Despite Implicit Ban, Nigeria Rules Crypto as Securities; Can It Stand?


In February last year,
the Central Bank of Nigeria (CBN) sparked
widespread criticism
after it ordered commercial banks in the country to close down accounts of
cryptocurrency traders in the country.

This order, considered
an implicit ban, has not yet been lifted. Yet, the Nigerian Securities and
Exchange Commission (SEC) last week issued new
rules
on the issuance,
offering and custody of digital assets.

Lamido Yuguda, the
Director General of SEC Nigeria, signed the new rules in Abuja, Nigeria’s
capital.

The rules provide
regulations on the issuance of digital assets as securities. It also outlines
the requirements that digital assets offering platforms (DAOPS), digital asset
custodians (DACs), virtual assets service providers (VASPs), and digital assets
exchanges (DAX) must meet to operate in the country.

The New Rules: An Overview

The rules define digital
asset as “a digital token that represents assets such as a debt or equity claim
on the issuer.”

This means that digital
assets such as cryptocurrencies are considered securities in the country.

Digital assets,
therefore, are to be bought and sold through digital asset offerings such as
initial coin offering (ICO) or securities token offering (STO).

The new rules state that
issuers of digital token cannot raise more than N10 billion (about $25
million) within a year.

An issuer’s directors
and senior management are also expected to hold at least a total of 50% equity
in their company at the date their tokens are to be issued.

On the other hand, a
digital assets offering platform’ shareholding in any of the issuers hosted on
its platform cannot exceed 30%.

While the regulation
permits qualified institutional and high net worth investors to invest as much
as they want, it limits retail investors to
N200,000 ($482) per issuer with a total investment limit not exceeding N2
million ($4,820) within a year.

Among other fees, the
new rules require digital asset exchanges (DAX) and virtual assets service
providers (VASP) to pay N30,000 million ($72, 250) in registration fees. It
also requires that they have N500 million ($1,205,000) in minimum paid-up
capital which could be in bank balances, fixed assets or investment in quoted
securities.

Their current fidelity
bond is also expected to cover at least 25% of the minimum paid-up
capital.

A VASP is also expected
to have an office in Nigeria managed by a director of the company.

A digital assets
custodian (DAC), among other duties, is expected to ensure compliance with all
relevant laws, regulations and guidelines, including but not limited to
anti-money laundering/combating the financing of terrorism and proliferation
financing laws and regulations.

Among other provisions,
the rules also outline guidelines for risk management, internal audit, conflict
of interest management, outsourcing.

‘Lots of Gray Areas’

A common criticism
echoed by critics of the new rulings is that they are not encouraging to
early-stage startups in the cryptocurrency and digital asset space in the
country.

Financial Market
Analyst, Olumide Adeshina, told Finance Magnates that SEC Nigeria as a
financial body established to protect investors does not take the country’s
large crypto retail investor market into consideration.

Adeshina explained,
“While the SEC has a lot of good intentions, it left a lot of things gray. For
example, it never spoke about Nigerians having exposure to certain unregularized
assets.

“In terms of exchange
fees and all those things, the SEC forgot we have decentralized exchanges where
they lack central jurisdiction; it failed to address the implication of that.
It failed to address non-custody wallets.

“So, while it made
specific rulings on what retail investors can use, it created more loopholes
than saving the retail investors.”

Emmanuel Ogbuka, a
Lagos-based lawyer specializing in fintech regulatory compliance, believes the
rules will create an enabling environment for monopolies to spring up.

“The SEC rules might
turn out to be seen as very counter-productive, designed to permanently destroy
and severely limit Nigeria’s fintech space, very discriminatory, anti-financial
inclusion, and might witness more cryptocurrency trading companies going deeper
and operating underground using alternative legal structures,” Ogbuka wrote in
an analysis on Tekedia.

On his part, Ndubuisi Ekekwe, a Nigerian-born professor, entrepreneur and Lead Faculty at Tekedia Institute, believes the order to banks to stop cryptocurrency support services is a stumbling block.

“The experts have explained the new cryptocurrency regulations in Nigeria. Of course, I am still waiting for the Central Bank of Nigeria to withdraw its directive which paused or froze the ability to operate a bank account as a crypto-related business in Nigeria. Until that is done, the new Securities and Exchange Commission (SEC) regulations will not have the immediate impact in the sector,” Ekekwe wrote in a LinkedIn post.

Adesina further pointed
out to Finance Magnates that the classification of digital asset as securities creates a problem
for assets like Bitcoin that have not central authorities.

He noted that crypto
exchanges cannot interact with a securitized asset, citing the delisting
of XRP from Coinbase and other
exchanges after the US SEC filing against Ripple.

“The crypto community in
Nigeria needs to brace up for more lobbying in stakeholders’ meetings,” Adesina
added.

In February last year,
the Central Bank of Nigeria (CBN) sparked
widespread criticism
after it ordered commercial banks in the country to close down accounts of
cryptocurrency traders in the country.

This order, considered
an implicit ban, has not yet been lifted. Yet, the Nigerian Securities and
Exchange Commission (SEC) last week issued new
rules
on the issuance,
offering and custody of digital assets.

Lamido Yuguda, the
Director General of SEC Nigeria, signed the new rules in Abuja, Nigeria’s
capital.

The rules provide
regulations on the issuance of digital assets as securities. It also outlines
the requirements that digital assets offering platforms (DAOPS), digital asset
custodians (DACs), virtual assets service providers (VASPs), and digital assets
exchanges (DAX) must meet to operate in the country.

The New Rules: An Overview

The rules define digital
asset as “a digital token that represents assets such as a debt or equity claim
on the issuer.”

This means that digital
assets such as cryptocurrencies are considered securities in the country.

Digital assets,
therefore, are to be bought and sold through digital asset offerings such as
initial coin offering (ICO) or securities token offering (STO).

The new rules state that
issuers of digital token cannot raise more than N10 billion (about $25
million) within a year.

An issuer’s directors
and senior management are also expected to hold at least a total of 50% equity
in their company at the date their tokens are to be issued.

On the other hand, a
digital assets offering platform’ shareholding in any of the issuers hosted on
its platform cannot exceed 30%.

While the regulation
permits qualified institutional and high net worth investors to invest as much
as they want, it limits retail investors to
N200,000 ($482) per issuer with a total investment limit not exceeding N2
million ($4,820) within a year.

Among other fees, the
new rules require digital asset exchanges (DAX) and virtual assets service
providers (VASP) to pay N30,000 million ($72, 250) in registration fees. It
also requires that they have N500 million ($1,205,000) in minimum paid-up
capital which could be in bank balances, fixed assets or investment in quoted
securities.

Their current fidelity
bond is also expected to cover at least 25% of the minimum paid-up
capital.

A VASP is also expected
to have an office in Nigeria managed by a director of the company.

A digital assets
custodian (DAC), among other duties, is expected to ensure compliance with all
relevant laws, regulations and guidelines, including but not limited to
anti-money laundering/combating the financing of terrorism and proliferation
financing laws and regulations.

Among other provisions,
the rules also outline guidelines for risk management, internal audit, conflict
of interest management, outsourcing.

‘Lots of Gray Areas’

A common criticism
echoed by critics of the new rulings is that they are not encouraging to
early-stage startups in the cryptocurrency and digital asset space in the
country.

Financial Market
Analyst, Olumide Adeshina, told Finance Magnates that SEC Nigeria as a
financial body established to protect investors does not take the country’s
large crypto retail investor market into consideration.

Adeshina explained,
“While the SEC has a lot of good intentions, it left a lot of things gray. For
example, it never spoke about Nigerians having exposure to certain unregularized
assets.

“In terms of exchange
fees and all those things, the SEC forgot we have decentralized exchanges where
they lack central jurisdiction; it failed to address the implication of that.
It failed to address non-custody wallets.

“So, while it made
specific rulings on what retail investors can use, it created more loopholes
than saving the retail investors.”

Emmanuel Ogbuka, a
Lagos-based lawyer specializing in fintech regulatory compliance, believes the
rules will create an enabling environment for monopolies to spring up.

“The SEC rules might
turn out to be seen as very counter-productive, designed to permanently destroy
and severely limit Nigeria’s fintech space, very discriminatory, anti-financial
inclusion, and might witness more cryptocurrency trading companies going deeper
and operating underground using alternative legal structures,” Ogbuka wrote in
an analysis on Tekedia.

On his part, Ndubuisi Ekekwe, a Nigerian-born professor, entrepreneur and Lead Faculty at Tekedia Institute, believes the order to banks to stop cryptocurrency support services is a stumbling block.

“The experts have explained the new cryptocurrency regulations in Nigeria. Of course, I am still waiting for the Central Bank of Nigeria to withdraw its directive which paused or froze the ability to operate a bank account as a crypto-related business in Nigeria. Until that is done, the new Securities and Exchange Commission (SEC) regulations will not have the immediate impact in the sector,” Ekekwe wrote in a LinkedIn post.

Adesina further pointed
out to Finance Magnates that the classification of digital asset as securities creates a problem
for assets like Bitcoin that have not central authorities.

He noted that crypto
exchanges cannot interact with a securitized asset, citing the delisting
of XRP from Coinbase and other
exchanges after the US SEC filing against Ripple.

“The crypto community in
Nigeria needs to brace up for more lobbying in stakeholders’ meetings,” Adesina
added.



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