CBN to Sanction IMTOs over Arbitrary Rate Quotes

The Central Bank of Nigeria (CBN) has vowed that going forward, International Money Transfer Operators (IMTOs) that indulge in arbitrary rate quotes outside the permissible range as well as other sharp practices in violation of extant regulations, would face sanctions.

This was just as the naira sustained its depreciation at both the Investors and Exporters’ (I&E) foreign exchange (FX) window and the parallel FX market.

Specifically, at the I&E window, the naira weakened to N780 to a dollar yesterday, lower than the N774.09 to a dollar it closed the previous day. On the parallel market, the naira also depreciated to N945 to a dollar in Lagos State, from N935 to a dollar it went for the previous day.

The punitive measures according to the CBN could include being compelled to sell their proceeds to the central bank, suspension from operations and loss of operating licence, among others.

The CBN conveyed the warning in a circular dated September 13, signed by CBN Director, Trade an Exchange Department, Dr. W.J. Kanya, which was addressed to all IMTOs.

The apex bank’s intervention came against the backdrop of  observations in the course of routine checks that some IMTOs were operating and acting in breach of guidelines previously issued for the IMTOs in August.

The framework enumerated terms and conditions, including payment mode, pricing, and rate quote, that must be complied with while providing international money transfer services in the country.

For the avoidance of doubt, the bank explained that IMTOs were required to quote rate within the allowable limit of -2.5 per cent to +2.5 per cent around the previous day’s closing rate of the Nigerian Foreign Exchange Market for their transactions.

The CBN however, pointed out that the guideline appeared to be observed in the breach by the IMTOs, prompting the bank’s intervention.
Back in August, the central bank unveiled the draft operational rules and regulations for in-country clearing and settlement of foreign currency (FCY) fund transfers among Nigerian banks.

The move seeks to enable faster, cheaper, and more transparent FCY transfers and to create an efficient and safe operation of FCY transfers amongst Nigerian banks, and improve the efficiency of the in-country FCY transfers, leading to greater confidence in the payment system.

The central bank said the settlement of clearing balances shall be accorded the highest priority for settlement under the new regime.

The CBN said the regulation provides measures that would address some of the challenges facing the current system for switching FCY transfers among Nigerian banks including high cost associated with correspondent banking services, delay and inefficiencies with processing foreign remittances for third party including IMTOs.

The bank also noted that the move was in exercise of the powers conferred on it under the Sections 2(d), 33 (1)(b) and 47(2) of the CBN Act 2007, to promote sound financial system in Nigeria, issue guidelines, facilitate the development of an efficient and effective payments system in Nigeria, and prescribe rules and regulations for the efficient operation of the clearing and settlement system.

The CBN, however, warned participants to adhere strictly to the bank’s policy on dollarisation, as this is mandatory for FCY transfers.

The apex bank further pointed out that the provisions of all existing guidelines, circulars and directives on the operations of domiciliary account and FCY transactions shall apply to in-country FCY switching service.

Under the regulation, if a participant does not have sufficient fund in its settlement account during the settlement of net clearing position, the CBN shall have recourse to the bank’s collateral to settle the participant’s clearing debit.

Where a participant neither has sufficient funds nor sufficient collateral the CBN shall act as lender of last resort at a fee plus penalty.

Also, each participant shall open a US Dollar account with CBN for the purpose of settlement of its In-Country FCY funds transfers, and each participant shall be responsible for ensuring that its USD account with CBN is funded, for the purpose of pre-authorised debits and settlement of net debit positions from in-country FCY clearing system among other requirements.

The guidelines read, “A member bank shall be suspended from participation, for persistent failure to settle (three times in a week) its settlement obligations from in-country FCY funds transfers. Warning shall be sent to a participant for each failure.

“Failure to provide the requisite infrastructure to enable electronic exchange of eligible payment instrument. Failure to maintain adequate collateral as prescribed by the CBN, from time to time.

“When the bank is suspended by the Management of the CBN in the interest of the system for any other reason not aforementioned. Every suspension shall last until such a time reinstatement is approved by the CBN.”

Essentially, parties to FCY funds transfer, clearing and settlement in Nigeria shall include but not limited to the CBN, Nigeria Inter-Bank Settlement System PLC (NIBSS), Authorized Dealer Banks, International Money Transfer Operators (IMTOs), Customers of ADBs and any other institution as may be approved by CBN.