CBN issues 8 new guidelines to banks, forex dealers

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The Director, Financial Markets Department of the Central Bank of Nigeria (CBN), Alvan Ikoku, has issued a circular to banks and other foreign exchange (Forex or FX) authorised dealers informing them of changes in the FX market.

In the circular titled; “FURTHER LIBERALIZATION OF THE INTER-BANK FOREIGN EXCHANGE (FX) MARKET,” and dated June 5, 2023, but seen on Wednesday, the CBN stated that authorised dealers should ensure they sell all forex purchased before the end of the day.

Authorised dealers, which includes financial institutions, are prohibited from being in possession of foreign banknotes overnight.

They are also restricted from selling to another authorised dealer after buying the foreign exchange from an authorised dealer in the interbank market.

Also, the authorised dealers were informed to sell off the excess forex currently in their keep without obtaining the approval of the CBN.

The circular reads: “The Central Bank of Nigeria (CBN), in its efforts to further develop the Nigerian FX market, continues to embark on initiatives that serve to improve the FX market structure. Consequently, further to the CBN Circular FMD/DlR/ClR/GEN/08/007 dated April 21, 2017, on the Establishment of the Investors’ & Exporters’ (I&E) FX Window, the CBN hereby issues the following directives:

1. Authorised Dealers mafease their excess foreign currency trading positions to other Authorised Dealers without seeking prior approval from the CBN.
2. All inter-bank transactions shall be subject to a maximum spread of NI.00.
3. Funds purchased by an Authorised Dealer from another Authorised Dealer, in the inter-bank market, shall not be held in position overnight by the buying Authorised Dealer or sold to another Authorised Dealer.
4. Such Inter-bank purchases shall only be sold by the buying Authorised Dealer to its customers for Permitted/Eligible Transactions as outlined in the above-referenced Circular. All documentation requirements for Permitted Transactions shall apply.
5. Authorised Dealers shall not exceed their respective Foreign Currency Trading Position Limit (FCTPL) without the approval of the CBN. Compliance with the FCTPL shall be strictly monitored by the CBN.
6. All inter-bank trades – spot, forwards, futures, options and swaps – that have an impact on an Authorised Dealer’s FCTPL are expected to comply with rate reasonability standards.
7. The CBN reserves the right to intervene, as a buyer or seller, as it deems fit in the inter-bank market.
8. Authorised Dealers must report to the CBN, details (source and applications indicating the amount, counterparty, deal rate, etc.) of all inter-bank purchases/sales by 4:pmdaily through the portal provided ([email protected]). Compliance is mandatory.

Meanwhile, the apex bank advised authorised dealers to counsel their corporate clients on the need to onboard the FMDQ-advised FX Trading System immediately, “to avoid sanctions, foster the speedy migration of the activities of the I&E FX Window unto the FX Trading System and, in turn, ensure that the objective of deepening the market is achieved,” the CBN wrote in the circular.

Credit:Ripples Nigeria