolidation replaces the fragmented system of multiple windows, such as the Investors & Exporters (I&E) FX Window, SME Window, and Invisible Window.
- “By bringing all participants into a unified market structure, we are reducing inefficiencies and enabling better access to FX for legitimate needs,” the CBN noted in the circular.
This consolidation is expected to reduce market distortions and provide clearer guidance for participants.
Centralized Pricing through EFEMS- Pricing transparency is another focus of the revised guidelines as all FX transactions are now required to be priced through the Electronic Foreign Exchange Matching System (EFEMS), a centralized platform that will also publish daily FX rates for public access.
- To prevent exploitation, the CBN has prohibited negotiations of FX rates outside the market framework. Authorized Dealers are required to maintain a transparent pricing methodology that aligns with the prevailing NFEM rate.
Stricter Reporting and Compliance Rules – The new guidelines also introduce rigorous reporting requirements
- Authorized Dealers must report FX transactions to the CBN within 10 minutes via an API-based system.
BDCs are required to submit daily activity reports through automated portals. - Commercial and Merchant Banks must adopt real-time reporting to improve monitoring and oversight.
- In addition, all market participants are expected to adhere to the Nigerian FX Code of Ethics and Conduct. Bank boards, CEOs, and Chief Compliance Officers are required to annually attest to their compliance with this code.
Structured Interbank Trading – The CBN is also formalizing interbank trading as Authorized Dealers are now required to do the following
- Trade FX through the EFEMS platform for full transparency.
- Comply with credit limits and risk management practices.
- Provide two-way quotes as designated Market Makers to ensure liquidity.
How this differs from the old regulation
The revised guidelines for the Nigeria Foreign Exchange Market (NFEM) introduce several changes that distinguish them from the previous frameworks. Below is a comparison highlighting key differences.
What This Means for Nigeria’s FX Market
For Businesses and Individuals – The inclusion of BDCs is expected to improve access to FX for retail users, while centralized pricing through EFEMS ensures more transparency in rates.
- However, stricter compliance requirements may limit the operations of non-licensed intermediaries.
For Market Participants – Authorized Dealers, BDCs, and other participants will need to upgrade their processes to meet real-time reporting and transparency requirements.
- The annual ethics attestation highlights the CBN’s commitment to holding participants accountable.
For the Economy – The consolidation of the FX market is expected to enhance investor confidence and attract foreign inflows.
- However, the success of these reforms hinges on strict enforcement and the effective management of FX liquidity.
Back Story
Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, had revealed that the soon-to-be-introduced electronic FX matching system will address the disconnect between the current naira-to-dollar exchange rate and the naira’s true market value.
Speaking at the Bankers’ Committee Annual Dinner held on November 29, 2024, at Eko Hotel, Lagos, Cardoso emphasized that the system would enhance price discovery and restore stability to the foreign exchange (FX) market.
“The introduction of the FX matching system will enable the Central Bank to monitor the market more effectively and intervene where necessary. This will significantly improve transparency and provide a more accurate reflection of the naira’s value,” Cardoso stated.
Download the new guidelines below…
