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SEC approves cryptocurrency trading in Nigeria

The long-awaited news just arrived. Yes, you can now trade cryptocurrency in Nigeria without receiving a warning or even a restriction on your account as some banks warned their customers before now.

The Nigerian Stock Exchange Commision has branded cryptocurrencies as securities in a landmark document that will change the way crypto assets are regulated in the African nation.

The document released today highlighted several aspects of cryptocurrency services that will be regulated by the regulatory body.

According to the document the SEC would regulate crypto tokens and investments that qualify as securities transaction.

Furthermore the Commision of the opinion that all crypto assets are securities until proven otherwise and issuers of cryptocurrencies must provide evidence to the regulatory body regarding their cryptoassets.

SEC to regulate ICOs and Digital assets within Nigerian

The SEC also explained that it had been empowered to regulate all Initial Coin Offerings (ICOs), Digital Asset Token Offering (DATO), Security Token ICOs and blockchain based offers within Nigeria.

Also all existing digital asset offering platform have been given three months to submit the initial asset filing and documents.

The regulation also extends to individual traders who are involved in blockchain related and digital assets services. Moving on traders are expected to be registered with the SEC and face regulation on their transactions like other securities (stocks and bonds)

The Regulatory body also explained crypto assets as a digital representation of a value that can be used as a medium of exchange, a unit of account or a store of value that does not have legal tender status in any Juridiction.

As expected popular cryptocurrencies such as Bitcoin, Ethereum and Tron fall into this category.

Cryptocurrencies Legal in Nigeria following ruling by SEC

This ruling by the SEC ends months of speculations regarding the status of cryptocurrencies in Africa most populous Nation. Nigeria has the highest number of crypto users in Africa with p2p transactions exploding since the turn of 2020.

This has led to the development and rise in both local and foreign exchange platforms offering digital trading services. With this ruling, all crypto platforms would be required by law to register with the SEC for regulation and it is expected that they would be taxed accordingly.

Furthermore, this could be the beginning of concrete steps towards developing a digital Naira with the local currency having been plagued by inflation in recent years.

WHAT WILL BE REGULATED?

1.
The position of the Commission is that virtual crypto assets are securities, unless proven otherwise. Thus, the burden of proving that the crypto assets proposed to be offered are not securities and therefore not under the jurisdiction of the SEC, is placed on the issuer or sponsor of the said assets.

2.
Issuers or sponsors are expected to satisfy the burden of proving that the virtual assets do not constitute securities by making an initial assessment filing. However, where the finding of the Commission is that the virtual assets are indeed securities (not structured to be exclusively offered through crowdfunding portals or other exempt methods), then the issuer or sponsor must register the digital assets.

3.
The registration process for virtual assets will therefore involve a two-prong approach – an initial assessment filing to satisfy the burden of proof and a filing for registration proper, either made directly by the issuer or sponsor or where the burden of proof is not satisfied.

4.
Similarly, all Digital Assets Token Offering (DATOs), Initial Coin Offerings (ICOs), Security Token ICOs and other Blockchain-based offers of digital assets within Nigeria or by Nigerian issuers or sponsors or foreign issuers targeting Nigerian investors, shall be subject to the regulation of the Commission. Existing digital assets offerings prior to the implementation of the Regulatory Guidelines will have three (3) months to either submit the initial assessment filing or documents for registration proper, as the case may be.

WHO WILL BE REGULATED?

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. 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.

2.
Issuers or sponsors (start-ups or existing corporations) of virtual digital assets shall be guided by the Commission’s regulation. The Commission may require Foreign or non-residential issuers or sponsors to establish a branch office within Nigeria. However foreign issuers or sponsors will be recognized by the Commission where a reciprocal agreement exists between Nigeria and the country of the foreign issuer or sponsor.

3.
A recognition status will also be accorded, where the country of the foreign issuer or sponsor is a member of the International Organization of Securities Commissions (IOSCO).

For these purposes, the Commission has adopted the following with respect to
virtual crypto assets:

“Crypto Asset” means a digital representation of value that can be digitally traded and
functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3)
a store of value, but does not have legal tender status in any jurisdiction. A Crypto Asset is – neither issued nor guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the Crypto Asset; and Distinguished from Fiat Currency and E-money.”

The SEC hereby categorizes the following virtual assets/instruments as follows:

S/N	VIRTUAL DIGITAL ASSET	TREATMENT
1.	Crypto Asset- e.g non fiat virtual currency.	Treated as commodities if traded on a Recognized Investment Exchange and/or issued as an investment, and is subject to Part E of SEC Rules and Regulations and any other relevant sections and subsequent Rules which will be enacted in future
2.	Utility Tokens or “Non-Security Tokens” (e.g., virtual tokens. These tokens simply provide users with a product and/or service.	Treated as commodities. However, spot trading and transactions in Utility Tokens do not fall under SEC purview unless conducted on a Recognized Investment Exchange and therefore subject to Part E of SEC Rules and Regulations and any other relevant sections and subsequent Rules which will be enacted in future
3.	Security Tokens” (e.g., virtual tokens that have the features and characteristics of a security. Represent assets such as participations in real physical underlyings, companies, or earnings streams, or an entitlement to dividends or interest payments. In terms of their economic function, the tokens are analogous to equities, bonds, etc.	Deemed to be Securities pursuant to PART XVIII (315) of ISA, “definition of Securities’’. All financial services activities in relation to Security Tokens, such as operating primary / secondary markets, dealing / trading / managing investments in or advising on Security Tokens, will be subject to the relevant regulatory requirements. Market intermediaries and market operators dealing or managing investments in Security Tokens need to be registered / approved by SEC as CMOs, Recognized Investment Exchanges or Recognized Clearing Houses, as applicable.
4.	Derivatives and Collective Investment Funds of Crypto Assets, Security Tokens and Utility Tokens	Regulated as Specified Investments under the ISA & SEC Rules and Regulations. Market intermediaries and market operators dealing in such Derivatives and Collective Investment Funds will need to be registered / approved by SEC.