Nigeria Begins Crypto Currencies Regulation
Nigeria’s Securities and Exchange Commission (SEC) said on Monday it would commence the regulation of digital currencies and crypto-based companies.
SEC said explained in a statement which Nigerian Sketch obtained that it does not intend to hinder technology or stifle innovation through the regulation, rather it wanted to create what it called standards that encourage ethical practices for a fair and efficient market.
The earlier disposition of the Nigerian government was to dismiss the digital currencies as illegal and dubious. This new stance suggests that the authorities in Nigeria are late adapters to the global phenomenon of digital investments.
The crypto-coin investment environment in Nigeria has been devoid of extant regulation, despite a surge in peoples’ interest in the digital offerings. This was despite the 2020 Global Crypto Adoption Index compiled by blockchain data analytics firm, Chainalysis, which ranked Nigeria high among other countries where cryptocurrency adoption was monumental.
Nigeria was ranked alongside Ukraine, Russia, China, South Africa, Kenya, and the U.S. – all countries listed among the top-ranking countries by cryptocurrency adoption.
The capital market and investment regulator on Monday said digital assets provide alternative investment opportunities for the investing public and it therefore becomes essential to ensure that they “operate in a manner that is consistent with investor protection, the interest of the public, market integrity and transparency”.
Section 13 of the Investment and Securities Act, 2007 conferred powers on SEC as the apex regulator of the Nigerian capital market to regulate investments and securities business in Nigeria, it said.
In line with these powers, SEC said on Monday that it has adopted a three-pronged objective to regulate innovation, hinged on safety, market deepening
The statement said “SEC will regulate crypto-token or crypto-coin investments when the character of the investments qualifies as securities transactions.”
As Nigeria Begins Crypto Currencies Regulation, questions abound about what and who to regulate.
What to Regulate
SEC said that its position remains that virtual crypto assets are securities, unless proven otherwise. Therefore, the burden of proving that the crypto assets proposed to be offered are not securities and therefore not under the jurisdiction of the SEC, is placed on the issuer or sponsor of the said assets.
“Issuers or sponsors are expected to satisfy the burden of proving that the virtual assets do not constitute securities by making an initial assessment filing,” SEC explained.
“However, where the finding of the Commission is that the virtual assets are indeed securities (not structured to be exclusively offered through crowd funding portals or other exempt methods), then the issuer or sponsor must register the digital assets.
“The registration process for virtual assets will therefore involve a two-prong approach – an initial assessment filing to satisfy the burden of proof and a filing for registration proper, either made directly by the issuer or sponsor or where the burden of proof is not satisfied.”
SEC also said all Digital Assets Token Offering (DATOs), Initial Coin Offerings (ICOs), Security Token ICOs and other Blockchain-based offers of digital assets within Nigeria or by Nigerian issuers or sponsors or foreign issuers targeting Nigerian investors, shall be subject to the regulation of the commission.
Existing digital assets offerings prior to the implementation of the Regulatory Guidelines will have three (3) months to either submit the initial assessment filing or documents for registration proper, as the case may be, SEC further explained.
Who to Regulate
The commission said those to be regulated include “any person, (individual or corporate) whose activities involve any aspect of Blockchain-related and virtual digital asset services, must be registered by the Commission and as such, will be subject to the regulatory guidelines.”
Such services include, but are not limited to, reception, transmission and execution of orders on behalf of other persons, dealers on own account, portfolio management, investment advice, custodian or nominee services.
Others are issuers or sponsors (start-ups or existing corporations) of virtual digital assets who shall be guided by the commission’s regulation.
SEC said it may require foreign or non-residential issuers or sponsors to establish a branch office within Nigeria but foreign issuers or sponsors will be recognised by the commission where a reciprocal agreement exists between Nigeria and the country of the foreign issuer or sponsor.
“A recognition status will also be accorded, where the country of the foreign issuer or sponsor is a member of the International Organization of Securities Commissions (IOSCO),” it said.
The commission added that “Crypto Asset” means a digital representation of value that can be digitally traded and functions as “(1) a medium of exchange; and/or (2) a unit of account; and/or (3)a store of value, but does not have legal tender status in any jurisdiction. A Crypto Asset is – neither issued nor guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the Crypto Asset; and Distinguished from Fiat Currency and E-money.”