Nigeria’s Capital Market Regulator, the Security and Exchange Commission (SEC) has published regulations guiding cryptocurrency companies and digital assets offerings in the country.
All blockchain-based digital assets offerings within Nigeria including Digital Assets Token Offering (DATOs), Initial Coin Offerings (ICOs) and Security Token ICOs issued by Nationals or foreign sponsors will henceforth be regulated by the Commission.
The Commission’s stance is that virtual crypto assets are securities unless issuers or sponsors can disprove this via an initial assessment filing. If otherwise, issuers/sponsors and their digital assets must then be registered with the Commission.
Also, digital assets offerings currently existing in Nigeria have been given three months to comply with the Commission’s Regulatory Guidelines.
According to the statement released by the Commission, crypto-token or crypto-coin investments will be regulated when the character of the investments qualifies as securities transactions.
Virtual Digital Assets Subject to SEC Regulations
Going by SEC’s statement, Crypto Assets such as Bitcoin and Ethereum which are traded on a Recognised Investment Exchange and/or issued as an investment will be treated as commodities.
These are subject to Part E of SEC Rules and Regulations.
A Crypto Asset, according to the Commission, is a digital representation of value that can be digitally traded and functions as a medium of exchange, a unit of account and/or a store of value but is not accepted as legal tender in Nigeria.
All Utility Tokens such as Tatcoin (which are transacted via a Recognised Investment Exchange, like crypto assets) will also be treated as commodities subject to Part E of SEC Rules and Regulations.
However, spot trading and transactions involving Utility Tokens do not fall under the SEC scope and are therefore exempted from its binding regulations.
Virtual Security Tokens are classified as securities under the Nigerian Investment and Securities Act. These Tokens will be regulated by the Commission. Market operators and intermediaries dealing in Security Tokens, as well as Collective Investment Funds of Crypto Assets and Utility Tokens, must also be registered by SEC.
The SEC has identified improving the legal credibility and transparency of cryptocurrency transactions in Nigeria as one of its objectives for regulating the sector.
“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,” said the Commission.
Many Nigerians have been defrauded by virtual currency scams posing as legitimate crypto platforms. Due to the fact that these schemes were unregulated and largely decentralised, there was no one to be held accountable for such fraudulent cases.
Although the SEC has said that startups or corporations dealing in virtual digital currency will be guided by its regulations, the Commission has not yet released substantial information on how Nigerians can go about reporting cases of blockchain-related fraud.
Regulating Innovation Without Stifling It
According to SEC, “The general objective of regulation is not to hinder technology or stifle innovation, but to create standards that encourage ethical practices that ultimately make for a fair and efficient market.”
By regulating innovation in the digital currency sector, the Commission will be privy to emerging virtual currency technologies under development and decide whether they are adopted or not.
The fact that some of these technologies may be screened out on a subjective basis is a cause for concern.
As a regulator, SEC will only allow for digital assets’ platforms which are well suited to the Commission’s targets in Nigeria’s capital market. This exclusivity may discourage virtual currency companies from pursuing new and emerging innovative crypto solutions in the country.