FX Market Abuse: CBN Bars Banks, Other Stakeholders From Appealing Forensic Audit Report Findings

…Says Findings Uncover Significant Irregularities In Execution Of FX Forward Contracts

…To Take Legal Action Against Violators Of FX Forward Contracts

The Central Bank of Nigeria (CBN) has barred commercial banks and other market stakeholders from appealing the findings of a recent forensic audit into undelivered foreign exchange (FX) forward contracts.

The apex bank said the audit uncovered significant irregularities in the execution of these contracts and has announced plans to pursue legal action against those found culpable

The audit, conducted by Deloitte in September 2023, was commissioned to investigate transactions within the Retail Secondary Market Intervention Sales (RSMIS), particularly the settlement of FX forward contracts in which Naira was received upfront in exchange for the future delivery of US Dollars.

The move was aimed at ensuring the integrity of the foreign exchange market, preserving Nigeria’s external reserves, and upholding fairness and regulatory compliance.

The CBN explained that FX forward contracts may be nullified if they involve fraud, misrepresentation, improper documentation, illegality, or breach of CBN circulars and FX guidelines.

It said, “The audit conclusions were reached through a rigorous process led by an independent forensic expert (Deloitte) with transparent procedures. Banks were contacted for explanations before final decisions. The findings meet procedural fairness standards, and the case is now closed.”

According to the apex bank, the audit process involved thorough scrutiny of documentation, trade confirmations, and underlying transactions such as import/export documentation, Form M, shipping, and Customs records.

Contracts were further reviewed to ensure compliance with FX market rules and to confirm that beneficiaries were legitimate and eligible.
The audit revealed a series of serious infractions in several undelivered FX forward contracts.

These included discrepancies between company names on approved sales and documentation; approved sales values that exceeded actual demand; non-permissible items being imported; vague descriptions or blank entries for imported items; sales without corresponding demand; missing or incorrect Forex Form numbers; and Form A or M entries with mismatched financial data. In several instances, companies were found to have been allocated foreign exchange for items they were not legally permitted to import, including cases of unauthorized companies importing milk.

As a result, contracts that failed to meet these regulatory standards were deemed invalid and cancelled. No foreign exchange settlements were made on such contracts, and the Naira initially received from the counterparties has been returned.

The CBN maintained that under Nigerian law, no right to FX settlement arises where the underlying transaction is tainted by illegality, misrepresentation, or regulatory non-compliance.

On the other hand, all valid and verified forward contracts were honoured, with payments made in line with agreed settlement terms.
The CBN clarified that paying invalid contracts would have not only rewarded bad actors but also encouraged future abuses, while placing unnecessary pressure on Nigeria’s foreign reserves.

The Bank reiterated that it has a statutory mandate to ensure financial stability, prudence, and transparency in the management of public financial resources. It warned that settling contracts deemed void or irregular would have contravened its legal obligations and eroded public confidence in the FX system.

Responding to inquiries on whether stakeholders could appeal the audit outcomes, the CBN said no such appeals would be entertained. It insisted that the audit, which was independently conducted by Deloitte under a transparent mandate, was procedurally fair. Banks were contacted for their explanations before final conclusions were reached.

The matter, according to the Bank, is now concluded and closed.
The CBN further stated that this exercise reflects its commitment to stricter due diligence and enhanced regulatory enforcement in the FX market. It urged banks and market participants to ensure that all submitted transactions meet proper documentation standards and comply with all relevant CBN regulations going forward.

Meanwhile, the apex bank disclosed that it is currently working with law enforcement and regulatory authorities to determine appropriate civil, administrative, or criminal action against parties who deliberately violated rules and abused the FX forward contract system. Legal action, the CBN noted, will be pursued where necessary to hold violators accountable and prevent further erosion of the country’s foreign exchange framework.

The Bank reaffirmed its position that while it remains committed to honouring all legitimate FX obligations, it will not hesitate to enforce strict compliance with market rules to ensure long-term stability and transparency in Nigeria’s financial system.

FX Market Abuse: CBN Bars Banks, Other Stakeholders From Appealing Forensic Audit Report Findings is first published on The Whistler Newspaper