Nigeria’s SEC unveils strict requirements for crypto firms, including local presence and hefty penalties, as it seeks to regulate the burgeoning digital asset market amidst global challenges.
Nigeria’s Securities and Exchange Commission (SEC) has rolled out a new mandate requiring crypto companies to set up an office in Nigeria to be considered for regulation.
Driving the news
In June, the SEC directed crypto companies operating in Nigeria to apply for its sandbox program, dubbed the Accelerated Regulatory Incubation Program (ARIP).
- New information on the SEC’s website directs entities interested in the sandbox to have a physical office in Nigeria.
Dive in
A few other requirements include:
- The CEO or managing director must reside in Nigeria.
- Applicants must be actively involved in investment and securities business and either be seeking registration or have pending virtual asset-related applications with the SEC.
- Applicants must provide a sworn undertaking confirming, among other things, that the applicant, its directors, chief executive, and key personnel have not been convicted of fraud, dishonesty, or other relevant offenses.
- They must also submit an operational plan and a business model with a clear value proposition, along with provisions for investor protection.
Penalties
According to the SEC, failure to comply with any of the stipulated requirements may result in a penalty of not less than ₦5,000,000 at the first instance and an additional ₦200,000 for each day of default.
- Companies operating without SEC authorization or registration will face a penalty of not less than ₦10,000,000.
- For commercialized VASPs operating trading, offering, and custody platforms without due authorization, the penalty is not less than ₦20,000,000.
After the ARIP program ends, participants are expected to seamlessly transition to registration.
- The SEC may grant formal registration approval, adopt new regulations based on insights gained from the ARIP, or issue a denial of permission to operate in Nigeria under prevailing rules and regulations.
Reading between the lines
The stipulation that applicants should be investment and securities businesses implies that the Nigerian SEC is treating crypto as securities.
- That could have significant implications for the types of crypto assets that will be allowed in Nigeria.
- It might limit the range of cryptocurrencies and tokens that can be traded or offered to those that meet the criteria of securities under Nigerian law if strict enforcement is adopted.
Key context
The SEC’s new-found proactiveness toward crypto regulation comes amidst uncertainties in the local digital assets scene.
The big picture
This framework comes amid global challenges in regulating digital assets.
- A July 2024 FATF report shows that 97% of African countries struggle with crypto compliance.
- Nigeria, a key market in Africa’s crypto space, faces unique challenges. While it published a crypto rulebook in 2022, it lacks a clear licensing regime.
- Recently, Nigeria has taken a regulation-by-enforcement approach, engaging in a legal battle with crypto exchange Binance.
- With the ARIP framework, the SEC would be hoping to address these regulatory gaps, facilitating the onboarding of entities seeking registration while allowing the SEC to better understand and regulate digital asset business models.
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