In yet another effort aimed at stabilising the naira, the Central Bank of Nigeria (CBN) has released a new code named ‘Nigeria Foreign Exchange Code Book: Draft Exposure’ to authorised FX dealers, giving them until October 18 for inputs.

According to the Director of the Financial Markets department of the CBN, Dr Omolara Duke, who signed the circular introducing the code, it is expected to significantly enhance price discovery, ethical conduct, market discipline and transparency in the Nigerian foreign exchange market.

Duke said: “CBN has developed the Nigerian Foreign Exchange Code Book (FX Code Book) to set standards for transactions in the Nigerian FX market. This is in line with the continuation of its efforts to promote integrity and efficient functioning of the Nigerian foreign exchange market.”

The apex bank noted that over the years, the Nigerian financial landscape has experienced considerable and positive transformation, noting that weaknesses have also emerged as well as risks.

The code sets standards that aim to strengthen and promote the integrity and effective functioning of the wholesale foreign exchange market in Nigeria as well as facilitate better market functioning and further reinforce Nigeria’s flexible exchange rate regime.Indeed, the FX Code is intended to promote a robust, fair, liquid, open and appropriately transparent market.

“These are banks licensed by the Central Bank of Nigeria under the CBN Act 2007 and Bank and Other Financial Institutions Act (BOFIA) 2020 and engage in the wholesale foreign exchange business in Nigeria as part of their licensed business,” the document added.

The CBN said the code is organised around six leading principles which are ethics, execution, information sharing, governance, risk management and compliance as well as confirmation and settlement processes.

Concerning ethics, market participants are expected to behave ethically and professionally to promote the fairness and integrity of the FX market. They are also expected to have a sound and effective governance framework to provide for clear responsibility for and comprehensive oversight of their FX market activity and to promote responsible engagement in the FX market.

“Execution requires market participants to exercise care when negotiating and executing transactions to promote a robust, fair, open, liquid and appropriately transparent FX market. 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.

Regarding risk management and compliance, the code says the market participants are expected to promote and maintain a robust control and compliance environment to effectively identify, manage, and report on the risks associated with their engagement in the FX market.

Confirmation and settlement processes would require market participants 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.

It notes that market participants must have business continuity plans (BCPs) in place that are appropriate to the nature, scale and complexity of their FX business and that can be implemented quickly and effectively in the event of large-scale disasters, loss of access to significant trading platforms, settlement, or other critical services or other market disruptions.

“BCPs could comprise, but are not limited to, the following elements: contingency plans that support business continuity across the FX business, including plans related to data storage and usage, and procedures in the event of the non-availability of FX fixes, where relevant…

This should include the regular review of potential scenarios that would require the activation of such plans,” it states. The code insists that market participants must perform ‘Know-Your-Customer’ checks on their counterparties to ascertain that their transactions are not used to facilitate money laundering, terrorist financing, or other criminal activities.

It explains: “Market Participants should have appropriate measures in place to enforce the KYC principle. Market Participants should have a clear understanding of the applicable laws of the national antimony laundering and combating financing of terrorism (AML/CFT). Market Participants should have internal processes in place to facilitate the prompt reporting of suspicious activities (for example, to the compliance officer or appropriate public authority, as necessary).

“Effective training should be provided for relevant personnel, to raise awareness of the serious nature of these activities, and reporting obligations, while not revealing their suspicions to the entity or individual suspected of illegal activities. Such training should be regularly updated to keep pace with the rapidly changing methods of money laundering. Market participants should have in place reasonable policies and procedures (or governance and controls) such that trading access, either direct or indirect, is limited to authorised personnel only.”