The Central Bank of Nigeria (CBN) has released a new Foreign Exchange (FX) code aimed at enhancing liquidity, transparency and guiding market participants.
The code represents a set of principles widely recognised as good practices in the global foreign exchange market. The CBN, in its regulatory and supervisory role, crafted the FX Code to address risks in Nigeria’s evolving financial landscape while strengthening the integrity and functionality of the foreign exchange market.
According to the document seen by BusinessDay, the FX Code was developed in response to Nigeria’s financial transformation over the years, which, despite significant progress, still presents some risks. The code seeks to establish standards that ensure the efficient functioning of the wholesale FX market, further reinforcing the country’s flexible exchange rate system.
“The FX Code is intended to facilitate a fair, liquid, and transparent market environment that inspires confidence among participants,” the document states.
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The code is specifically designed to promote a robust market characterised by fairness, openness, and adequate transparency, enabling a diverse group of participants to engage effectively at competitive rates that reflect accurate market information. It outlines behavioral standards and best practices that align with global expectations.
Participants covered by the FX code include: authorised dealers licensed by the CBN under the CBN Act 2007 and the Bank and Other Financial Institutions Act (BOFIA) 2020, as well as other entities involved in wholesale foreign exchange activities as part of their licensed operations.
The FX Code is structured around six core principles. Firstly, ethics is emphasised, requiring market participants to act ethically and professionally to uphold the fairness and integrity of the foreign exchange market. Secondly, governance plays a critical role, with participants expected to establish clear and effective frameworks to oversee their foreign exchange activities responsibly.
Another fundamental principle focuses on execution, where participants are required to exercise due diligence when negotiating and executing transactions to foster a transparent and competitive market.
Information sharing is also highlighted, urging participants to communicate clearly and accurately while safeguarding confidential information to promoting robust communication in the market.
Risk management and compliance form another pillar, with participants expected to maintain strong controls to identify, manage, and report risks effectively.
Additionally, the code stresses the importance of confirmation and settlement processes, encouraging participants to implement efficient post-trade practices that ensure smooth and timely settlement of transactions.
By adhering to these principles, the FX code aims to position Nigeria’s foreign exchange market as one that operates efficiently and in alignment with global standards, analysts said, adding that the CBN’s initiative reveals its commitments to fostering a reliable and well-functioning financial environment, critical for sustaining investor confidence and supporting Nigeria’s economic growth.
No more business as usual- Cardoso
At the launch on Tuesday, Olayemi Cardoso, CBN governor, said the core codes and principles together provide the foundation for a resilient and transparent market that inspires confidence among both domestic and international participants.
“The FX Code is a binding commitment to accountability and transparency—and we must all play our part. It is a firm signal that business as usual will no longer suffice,” Cardoso warned.
He further called it a blueprint for the future, grounded in the hard lessons of the past.
For many years, Nigeria has had to deal with multiple exchange rates, which created privileges for a select few at the expense of most Nigerians and severely undermined market integrity.
The $7 billion of FX backlog that has now taken CBN over 12 months to verify has led to the discovery of multiple unethical and even illegal practices. Cardoso disclosed that the CBN is about to conclude a forensic audit of the backlogs, assuring that final settlements would be processed accordingly.
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Also, an unprecedented ways-and-means financing, which has reportedly reached over N30 trillion, inflicted significant damage on Nigeria’s economy, contributing to inflation, currency depreciation, and eroded public confidence.
Cardoso said these practices must never return.
“FX Code is a firm rejection of such distortions and an equally firm commitment to a future defined by fairness, trust and market-driven principles.
“Unethical behaviours and systemic abuses – whether by those with privileged access or by complicit participants – eroded public trust and harmed our economy.
“We will not tolerate any attempts to revert to those practices. Any individual or institution that violates the FX Code will face swift and decisive sanctions,” Cardoso warned.
According to him, the code is not just a set of recommendations but would be enforced using the CBN and BOFIA Acts.
He said while violations would be met with penalties and administrative actions, market participants must recognise that adherence to these principles is not just about compliance but restoring public trust in the financial system.
“Self-regulation and conduct are at the core of the changes in culture we expect to see at play in the industry, and I expect the principles to be applied across other business areas,” he told the bankers.
Just before the CBN authority, bank CEOs and their representatives took turns to sign the document, the governor urged all market participants to embrace the principles wholeheartedly.
“The era of opaque practices is over. We will not hesitate to act against any institution or individual that undermines the integrity of our financial markets,” Cardoso reiterated.
Oliver Alawuba, group managing director, United Bank for Africa (UBA), said it demonstrates a collective resolve to build an FX market rooted in transparency, professionalism, and ethical conduct.
He said CBN’s ongoing reforms have been pivotal in stabilising the FX market, restoring investor confidence and ensuring a more sustainable and resilient financial system.
“This launch is not just the unveiling of a framework – it is a call to action for all stakeholders to uphold the principles of fairness, ethical behaviour, and professionalism.
“The strength of any financial market lies in the integrity of its participants, and with the Nigeria FX Code, we now have a unified platform to reinforce this commitment.”
Read also: How CBN’s new FX Code will enhance market liquidity, transparency
How far can the code go?
Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), explained that the new FX code aims to tackle malpractices in the foreign exchange market.
He highlighted that one of the biggest challenges in the FX market is the ingenuity of individuals who find ways to exploit loopholes and engage in fraudulent activities.
These individuals have persistently worked to undermine regulatory efforts and make it harder for the CBN to manage the market effectively.
Yusuf believes the CBN’s strategy is to continuously review and enhance its regulatory framework, focusing on identifying and closing potential loopholes that could be used for malpractices. This will also ensure full transparency on both the supply and demand sides of foreign exchange transactions, ultimately minimising the negative effects of these fraudulent practices and promoting greater integrity in the market.
In an interview with BusinessDay, he further stated that the primary goal is to restore order and stability to the foreign exchange market, which has suffered from these malpractices over the years. He believes the CBN is working to sanitise the market, creating a more stable and regulated environment.
Tilewa Adebajo, CEO of CFG Advisory, said the FX Code sets the new guidelines for the FX market as promised by the CBN governor in his inaugural address at the Bankers’ Committee dinner in November 2023.
