CBN’s New FX Compliance Rules: What Businesses Must Know

The Central Bank of Nigeria (CBN)  regulates how foreign currencies are sourced, traded and used within the Nigerian Economy. In recent years there has been significant growth in the activities of the Nigerian Foreign Exchange Market (NFEM)

On January 28,2025, The Central Bank of Nigeria (CBN) launched the Nigerian Foreign Exchange (FX) code to promote a stable financial ecosystem and ensure that the authorized dealer banks deal ethically and comply with international best practices in foreign exchange transactions. 

The introduction of the FX code is a deliberate push to restore integrity, trust and transparency in Nigeria’s Forex market. The code comes shortly after the launch of the Electronic Foreign Exchange Matching Systems (EFEMS) in December 2024, a digital platform designed to enhance visibility, efficiency, and compliance in FX trading across the country.

CORE REFORMS 

1. Ethics 

Market Participants (An authorized FX dealer and approved entities active in the FX market) are expected to behave in an ethical and professional manner to promote fairness and integrity in the FX market.

Banks as well as senior and frontline managers are  to maintain high standards of behaviors. This entails identifying and establishing structures that aid in managing potential conflicts of interest. 

The code further mandates market participants to disclose potential conflicts of interest to affected parties where they cannot be reasonably averted or managed, allowing them to decide whether they wish to proceed with the transaction.

2. Governance 

 Participants are expected to implement a sound and effective governance framework that provides clear accountability and comprehensive oversight of FX activities.

While governance structures may differ based on size and complexity, they must align with applicable CBN laws, guidelines, and circulars.

 Importantly, remuneration and promotion structures should promote ethical conduct and compliance-driven behavior, not excessive risk-taking.

3. Execution

Market Participants must be clear about the capacities in which they act and handle orders fairly and with transparency either  in the capacity of an agent or a principal

• As agents, they execute orders on behalf of clients without taking market risk.

• As principals, they assume one or more risks , credit, market, or otherwise related  to the client’s order.

Participants are expected to exercise the duty of care when negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market 

4. Information Sharing : 

Market participants are expected to be clear and accurate in their communications and to protect confidential information to promote effective communication that supports a robust, fair, open, liquid and appropriately transparent FX market. They are to not disclose confidential information to external parties, expect under specific circumstances where:

• The client consents

• Disclosure is required under applicable law, CBN circulars, or regulatory requests

• The CBN seeks information for policy purposes

• It is shared with advisors or consultants under strict confidentiality obligations.
  
  

5. Risk management and Compliance

Market Participants are expected to promote and maintain a robust control and compliance environment to effectively identify, manage, and report FX related risks.

The Code emphasizes the need for automated monitoring systems to track FX exposures, credit, market, operational, and settlement risks in real time. Effective risk management and compliance functions are now essential to avoid regulatory breaches and penalties.

6. Confirmation and Settlement

Market Participants are expected to put in place robust, efficient, transparent, and risk-mitigating post-trade processes to promote the predictable, smooth, and timely settlement of transactions in the FX market.

This principle emphasizes consistency, automation, and strong operational controls throughout the trade lifecycle. Market Participants must:

• Ensure alignment between documentation, credit, and legal policies

• Adopt Straight-Through Processing (STP) for seamless data flow

• Build adequate technical capacity for peak trading volumes

• Obtain CBN clearance for trade amendments or cancellations.
  
  

  These measures reduce settlement risks and promote market integrity.

WHO IT AFFECTS

The new FX code applies broadly to : 

• Importers, exporters, and international traders.

• Fintechs and digital platforms engaging in FX transactions

• Banks, Bureau De Change operators, and authorized FX dealers.

Failure to comply could result in invalidated contracts, penalties, frozen funds, or regulatory audits.

KEY COMPLIANCE REQUIREMENTS BUSINESSES MUST MEET

1. Conduct all applicable transactions through EFEMS.

2. Implement real-time reporting and disclosure of FX transactions.

3. Maintain proper documentation and record-keeping systems.

4. Importers must obtain Form M from authorized dealers before shipment and only  incorporated entities can access Form M and FX approvals.

5. Review and audit contract clauses, including reporting triggers and indemnities.

6. Source FX only through authorized dealers, as the CBN is clamping down on parallel market transactions.
   
   

Business Relevance 

CBN may take appropriate enforcement and other administrative action, including monetary penalties, as provided for under the CBN Act 2007 and BOFIA Act 2020, against any market participant who fails to comply with the FX Code.

For businesses, this means FX compliance is now a board-level issue. Documentation, sourcing, and reporting errors can trigger penalties or restrict access to official FX windows.

With the new FX Code, Nigeria aligns with global financial jurisdictions such as the United Kingdom and Hong Kong, strengthening transparency and integrity in its foreign exchange market.

Further information about the firm is available at www.mavericksolicitors.com. This publication is issued by Maverick Solicitors for general informational purposes only and does not constitute legal advice. For specific legal guidance, please contact us at info@mavericksolicitors.com