“In early September, the Central Bank of Nigeria (CBN) declared its intention to take action against unscrupulous currency traders, raising concerns about the regulatory environment in Nigeria. The CBN’s acting governor, Folashodun Adebisi Shonubi, specifically targeted Crown Agents, the main operating subsidiary of London-listed currency trader CAB Payments, alleging collaboration with international agencies in unconventional money flows. While CAB denied any wrongdoing, the incident sheds light on the challenges faced by currency traders operating in Nigeria.
CAB Payments, having conducted the year’s most significant London IPO, faced setbacks less than four months post-listing. The company attributed its profit warning to changes in market conditions in key currency corridors and uncertainties surrounding the Nigerian naira. The dependence on the dollar-to-naira trading market, especially after Nigeria’s currency devaluation, played a pivotal role in CAB’s challenges.
Operating primarily offshore and in the unofficial parallel market, CAB brokers transactions between international development agencies and local liquidity providers. The company, not authorized by the CBN to trade the naira, faced increased scrutiny amid Nigeria’s intervention in the foreign exchange market. The CBN’s reduction of foreign exchange supply to local bureaus de change favored offshore brokers like CAB.
Dollar-to-naira exchange became a substantial business for CAB, growing from £2 million in 2020 to £26 million in 2022, constituting nearly a third of its group FX revenue. However, the associated risks, including a surge in estimated fees on naira trading, were not fully disclosed in CAB’s IPO prospectus. The exposure to parallel markets, often viewed as a necessary evil for foreign currency availability, presented systemic challenges, including inflationary pressures, negative impacts on foreign direct investment, and deleterious effects on policy credibility.
The timing of CAB’s IPO coincided with Nigeria’s decision to loosen its currency peg, promising financial reforms under the new administration of President Bola Tinubu. Despite widespread allegations of exchange rate exploitation under the previous regime, CAB proceeded with its IPO plans, raising questions about the adequacy of risk disclosure regarding its operations in unregulated currency exchanges.
As a UK-regulated bank, CAB emphasized compliance with regulations in its operations in Nigeria. However, the company’s exposure to parallel markets, where major competitors avoid, raised concerns among investors. The lack of clear risk disclosure in the IPO prospectus led to criticisms from shareholders, emphasizing the need for greater transparency.
CAB’s transformation from a conservatively run aid disbursing middleman to a high-stakes FX trader poses challenges for regulatory authorities. The company’s reliance on regulatory arbitrage and risk-taking strategies raises questions about the adequacy of regulatory oversight and investor awareness in the financial markets. UK authorities now face the task of evaluating whether CAB and its advisers adequately communicated the risks associated with unregulated market-making during the IPO process.”
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Reporting by Samuel Gbenga Salau in Lagos, Nigeria.
