
Investments in Cryptocurrencies in Nigeria: The Regulatory Framework for Digital Asset Providers
DO YOU OPERATE A DIGITAL ASSETS COMPANY?
ARE YOU A VIRTUAL ASSET SERVICE PROVIDER?
Then you need to read this!
Digital Assets or Virtual Assets, more popularly known as cryptocurrencies, are a form of virtual currency which uses cryptography for secure financial transactions. The global market for this alternative form of transaction is burgeoning, and the Nigerian Digital Assets Market is not left behind. In fact, Nigeria is recognized as one of the key players in this space in Africa, with a large population of youths engaging in peer-to-peer trading of cryptocurrencies. This presents an opportunity for local and foreign investments in cryptocurrencies within the country. Various categories of companies dealing with digital assets include digital asset exchanges, blockchain development companies, digital wallet providers, cryptocurrency custody services, digital asset investment platforms, et cetera, all generally referred to as Virtual Asset Service Providers (VASPs).
Digital assets are known for their volatility; hence, the recent attempts by the Securities and Exchange Commission (SEC) in Nigeria to create a regulatory environment that not only fosters growth and innovation but also secures the interests of innovators, investors, traders, stakeholders, and all investments in cryptocurrencies. In 2022, the Commission published regulations for Digital Asssets that marked the beginning of developing a regulatory system for virtual assets in Nigeria.
The Securities and Exchange Commission’s New Rules on Issuance, Offering Platforms and Custody of Digital Assets outlines the range of digital assets to be regulated by the Commission, including all token offerings, initial coin offerings and any other blockchain-based offerings by Nigerian Issuers or Foreign Issuers operating in Nigeria as well as the requirements for registration of all Virtual Asset Service Providers, Digital Assets Offering Platforms, Digital Asset Exchanges and Digital Asser Custodians.
The key regulatory requirements under the issued Rules are:
- VASPs must register with the Commission. The requirements for registration and the registration procedure differ depending on the particular service to be rendered.
- Companies seeking to operate as VASPs in Nigeria must be duly incorporated with the Corporate Affairs Commission.
- The Chief Executive Officer/ Managing Director or the company’s equivalent must reside in Nigeria.
- Such company officers must file, among other documents, an undertaking that they have never been convicted of fraud, dishonesty, or other related offences under the Securities laws or any other laws within or outside Nigeria relating to the Capital Market.
- The applicant must submit an operational plan and business model with a clear value proposition and provisions for investor protection.
- Applicants must implement Anti-Money Laundering (AML) and Know-Your-Customer (KYC) procedures.
- VASPs must also develop and implement risk management strategies, including demonstrating the processes and contingency arrangements in case the applicant cannot carry out its operations.
- Existing Capital Market Operators registered to provide trading, offering platforms, and custodial services seeking registration under these rules may be required to establish a subsidiary or separate entity to perform this function.
To encourage VASPs to participate in and comply with the regulatory regime, the Commission developed an Accelerated Regulatory Incubation Program (ARIP), an initiative to expedite the onboarding of VASPs seeking to register with the SEC Nigeria.
Failure to comply with the registration requirements of the Commission attracts a penalty of N5,000,000 (five million naira) at the first instance and an additional N200,000 (two hundred thousand naira) for each day of default. Companies operating without SEC authorization or registration are liable to a penalty of not less thanN10,000,000 (ten million naira). Commercialized VASPs operating without authorization face a penalty of not less than N20,000,000 (twenty million naira).
Conclusion
The regulation of the Nigerian Digital Assets Market is a big step towards maturity and stability, which VASPs (companies operating cryptocurrencies and the like) operating in Nigeria should take advantage of to establish trust with regulators and customers. The active participation of all stakeholders will help to build a secure and stable financial ecosystem, encouraging investments in cryptocurrencies. Reach out for more information on obtaining the relevant license from SEC Nigeria.
Written by Omolola Arowolo Esq.