In a significant yet familiar move, Nigeria’s Securities and Exchange Commission (SEC) has announced a new framework aimed at regulating the burgeoning virtual assets market.
The establishment of a local office in Nigeria is now part of the eligibility requirements for Virtual Assets Service Providers (VASPs) under the SEC’s Accelerated Regulatory Incubation Programme (ARIP).
This is not the first time the SEC has attempted to regulate digital assets in Nigeria. Previous efforts have often faltered, with frameworks either being delayed or ultimately not implemented. The current initiative, outlined in a circular dated June 21, 2024, appears to follow a similar path, reflecting ongoing regulatory challenges and the government’s cautious stance toward digital assets, especially cryptocurrencies.
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The new framework mandates that all operating and prospective VASPs, including crypto brokers and dealers, must visit the SEC ePortal to complete their application process within 30 days of the circular’s date. While the SEC is in the process of amending rules related to Digital Assets Issuance, Offering Platforms, Exchange, and Custody, it requires VASPs to comply with the ARIP in the meantime.
The primary objective of the ARIP is to expedite the onboarding process for entities whose applications are pending with the SEC and to attract potential applicants seeking registration. The program is designed to grant “qualified entities” provisional approval from the Commission until the comprehensive Digital Assets Rules become effective.
The framework targets VASPs and token issuers operating in Nigeria or offering services to Nigerian consumers. This includes platforms facilitating the offering, trading, exchange, custody, and transfer of virtual or digital assets.
Eligibility and Compliance Requirements
To qualify for ARIP, entities must be incorporated and have an office in Nigeria, with the Chief Executive Officer or Managing Director (or equivalent) residing in the country. They must also be engaged in investments and securities business, and either seeking registration or having pending virtual asset-related applications with the SEC.
Applicants are required to submit a sworn undertaking confirming that neither the owner nor the firm has been convicted of fraud or dishonesty within or outside Nigeria. They must also present an operational plan and business model with a clear value proposition or contribution to the capital market’s development, and demonstrate adequate provisions for investor and public interest protection.
The processing fee for ARIP is set at N2 million, and applicants must provide evidence of the required shareholder funds.
Reporting and Monitoring Obligations
ARIP participants are required to submit weekly and monthly trading statistics, quarterly financial statements, and compliance reports. They must also report on key issues such as misconduct, fraud, and operational incidents, along with measures taken to address these issues.
Additionally, participants are subject to the SEC’s onsite and offsite inspections, audits, and monitoring, and must provide periodic reports and returns as specified by the Commission.
Penalties for Non-Compliance
The ARIP framework outlines stringent penalties for non-compliance. Participants who fail to meet the requirements face an initial penalty of at least N5,000,000, with an additional N200,000 for each day of default.
Unauthorized or unregistered VASPs operating trading, offering, and custody platforms are subject to penalties starting at N20,000,000. Other digital investment platforms, including crypto brokers, dealers, advisers, and market makers, face penalties of at least N10,000,000 for operating without due authorization or registration.
Entities that do not comply with the SEC’s rules and regulations may also face suspension from capital market activities.
The Regulatory Framework Comes with Skepticism
Despite the SEC’s efforts, there is skepticism about the effective implementation of this regulatory framework. Past initiatives to regulate digital assets in Nigeria have often stalled, reflecting broader governmental hesitance toward cryptocurrencies. The current administration has frequently accused cryptocurrencies of contributing to the naira’s poor performance in the foreign exchange market, casting further doubt on the long-term viability of these regulatory efforts.
The federal government has consistently blamed cryptocurrencies for the naira’s depreciation in the FX market, attributing significant economic challenges to the unregulated nature of digital currencies. This latest regulatory push by the SEC seems to align with the government’s broader aim to control and monitor digital assets more strictly.
The tightening of digital regulatory frameworks comes on the heels of accusations from SEC Director Abdulkadir Abbas, who told the Federal High Court in Abuja that unregistered cryptocurrency exchange platform Binance Limited used its Naira peer-to-peer (P2P) virtual feature to devalue the Nigerian currency.