South African-founded Luno and other crypto-currency firms have halted deposits in naira after the Nigerian government cracked the whip on crypto-currency players in the West African country.

This after the Central Bank of Nigeria (CBN) on Friday last week issued a directive to Nigerian banks to close all crypto-currency-related accounts.

It warned that any breach to this directive will “attract severe regulatory sanctions”.

In response, Luno says it is aware of the circular issued by the CBN advising financial institutions in the country to close bank accounts held by crypto-currency service providers.

“In light of this, Luno is pausing naira deposits while we seek further clarity from the authorities. Withdrawals will continue to be processed, but may take longer than usual. Please check the status page for updates to our service. All customer funds are completely safe,” says the company.

“There’s no need to take any action regarding your account at this time. We will update our customers on all incoming developments as soon as we receive further information, and certainly well in advance should withdrawals be affected.”

Luno points out it has always worked closely with regulators in Africa and all regions in which it operates, and will continue to do so.

“Nigeria’s regulators have taken a pragmatic and forward-looking approach to crypto-currency in the past and we’re confident this issue can be resolved quickly, so Nigeria can continue to play a central role in the growth of crypto-currency.

No new restrictions

Justifying its move, the CBN on Sunday issued another statement saying it is important to clarify that the circular of 5 February 2021 did not place any new restrictions on crypto-currencies, given that all banks in the country had earlier been forbidden, through CBN’s circular dated 12 January 2017, not to use, hold, trade and/or transact in crypto-currencies.

It adds this position was reiterated in another CBN press release dated 27 February 2018.

“It is also important to note that the CBN’s position on crypto-currencies is not an outlier, as many countries, central banks, international financial institutions, and distinguished investors and economists have also warned against its use,” the Nigerian regulator says.

“They have all made similar pronouncements based on the significant risks that transacting in crypto-currencies portend − risk of loss of investments, money laundering, terrorism financing, illicit fund flows and criminal activities.”

CBN points out that China, Canada, Taiwan, Indonesia, Algeria, Egypt, Morocco, Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, Jordan, Iran, Bangladesh, Nepal and Cambodia have all placed certain levels of restrictions on financial institutions facilitating crypto-currency transactions.

The central bank says a perfunctory reflection on the definition of crypto-currencies can already reveal several problems.

First, it notes, in light of the fact that cryptos are issued by unregulated and unlicensed entities, their use in Nigeria goes against the key mandates of the CBN, as enshrined in the CBN Act (2007), as the issuer of legal tender in Nigeria.

“In effect, the use of crypto-currencies in Nigeria is a direct contravention of existing law. It is also important to highlight that there is a critical difference between a central bank-issued digital currency and crypto-currencies.

“As the names imply, while central banks can issue digital currencies, crypto-currencies are issued by unknown and unregulated entities.”

Second, the CBN notes the very name and nature of “crypto-currencies” suggests its patrons and users value anonymity, obscurity and concealment.

“The question that one may need to ask therefore is why any entity would disguise its transactions if they were legal. It is on the basis of this opacity that crypto-currencies have become well-suited for conducting many illegal activities, including money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion.

Withdrawal delay

Luno began in SA and the company says it now has five million customers spanning over 40 countries, as well as almost 400 employees based in London, Singapore and SA.

Led by co-founder and CEO Marcus Swanepoel, Luno operates in many emerging and frontier markets, providing digital asset education, knowledge and investment tools for individuals in Africa, Asia, Australia and Europe.

Luno says it has helped to broaden the global crypto investment community and has seen record growth of its customer base in 2020.

The company claims it is a leading exchange in several countries that have the highest percentage of crypto-currency ownership, including South Africa (third-highest of its citizens owning digital currencies), Nigeria (fifth-highest), Indonesia (sixth-highest) and Malaysia (tenth-highest).

It says the recent statement from the CBN only affected deposits. “However, we’ve still received an increased number of withdrawal requests. This means your withdrawal may take a bit longer than the usual two business days to reach your bank account.

“We understand that you might be concerned by this delay. Please rest assured that your funds are completely safe and we’re still actively processing all withdrawals. You’ll receive yours as soon as possible.”

Meanwhile, in SA, crypto assets are not legal tender, so any merchant or beneficiary may refuse them as a means of payment, says the South African Reserve Bank (SARB).It notes these assets are not guaranteed or backed by SARB as they operate independently from the central bank and users are alerted to the potential risk of fluctuation in the value of crypto assets.