In another first for Africa, Nigeria’s Securities and Exchange Commission (SEC) has issued new rules for digital assets as part of its efforts to regulate digital/virtual assets such as Bitcoin and NFTs.
This is contained in a recently published document titled “New Rules on Issuance, Offering Platforms and Custody of Digital Assets” eessentially legalizing digital assets such as cryptocurrencies in Nigeria.
The rules apply to all platforms that:
- Support trade, exchange and transfer of virtual assets
- Issue and sponsor virtual/digital assets, including international and non-residential issuers and sponsors
- Any operator that aggressively targets Nigerian investors
To begin with, entities looking to offer any kind of crypto products and services in Nigeria or Nigerians are now required to obtain a Virtual Asset Service Provider (VASP) license.
This will be in addition to the relevant category licenses with the following categories identified:
- Digital Asset Exchange (DAX)
- Digital Asset Offering Platforms (DAOPS)
- Digital Asset Custodians (DACs)
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Digital Asset Exchange (DAX)
For example, an exchange would need a digital asset exchange license in addition to the VASP license essentially giving the commission access to the records of the exchange.
It should also be noted that an exchange cannot facilitate the trading of a digital asset unless the SEC has first issued a “no objection” to that asset.
Digital Asset Offering Platforms (DAOP)
The SEC regulatory framework defines a Digital Asset Offering Platform (DAOP) as portals where issuers can launch an initial offering of digital assets such as an ICO.
In addition to the rules with which these services will have to comply, monitoring of the use of funds by projects to ensure that they are used for the purposes set out in their respective white papers will now be carried out.
Digital Asset Custodians (DACs)
The SEC defines a DAC as a person who provides custodial services, storage, holding, or safekeeping of virtual assets/digital tokens on behalf of another person.
The regulations require that:
A DAC must ensure that it has up-to-date transactional records relating to customers’ virtual assets/digital tokens at all times, including:
- Transaction timestamp
- Details of any transaction, including the purpose of a transfer, the amount and details of the counterparty
- Relevant signatories and proof of transaction approval/rejection
- Account balances
- Value of the transaction any other information that may be specified by the Commission
According to the rules, a DAOP can provide its own custodial services provided it complies with applicable regulations.
Following the February 2021 Central Bank of Nigeria (CBN) circular, crypto exchanges in Nigeria remain prohibited from collaborating with financial institutions. However, new SEC rules require token platforms and exchanges to maintain trust accounts with receiving banks.
In September 2021, Nigeria’s SEC said it would introduce regulations for cryptocurrencies once the government legalizes banks’ participation in virtual currencies.
Read/Download the new SEC Nigeria regulations below: