The Central Bank of Nigeria (CBN) has increased the minimum capital requirement for the operation of Bureaux de Change (BDCs) in Nigeria to N35 million from N10 million.
This is contained in the new requirements for BDCs released yesterday by the CBN in Abuja. The CBN noted that while the required minimum paid-up capital of BDCs is set at N10 million, “the capital requirements of all other CBN-regulated entities have been reviewed upwards over the years, the one for BDCs has remained the same.”
Other changes made to the operations of BDCs include, the upward review of the mandatory cautionary deposit to N35 million which “shall be deposited in a non-interest yielding account in the CBN upon the grant of Approval-in-Principle.”
The CBN also stated that the “following fees shall apply to the licensing of BDCs: Application Fee—N100,000.00; Licensing Fee—N1 million; and Annual Renewal Fee—N250,000.00” and ownership of multiple BDCs has been banned and would be punishable if detected.
In addition, all existing BDCs and those currently operating with a Final Approval Letter are required to comply with the requirement on mandatory cautionary deposit by 15 July 2014 while all current applications are expected to comply with these new requirements.
Furthermore, the apex bank has directed that “compulsory membership of the Association of Bureau De Change Operators of Nigeria (ABCON) is no longer a requirement for the licensing of BDCs.”
A statement from the CBN signed by Isaac Okorafor, For, Director, Corporate Communications Department said these changes became necessary “in a bid to correct observed deficiencies in the operation of Bureaux de Change (BDCs) in Nigeria which have led to gross inefficiencies and sharp practices in the foreign exchange market.”
He also said the CBN took these steps “to check the growing incidence of rent-seeking, depletion of external reserves, financing of unauthorized transactions and dollarization, among others.”
The Central Bank of Nigeria (CBN) licenses and regulates Bureaux de Change (BDC) operations in Nigeria to achieve the following objectives: Provide access to foreign exchange to small-scale end-users; Serve as tools for the management of exchange rate; Assist in the fight against illegal financial activities; Facilitate economic activities; and Provide economic data for policy decisions.
However, the CBN said it had “observed with grave concern the deficiencies in the operational effectiveness of BDCs, which runs counter to the aforementioned objectives. In particular, the Bank has observed the following unintended outcomes.”
The apex bank specifically lamented what it called an “avalanche of rent-seeking operators only interested in widening margins and profits from the foreign exchange market, regardless of prevailing official and interbank rates; Weak and ineffective operational structure, resulting in the subsector completely abandoning the objectives for its establishment; Depletion of the country’s foreign reserves, in view of the unusually large number of BDCs; Potential financing of unauthorized transactions with foreign exchange procured from the CBN Window; Gradual dollarization of the Nigerian economy with attendant adverse consequences on the conduct of monetary policy and subtle subversion of cashless policy initiative; and Inadequate level of minimum paid-up capital.
Prevailing ownership of several BDCs by the same promoters in order to buy foreign exchange multiple times from the CBN Window was frowned upon by the CBN because this is clearly related to the low level of capital requirements for licensing BDCs.
Isaac Okorafor said the CBN’s expectation is to have BDCs that are properly structured, effectively regulated, and well-capitalised to meet the objectives for which operators are licensed.
In particular, the CBN he said envisages the emergence of well-capitalised and structured entities that can effectively perform the roles of Bureau De Change in the economy; Partnership between BDCs and renowned companies engaged in inward and outward money transfers in Nigeria. It is in expectation of this collaboration that the CBN as at 18 June 2014, approved the “Guidelines for International Money Transfer Services in Nigeria”.
Under the Guidelines, Western Union, Monegram and RIA Financial Services have been authorised to carry out inward and outward money transfer services in Nigeria.
The CBN also expects the creation of robust and sustainable business franchises that are not dependent on rent-seeking activities but are properly situated to compete in the foreign exchange market, and deliver superior values and returns.