Victor EzejaThe Central Bank of Nigeria (CBN) has announced its intention to pursue legal actions against entities found to have violated foreign exchange (FX) forward contract regulations following a comprehensive forensic audit.
The CBN made this known in a document titled ‘Frequently Asked Questions on the Settlement of Undelivered Forward Contracts’, published on its website on Thursday.
Join our WhatsApp ChannelThe apex bank said it will collaborate with law enforcement and regulatory agencies to pursue legal actions against those found guilty of fraud or abuse of the FX system.
“The Central Bank of Nigeria is reviewing appropriate legal action against parties found to have violated applicable rules and regulations, based on the findings of the forensic audit. The Bank will collaborate with law enforcement and regulatory agencies to pursue civil, administrative, or criminal sanctions, as necessary,” the CBN stated.
The apex bank said it had in September 2023, engaged Deloitte, a renowned accounting firm, to conduct a comprehensive forensic audit of all transactions under the Retail Secondary Market Intervention Sales (RSMIS) window, including undelivered forward contracts.
Why CBN Conducted FX Audit
The CBN said it undertook the forensic audit to ensure the integrity of the foreign exchange market and to confirm that all outstanding forward contracts were legitimate, valid, and met the agreed contractual and regulatory requirements.
It added that the audit was necessary to safeguard Nigeria’s FX reserves, promote market discipline, and ensure fairness to all participants.
“This step reflects the CBN’s statutory responsibility to ensure prudence, legality, and fairness in the management of public financial resources, especially where previous actions may have breached that standard.”
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- The banking sector regulator said the audit revealed “significant irregularities in the execution of some of the foreign exchange forward contracts.”
The statement explained that each finding was based on “objective and verifiable data and all affected counterparties were given an opportunity to respond before final decisions invalidating these contracts were made.”
According to the statement, some undelivered forward contracts were found to be invalid for various infractions and reasons, including: company name on the approved sales result being different from company name on Form M Portal, the cumulative value of the approved FX forward sales on this Forex Form Number from Auction 1 in 2021 to date of this auction exceeding the total value of the Forex Form Number, sales higher than demand, non-permissible item of import, unauthorized companies importing milk, and vague narration of the item of import
Other irregularities found are sales without demand, incorrect forex form number, forex form not indicated, blank Form M, rejected Form A application on Form A portal with approved sales, approved sales value higher than the cost of import item on Form A portal, and approved sales value higher than the cost of import item on Form M portal.
The CBN further clarified that “No right to FX settlement can arise under Nigerian law where the underlying transaction is tainted by illegality, misrepresentation, or non-compliance with binding regulatory rules.”
It, however, stated that all valid and verified contracts were honoured. “CBN has made payments on these contracts in line with agreed settlement terms.”
The bank said that settling invalid contracts would have amounted to rewarding non-compliance and encouraging abuse of the FX system and depleting Nigeria’s FX reserves unnecessarily.
It added that such measure also undermines market integrity and the CBN’s statutory mandate.
The CBN assured that it remains committed to honouring all legitimate obligations while ensuring strict compliance with market rules and urged banks and their clients to maintain proper documentation, adhere to FX regulations, and submit only valid transactions for settlement.
Victor Ezeja is a passionate journalist with seven years of experience writing on economy, politics and energy. He holds a Master's degree in Mass Communication.
