The Securities and Exchange Commission (SEC) in Nigeria has issued regulatory guidelines for digital currencies and crypto-based companies or startups. The aim, according to Nigeria’s capital market and investment regulator, is to protect investors and create standards for ethical practices.
Also, the Commission will regulate all Digital Assets Token Offerings (DATO), Initial Coin Offerings, Security Token ICOs, and other Blockchain-based offers within Nigeria by Nigerian issuers or by foreign issuers targeting Nigerian investors.
According to a statement released today, September 14, 2020, the SEC will be taking a three-pronged approach to regulate innovation in the crypto sector; these are: safety, market deepening, and providing solutions to problems.
The Commission states that it will regulate crypto-token or crypto-coin investments when the character of the investments qualifies as securities transactions.
Every crypto asset in Nigeria will be treated as securities, unless the company or startup proves otherwise. If the SEC determines that a digital asset is not a security, it will not regulate it.
According to the Commission, crypto issuers or sponsors will be required to register their digital assets with the Commission.
First, they are to make an initial assessment filing with the Commission to prove that the assets they issue are securities. Then, there will be a filing for registration proper.
Those that have already issued assets or engaged in ICOs will be given three months to comply with the stated registration requirements.
Consequently, every individual or corporate organisation that engages in any aspect of Blockchain-related and digital asset services must register with the SEC and follow its 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,” the SEC states.
While this seems to apply to crypto exchanges, crypto-based startups, and even individuals running their own exchange service within Nigeria, the Commission states that it might require foreign or non-resident startups or companies to establish a branch in Nigeria.
Foreign companies will be recognised if they belong to a country that either has a reciprocal agreement with Nigeria or is a member of the International Organization of Securities Commissions (IOSCO).
In recent times, Nigeria has been among the leading countries for crypto adoption globally. In Q1 2020, Nigerian youth led the rest of the world in crypto adoption, and according to a report by Chainalysis, Nigeria was eight overall in crypto adoption in Q2 2020.
This rapid adoption and apparent absence of a definite regulation has seen the entry of several crypto-based startups into the Nigerian market. All looking to grab a share of the spoils from Africa’s most populous nation.
The introduction of specific guidelines for the crypto space becomes relevant in order to improve safety for crypto users in Nigeria.
Hanu Fejiro Agbodje, CEO of Patricia, made this point very clear during the session on Securing Africa’s Future with Digital Currencies at the recently concluded Techpoint Build 2020.
According to him, these regulations should be made with the aim of bringing sanity to a space that is rapidly proliferating, rather than stifling or restricting their activities. This, he says, will help people know who to trust.
Though the SEC states that it doesn’t want to stifle innovation, its previous guidelines for crowdfunding startups in Nigeria featured very high entry requirements, which it has later reviewed.
While the present regulations do not seem to have any strict entry requirements, the specific details are not yet made public.
Recall that, in 2019, the Commission released a draft document to regulate digital assets, but some industry players insisted that while it was a good move, it was much too early for a regulation.
Despite the supposed adoption, the major use of crypto in Nigeria is mainly for P2P exchanges, and not much infrastructure has been developed for crypto in Nigeria.
As earlier explained, there is no meaningful mining activity, and it still has the lowest number of merchants that accept cryptos as a means of payment.
As an expert explained in a previous piece, the government needs to contribute to the development of Blockchain technology before trying to regulate its use.
However, for activities like ICOs in Nigeria, that sometimes tethers towards fraud, this could be a welcome development.
For now, the SEC looks to regulate a part of the digital currency space currently gaining traction in Nigeria.