January 25, 2021

Nigeria Introduces Legal Framework For Cryptocurrency Regulation

The Nigerian Securities and Exchanges Commission (SEC) has recently announced a regulatory framework for using cryptocurrencies in Nigeria. The SEC says it will regulate crypto-token or crypto-coin investments when the character of the investments qualifies as securities transactions. According to them, 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 SEC’s jurisdiction, is placed on the issuer or sponsor of the said assets. Therefore, 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.

The regulation shall cover any person (individual or corporate) whose activities involve any aspect of Blockchain-related and virtual digital asset services. 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. All Digital Assets Token Offering (DATOs), Initial Coin Offerings (ICOs), Security Token ICOs and other Blockchain-based offers of digital assets within Nigeria or Nigerian issuers or sponsors or foreign issuers targeting Nigerian investors, shall be subject to the regulation of the Commission.

The Commission’s regulation shall guide issuers or sponsors (start-ups or existing corporations) of virtual digital assets. 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 recognised by the Commission where a reciprocal agreement exists between Nigeria and the country of the foreign issuer or sponsor. 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).

Why is this important for your organisation?

Nigeria is not only the largest economy in Africa but also the world’s second-largest market for peer-to-peer Bitcoin exchange after the US. The country is also set to be one of the most critical players in the AfCFTA. However, an economic recession combined with a dollar scarcity and foreign exchange restrictions has led to a growing popularisation of Bitcoin as a popular medium for the settlement of transactions. Therefore, firms need to:

  • Ensure familiarisation with these new regulations’ issues by the SEC and update internal compliance protocols to reflect these regulations.
  • Ensure proper registration of cryptocurrency business with the relevant authorities before making any investments to minimise exposure to risk or regulatory infractions. Also, check to see if the firm or individual’s home country is an IOSCO member.

You can learn more here.

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