Nigeria’s Securities and Exchange Commission (SEC) has published a new set of rules guiding the issuance, exchange and ownership of digital assets, such as Bitcoins/NFTs in the country.
In February 2021, the Central Bank of Nigeria directed all commercial banks in the country to stop processing cryptocurrency transactions in order to deal with the threat Nigeria’s financial system faced at the time. Later on in the year, the SEC Director-General announced that the commission had inaugurated a department to investigate the crypto industry.
- As Africa is still catching up with the use of cryptocurrencies, its use makes up for only 2% of the global value of all cryptocurrencies received, meaning that the continent is the world’s smallest cryptocurrency economy.
- The global market size of cryptocurrencies was capped at $1.49 billion in 2020 with projections to reach $4.94 billion by 2030 if it continues at a growth rate of 12.8% from 2021 to 2030.
- A report by GWI reveals that the number of people who own cryptocurrencies in January 2022 has increased by over 37.8% since January 2021.
Key indicators of the new rules
- The new set of rules is binding on all platforms that support the trading, exchange, and transfer of digital assets; all issuers of digital assets, including foreign issuers/sponsors, and anyone that targets Nigerian investors.
- The Digital Asset Players now comprise Digital Asset Offering Platforms (DAOPs), Digital Asset Custodians (DACs), Virtual Assets Service Providers (VASPs), and Digital Assets Exchange (DAX), each with a peculiar role in the sector.
- Nigeria’s SEC mandates the registration of “the offering and sale of digital tokens that are considered securities” with the Central Bank of Nigeria as regulators.
- Issuers seeking to raise capital through digital asset offerings may only raise funds within a limit of N10 billion.
By the new rules, all issuers, businesses and sponsors seeking to conduct digital asset transactions in Nigeria or targeting Nigerians must submit an assessment form or white paper.
- The white paper would have a disclaimer written “THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE TOKENS OR DETERMINED IF THE TOKENS ARE SECURITIES AND THUS, SHALL BE REGISTERED, OR THAT THE CONTENT OF THE WHITEPAPER ARE ACCURATE AND COMPLETE. ANY FALSE OR MISLEADING REPRESENTATION IS A CRIMINAL OFFENCE AND SHOULD BE REPORTED IMMEDIATELY TO THE SECURITIES AND EXCHANGE COMMISSION.”
- SEC would then review the applications within 30 days and revert in 5 days with written feedback after the review.
When the commission passes the digital asset as a security, the issuer then starts a registration process.
- The registration documents include the name and numbers of the token, the ticker, price, amount, and evidence of the solicitors’ opinions and corporate governance disclosures.
- Also, the issuer would present an escrow agreement with an independent Custodian/Trustee registered with the Commission.
By SEC’s new rules of operation, businesses, issuers and platforms seeking to operate in Nigeria’s crypto market, would pay an application fee of N100k, processing fee of N300,000 and a registration fee of N30 million.
- They would also pay a sponsored individual fee of N100,000 and must have a paid-up capital of at least N500 million.
- There should be provision of a current “Fidelity Bond” covering at least 25% of the minimum paid-up capital.
What this means
The new rules could boost Nigeria’s representation in the global crypto market, as it currently ranks amongst the biggest markets for digital assets trading.