Nigeria’s SEC issues rules to govern transactions in cryptocurrency, NFT, other digital assets

The Securities and Exchange Commission (SEC) has released new rules for Digital Assets as part of its effort to regulate digital/virtual assets such as Bitcoins and NFTs.

This is contained in a recently released circular titled “New Rules on Issuance, Offering Platforms and Custody of Digital Assets”

Recall when Nairametrics reported the SEC Director-General’s declaration in September 2021 that a department had been established to investigate the crypto market. This is certainly a follow up from the investigation into the crypto space.

The move shows the regulatory body’s intention to create a safe environment to boost the ever-evolving financial space. However, it comes at a time when the cryptocurrency market is witnessing a massive bearish turn.

key highlights of the report

The Rules apply to all platforms that support the trading, exchange, and transfer of virtual assets; all issuers and sponsors of virtual/digital assets, including international and non-residential issuers and sponsors; and any operator that aggressively targets Nigerian investors.

  • The Rules require all promoters, entities or businesses proposing to conduct initial digital asset offerings within Nigeria or targeting Nigerians to submit an initial assessment filing (including a whitepaper) which the SEC shall review within 30 days upon submission.
  • “The Commission shall, after it receives a complete initial assessment filing, review same within 30 days from receipt to determine whether the digital asset proposed to be offered, constitutes a “security” under the Investment and Securities Act 2007. The determination of the Commission shall be communicated in writing to the issuer within 5 days from the conclusion of the review,” SEC said.
  • SEC defined Digital Assets Offering (DAO) Platform as an electronic platform controlled by a DAO operator that hosts a DAO.
  • While a Digital Asset Custodian is defined as a business that provides safekeeping, storage, holding, or maintenance of virtual/digital assets for the account of another person.
  • The Rules also require that Digital Asset Exchanges (DAX) have a minimum paid-up capital of N500,000,000 (Five Hundred Million Naira) and a current Fidelity Insurance Bond covering at least 25% of the prescribed minimum paid-up capital. The Rules state that the SEC will collect fees on transactions in virtual/digital assets traded on a DAX at a rate or percentage that the SEC will decide from time to time.
  • The Rules provide that the funds to be raised by an issuer shall not exceed twenty times the issuer’s shareholders’ funds within any continuous 12-month period, subject to a N20,000,000,000 (twenty billion naira) ceiling.
  • Similarly, the Rules provide for investment limits for retail investors of N5,000,000 (five million naira) per issuer with a total not exceeding N20,000,000 (twenty million nairas) within 12 months.
  • The Rules offer definitions for a Digital Assets offering (DAO) Platform as an electronic platform operated by a DAO operator which hosts a DAO and a Digital Asset Custodian as an entity which provides safe keeps, stores, holds or maintains custody of virtual/digital assets for the account of another person.
  • SEC also gave rules to cryptocurrency exchange (Digital Asset Custodian; means a person who provides the services of providing safekeeping, storing, holding or maintaining custody of virtual assets/digital tokens for the account of another person.)

SEC stated that Digital Asset Custodian (DAC) would perform internal audit checks on its operations regularly. “For this purpose, the DAC may establish an internal audit function or outsource the said function,” SEC added.

What you should know

In February 2021, Nigeria’s Central Bank notified Deposit Money Banks, Non-Financial Institutions, and other financial institutions against transactions involving cryptocurrencies and other digital assets.

  • In the circular dated 5th February 2021 the apex bank warned and reminded local financial institutions against having any transactions in crypto or facilitating payments for crypto exchanges.
  • In addition, the apex bank instructed the financial institutions to immediately close the accounts of such persons or entities transacting in or operating cryptocurrency exchanges.
  • Based on data obtained by Nairametrics, 6 Nigeria banks suffered total fines to the tune of a massive N1.315 billion for contravening the CBN circular on cryptocurrency.

It is unclear how this regulation would affect exiting Central Bank’s prohibition on banks facilitating cryptocurrency transactions. However, this move would be welcome by the growing cryptocurrency community in Nigeria as a win despite the recent plunge in the market.

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