January 29, 2025/CSL Research
The Central Bank of Nigeria (CBN) has introduced a new Foreign Exchange (FX) Code to enhance liquidity, transparency, and guide participants in Nigeria’s foreign exchange market. Recognized as a global standard for best practices, the FX Code addresses risks in the country’s evolving financial landscape while reinforcing the integrity and efficiency of the wholesale FX market. It establishes behavioural standards and practices aligned with international expectations, aimed at strengthening the country’s flexible exchange rate system and ensuring a more robust and transparent FX market.
The FX Code is structured around six key principles:
1. Ethics: Promoting fairness, honesty, and integrity among market participants.
2. Governance: Implementing strong governance frameworks to ensure proper
oversight and accountability.
3. Execution: Ensuring transparent and fair execution of FX transactions.
4. Risk Management and Compliance: Establishing robust frameworks to identify and
mitigate various risks in FX activities.
5. Information Sharing: Maintaining clear and accurate communication while
protecting confidential information.
6. Confirmation and Settlement: Implementing efficient post-trade processes for
timely settlement of transactions.
The FX Code has been issued as a market guideline under the authority of the CBN Act 2007 and the BOFIA Act 2020, empowering the Central Bank of Nigeria (CBN) to establish standards for conducting foreign exchange business in Nigeria. All market participants are required to conduct a self-assessment and submit a compliance report to the CBN by 31 January 2025.
Following this, participants must provide a detailed compliance implementation plan approved and signed by their Board of Directors, along with relevant extracts from the Board meeting. The FX Code is based on principles from the Global FX Code and incorporates best practices from leading jurisdictions.
Additionally, it includes specific provisions tailored to enhance efficiency in Nigeria’s FX market, ensuring alignment with global standards while addressing the unique needs of the local financial landscape.
The Central Bank of Nigeria (CBN) has recently implemented several policies aimed at enhancing transparency and reducing speculation in the Nigerian foreign exchange (FX) market. The introduction of the Electronic Foreign Exchange Matching System (EFEMS) launched on 02 December 2024, is to improve governance and transparency in FX transactions. It provides a centralized platform for pricing and executing FX deals, ensuring that all transactions reflect prevailing market conditions.
This system aims to curb speculative activities and reduce market distortions by facilitating a market-driven exchange rate accessible to all. Again, effective 02 December 2024, all banks operating in the interbank FX market were required to adopt the Bloomberg BMatch system for trading. This platform aims to further enhance transparency and operational efficiency in the FX market. These initiatives reflect the CBN’s commitment to fostering a more transparent, efficient, and stable FX market in Nigeria.
