CBN investigates banks over forex malpractices

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  • To suspend FX operating licenses of culpable banks

The Central Bank of Nigeria (CBN) is currently investigating into the activities of Deposit Money Banks (DMBs) with respect to compliance with the new foreign exchange policy, the apex bank has said.

In a letter to DMBs posted on the regulator’s website yesterday, the Director of Trade and Exchange Department at the CBN, Dr Ozoemena Nnaji, warned that: “The FX operating license of any bank or banks that are found culpable with ongoing investigations would be suspended for at least one year.”

The letter titled: “Observance of due diligence in the processing of foreign exchange transactions,” reads in part: “In line our continuing close surveillance of our financial markets in general and the FX market in particular, 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 new forex policy came into effect following an announcement by CBN Governor, Mr. Godwin Emefiele, on July 27, that the regulator was ending its weekly sale of forex to Bureaux De Change (BDCs).

He said the apex bank took the action because the BDCs had deviated from their primary role of providing retail forex sales to customers who deserve FX for legitimate purposes, such as PTA, BTA, tuition fees, medical payments, Small and Medium Enterprises (SMEs) transactions, among others and were engaging in corrupt activities.

Mr. Emefiele also announced that with the stoppage of forex sales to the BDCs, the CBN would significantly increase and channel its weekly FX allocations previously meant for the currency dealers to DMBs, adding that the lenders must ensure that they meet the forex demand of customers who deserve it for legitimate purposes.

He said that the regulator would sanction DMBs and their customers that fail to comply with the new FX policy.

Recall, an earlier report suggested that DMBs were seeing a surge in the number of people trying to purchase forex at the official rate through fraudulent means, including the use of fake visas.

Reacting to the development, the CBN, on August 31, directed DMBs to publish the names and Bank Verification Numbers (BVN) of defaulters of its forex policy on their websites.

The Director of Banking Supervision, Haruna Mustafa, who issued the directive, stated that the CBN had received reports of sharp practices by some customers to circumvent the new policy on the sale of forex for overseas personal and business travel.

To checkmate such customers, the CBN directed DMBs: “To publish on their websites the names and BVN of defaulting customers who present fake travel documents or cancel their tickets and fail to return the purchased PTA/BTA within two (weeks) as stipulated in the customer declaration form signed by them.”

It would be recalled that the CBN had issued a circular on August 21, in which it threatened to sanction Micro-Finance Banks (MFBs) going beyond their mandate to engage in foreign exchange transactions.

The regulator had stated that, “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.

“It has therefore become imperative to remind all MFBs to strictly comply with the extant revised regulatory and supervisory guidelines for microfinance banks in Nigeria 2012.”

Analysts also note that the CBN last month secured a court order, which allowed it to freeze the accounts of six fintech companies for 180 days pending the completion of investigations into, “illegal foreign exchange transactions” by the companies.

We gathered that the CBN is set to clampdown on DMBs found to be engaging in forex malpractices as part of measures to bolster the naira which has been on a free fall at the parallel market in recent days.

The local currency dropped to a new record low against the dollar at the parallel market yesterday, closing at N545 per dollar compared with N540/$1 on Thursday.

It also fell against the Pound Sterling and the Euro yesterday closing at N743/£ and N636/€ respectively compared with N730/£ and N629/€ on Thursday.

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