Key Takeaways
The Securities and Exchange Commission of Nigeria recently published the 54-page crypto-asset rules titled “New Rules on Issuance, Offering Platforms, and Custody of Digital Assets,” outlining the registration processes and related compliance required to operate as a cryptocurrency service provider and custodian in the country. It took twenty months for the Nigerian SEC to release its latest regulations after issuing a statement saying that it had decided to regulate cryptocurrencies.
With this new rule, the Securities and Exchange Commission of Nigeria aims to boost the crypto market in the country. Given that Nigeria is already among the top ten fastest-growing markets in terms of crypto-asset adoption, as shown in the Chainanalysis report, the SEC’s stance will help it break into the top three markets globally.
That said, it also brings the SEC at crossroads with the Central Bank of Nigeria (CBN), which views Digital Assets as a threat to the country’s monetary system. Such is the extent of the Central Bank of Nigeria’s negative outlook towards virtual assets that it has barred Nigerian businesses from cooperating with any digital asset-based companies. That is about to change thanks to the SEC’s new rule, as it will grant the crypto businesses in Nigeria much-needed legitimacy. Thus, financial institutions in the country will be able to do business with them without worrying about legal uncertainty.
The new rule classifies Digital Assets as securities, and any businesses that plan to operate in Nigeria or target Nigerians will have to obtain a Virtual Asset Provider (VASP) license. To get the license, the first thing that a VASP must do is submit their white paper and an assessment form to the regulator.
As for the number of licenses that a VASP may need, well, it depends upon their business category. Take Crypto exchanges, for example, defined as Digital Assets Offering platforms (DAOP) in the rule. They require VASP and DAOP licenses to operate in Nigeria or target Nigerians.
But the compliance burden doesn’t end after obtaining a VASP license. In fact, receiving a license is just a start, and the real deal begins after it. For instance, a licensed VASP must manage all the associated risks, ensure the availability of relevant resources to maintain operations round the clock, incorporate appropriate security measures to mitigate any security-related complications, and comply with the risk management framework.
A licensed cryptocurrency exchange must submit weekly and monthly reports on trading volume to the SEC Nigeria. Besides this, they must also submit financial & compliance reports on a quarterly & yearly basis. The deadline to submit audited financial statements is three months after the financial year ends. The cryptocurrency exchanges must also provide up-to-date compliance reports on any special conditions imposed by the regulator.
Virtual asset exchanges must obtain a no-objection certificate from the SEC Nigeria before listing any digital assets for sale on the platform. The NOC rule applies to all individual crypto assets that the platform plans to list for sale to Nigerians. This rule intends to ensure that the exchange has all the necessary information about the associated risks that the respective digital assets may present.
The SEC has set the maximum amount a crypto project can raise from an ICO at NGN 10 billion. If deemed necessary, the financial regulator may also change this ceiling.
As per the rules, the digital assets offering platform (DAOP) can either choose an independent custodian or do it internally. The only case where a DAOP must only choose an SEC-vetted custodian is when a project is conducting an ICO.
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