The Central Bank of Nigeria (CBN) has directed participants in the foreign exchange (FX) market to submit a compliance report on adherence to the Nigeria FX Code by January 31, 2025.
This directive is part of the apex bank’s efforts to strengthen ethical practices, governance, and transparency in the FX market.
According to the FX Code document released on Monday, “Market Participants will be required to conduct a self-assessment and submit to the CBN a report on the institution’s level of compliance with the FX Code by January 31, 2025. All Market Participants will thereafter be required to submit to CBN a detailed compliance implementation plan that is approved and signed by its Board along with the extracts of the Board meeting.”
The Nigeria FX Code, effective from December 2, 2024, outlines principles of good practice to ensure a robust, fair, and transparent FX market. It applies to authorised dealers licensed under the CBN Act 2007, the Bank and Other Financial Institutions Act 2020, and other institutions engaged in wholesale FX business.
Key details of the compliance directive
The CBN mandates market participants to perform a self-assessment and submit a compliance report detailing their adherence to the code. This report must be endorsed by the participant’s board of directors and include an implementation plan to address any compliance gaps. Institutions are also required to provide extracts of the relevant board meeting minutes to demonstrate oversight.
Beyond the initial submission deadline, quarterly compliance reports must be filed with the CBN’s Financial Markets Department (FMD). These reports are due within 14 days of the end of each quarter, with the first report expected by March 31, 2025.
Enforcement and penalties
To ensure strict adherence, the CBN has outlined enforcement mechanisms, including monetary penalties, as provided under the CBN Act 2007 and BOFIA Act 2020. Non-compliant participants may face administrative sanctions, further underscoring the importance of adhering to the FX Code.
Principles of the FX Code
The Nigeria FX Code is modelled on the Global FX Code, incorporating global best practices while addressing the unique dynamics of Nigeria’s FX market. The code is built around six key principles:
- Ethics: Participants must maintain high ethical standards and professionalism.
- Governance: Institutions should establish sound governance frameworks for oversight of FX activities.
- Execution: Transactions must be handled with care to promote a fair and transparent market.
- Information sharing: Confidentiality and accuracy in communication are paramount.
- Risk management and compliance: Robust frameworks should be in place to identify and manage risks.
- Confirmation and settlement: Efficient post-trade processes are essential to ensure smooth transactions.
Strengthening market integrity
- The CBN’s directive highlights its commitment to promoting a more resilient and transparent FX market.
- The FX Code aims to foster confidence among market participants, ensuring that transactions reflect competitive pricing and align with global behavioural standards.
- Market participants are urged to align their operations with the principles outlined in the FX Code to avoid penalties and support the overall stability of Nigeria’s FX market.
