CBN Plans N2bn, N500m Minimum Capital For BDCs

In a bold move to restore sanity in the foreign exchange market, the Central Bank of Nigeria (CBN) has unveiled a new increase in the share capital of Bureau De Change (BDC) operators to N2 billion and N500 million for Tier 1 and Tier 2 licenses.

It was previously N35 million for a general license.

The apex also ordered Bureau De Changes (BDCs) to pay 25 per cent of foreign exchange purchased for Business Travel Allowance or Personal Travel Allowance in cash while the remaining 75 per cent should be transferred electronically to the customer’s Nigerian domiciliary account or prepaid card.

However, the apex bank noted that such customers receiving $500 or less than $500 should be paid fully in cash.

CBN gave this direction among others in its Revised Regulatory Supervisory Guidelines for BDCs operations in Nigeria.

The new guidelines contain several new changes to the guidelines for BDC operations in the country. If endorsed, the new guidelines will be effective at a date decided by the CBN.

Under the minimum capital requirements, the central bank is introducing a two-tier license for BDC operators in the country.

“A Tier 1 BDC is authorized to operate on a national basis can open branches and may appoint franchisees, subject to the approval of the CBN.

A Tier 1 BDC (which is the franchisor) shall exercise supervisory oversight over its franchisees. All franchisees shall adopt their franchisor’s name, branding, technology platform, and rendition requirements.

A Tier 2 BDC is authorized to operate only in one state or the FCT. It may have up to three locations – a head office and two branches, subject to approval of the CBN. It is not permitted to appoint franchisees.”

Under Tier 1 operators are expected to have N2 billion as minimum share capital while also depositing a Mandatory Caution Deposit of N200 million.

CBN also directed BDCs to retrieve resident customers’ Bank Verification Number, BVN, or Tax Identification Number, TIN before carrying out foreign exchange transactions.

Section 5.0 of the guidelines stated: “A beneficiary of BTA or PTA shall receive up to 25 per cent of the foreign currency in cash.

“In other words, at least 75 per cent of any sale of foreign currency by a BDC shall be transferred to the customer electronically (to the customer’s Nigerian domiciliary account or prepaid card).

“Notwithstanding ‘b’ above, a beneficiary of BTA or PTA of the equivalent of $500 or less may receive his/her BTA or PTA in cash.”

On non- permissible activities, CBN said among other things: “A BDC or its franchisee shall not engage in the following activities: Street-trading, maintaining any type of account for any member of the public, including accepting any asset for safekeeping/custody; Taking deposits from or granting loans to members of the public in any currency and in any form;

“Retail sale of foreign currencies to non-individuals, except for BTA International outward transfers; Engaging in off-shore business or maintaining foreign correspondent relationship with any foreign establishment; Opening or maintaining any account with any bank or financial institution outside Nigeria;

“Acting as custodian of foreign currency on behalf of customers; International inward transfers, except for operators that serve as cash-out points for IMTOs; Borrowing sums which in aggregate exceed the equivalent of 30 percent of its shareholders’ funds unimpaired by losses, in the BDC’s audited financial statements of the preceding year; Engaging in forwards, futures, options, or other derivative/speculative transactions;

“Obtaining foreign exchange from sources other than those listed in Section 4.0; Granting of loans and advances in any currency; Selling foreign exchange on credit to any customer; Engaging in any trade-related import activities; Serving as payment or collection agents on behalf of customers;

“Dealing in gold or other precious metals; Carrying on capital market, insurance and/or pension sector activities; Establishing subsidiaries; Any foreign exchange transaction that involves illicit financial flows; Financing of political activities; All other businesses not expressly permitted by this Guidelines; “Any other activity as may from time to time be termed “non-permissible” by the CBN.”

On BVN and TIN retrieval, CBN stated: “Transactions by residents shall only commence after electronic retrieval of the potential customer’s BVN or TIN from the NIBSS or Federal Inland Revenue Service (FIRS) databases, respectively, and the details confirmed to match with the potential customer’s standard identification document.

“All transactions by non-residents shall only commence after obtaining a copy of the potential customer’s passport identification document and validation with the relevant Nigerian agency.

“For foreign currency cash purchases: Sellers of $10,000 and above shall be required to declare the source of the foreign exchange.

“For all customer-present transactions, all the Naira proceeds shall be electronically credited or transferred to the same customer’s naira account, or prepaid card.”