The CBN FX Code: Key Principles

The draft FX Code, issued by the Central Bank of Nigeria (CBN) in October 2024, establishes a set of principles designed to promote a robust, fair, and transparent foreign exchange market. The FX Code seeks to enhance the integrity and efficiency of the Nigerian wholesale foreign exchange market.

Based on global best practices, the FX Code applies to all market participants, including banks and financial institutions licensed by the CBN to engage in foreign exchange activities. 

1. Key Principles of the FX Code 

• Ethics: Market participants are expected to uphold ethical and professional standards, promoting fairness, honesty, and integrity in the FX market.

• Governance: Strong governance frameworks must be implemented to ensure proper oversight, accountability, and responsibility in managing foreign exchange activities within institutions.

• Execution: Market participants must exercise due care in negotiating and executing FX transactions to support a transparent, fair, and liquid market. Roles should be clearly defined, and client orders must be handled with transparency to prevent market disruptions.

• Information Sharing: Clear, accurate communication is required from market participants, and confidential information must be protected to ensure market integrity and transparency.

• Risk Management and Compliance: A strong risk management and compliance framework is essential for identifying and mitigating risks such as credit, market, and operational risks in FX activities. Processes must be in place to monitor and manage these risks.

• Confirmation and Settlement: Efficient, transparent, and risk-reducing post-trade processes are required to ensure timely settlement of FX transactions and prompt resolution of discrepancies.

2. Compliance and Reporting 

Market participants are required to assess their compliance with the FX Code and submit a report to the CBN by December 31, 2024, along with an implementation plan approved by their board. Additionally, quarterly compliance reports must be submitted to the CBN starting from December 2024. 

3. Enforcement Mechanisms 

The CBN reserves the right to impose penalties or take other enforcement actions against market participants who fail to comply with the FX Code, in accordance with the CBN Act 2007 and the BOFIA Act 2020.

This publication is not intended to provide legal advice and is not prepared with a specific client in mind. Kindly seek professional advice specific to your situation. You may also reach out to your usual Balogun Harold contact or contact us via support@balogunharold.com for support.