Nigeria’s SEC Unveils New Regulatory Guidelines for Trading

2022-05-24, 03:09

· The Nigerian capital market regulator, Security, and Exchange Commission have released a new set of regulatory guidelines for crypto trading and exchange marking a new landmark for the crypto market in the country.

· The guidelines are contained in a 54-page document where digital asset market players are categorized as digital asset issuers, digital asset offering platforms, virtual asset service providers, digital asset custodians.

· The document stipulated the requirement for registration for each player, the obligation, the risk management, and the disaster recovery plan.

· The new guidelines raise the question of how the apex bank in the country, CBN, and the market regulator, SEC will reconcile their position as the former prohibits dealing in cryptocurrencies for financial institutions in the country.

Nigeria's Security and Exchange Commission (SEC) has rolled out new rules and guidelines to govern the issuance of digital assets, trading and exchange. Many crypto enthusiasts are hopeful that this development may be leeway to the country's adoption and legalization of crypto trading. Despite the circular issued by the Central Bank of Nigeria on February 5, 2021, to financial institutions and banks following the earlier one published on January 12, 2017, outlawing the dealing in cryptocurrencies, Nigerians still widely embrace it as an alternative solution for holding and transferring of assets. According to a report, 35% of Nigerian adults, which accounts for about 33.4 million of the population, are crypto investors between the ages of 18 and 60.

The Security and Exchange Commission has demonstrated with the new guidelines issued during the weekend that its proclamation not to stiffen innovations is not mere rhetoric. It would be recalled that the market regulator said on September 14, 2020, that it would focus on the three areas of safety, market deepening, and producing solutions to problems in regulating digital securities.

The Framework of the New Guidelines

The new guidelines are contained in a 54-page document titled "New Rules on Issuance, Offering Platforms and Custody of Digital Assets." The regulatory guidelines are divided into five parts covering,

Part A: Rules of Issuance on Digital Assets and Securities
Part B: Rules on Registration Requirements for Digital Assets Offering Platforms (DAOPs)
Part C: Rules on Registration Requirements for Digital Assets Custodians (DACs)
Part D: Rules on Virtual Assets Service Providers (VASPs)
Part E: Rules on Digital Assets Exchange

Some Key Rules and Provisions

The document defines the key terms under each part and division. According to the paper, digital assets are digital tokens representing assets such as a debt or equity claim on the issuer. For issuing digital assets, the guidelines provide for initial assessment filing. This provision implies that any entity that proposes to offer digital assets for trading within Nigeria or targeting Nigerians must submit an assessment form of the project and the whitepaper. However, it is stated that whitepapers of projects that are yet to be approved by the commission must contain a disclaimer that such whitepapers do not represent an offer to sell. It gave the time frame of 30 days for the review of the initial assessment filing after receiving it to determine whether it constitutes a "security" under the investment and Security Act 2007, after which the determination of the commission will be communicated to the issuer within five days from the conclusion of the review.

Registration of Digital Assets Offering Platform:

The document specified the fees required to register Digital Assets Offering Platforms. These fees include:

Processing fee: N300,000
Registration fee: N30,000,000
Sponsored individual fee: N100,000.

In addition to the above, the guidelines stipulated a minimum paid-up capital of #500,000,000, including bank balances, fixed assets, or investment in quoted securities; and a current fidelity bond covering at least 25% of the minimum paid-up capital for digital assets exchange (DAX).

Other requirements stipulated for the registration of DAOPs, VASPs, and DAX include corporate documents, risk management, and a disaster recovery plan.

Risk Management:

One standard provision in the guidelines is that of risk management. Despite the appeals of decentralization, many crypto investors have advocated for some level of regulation to protect the interest of asset holders and checkmate loss to security breaches or rug pull, and other scams. Therefore, the new guidelines make it a prerequisite for prospective players in the crypto trade market as asset issuers, asset offering platforms, custodians, or exchange platforms to put disaster recovery plans and risk management strategies in place. It stated that:
"A DAOP shall identify and manage any risks associated with its business and operations, including any possible sources of operational risk, both internal and external and mitigate their impact through the use of appropriate system, policies, procedure and controls."

Tokenomics

The guidelines stipulated some rules that border on tokenomics of crypto and other digital assets projects. Tokenomics are an essential aspect of a crypto project where such issues as token supply and distribution are decided. In this respect, some of the provisions SEC made in the guidelines include the maximum quantum of funds permitted to be raised within any continuous 12 months, subject to a ceiling of N10 billion. Also, on equity interest, the issuer must own at least 50% of equity holding, while the remaining 50% can be sold, transferred, or assigned until the completion of the initial digital asset offering. The guidelines set no investment limit for qualified institutions and high net worth investors. In contrast, it forms a maximum of N200,000 per issuer with a total investment limit not exceeding N2 million within 12 months for retail investors.

Obligations of digital assets market players

The guidelines listed the duties of the digital asset market player who now goes by the name digital asset issuer, digital asset offering platform, virtual asset service provider, and digital asset exchange. They are all required to safeguard the interest of their clients while ensuring that all fees payable are fair, reasonable, and transparent.

It's undoubtedly an exciting time for crypto trading and exchange in Nigeria. However, people are still concerned about how the apex bank, CBN, and the apex security market regulator, the SEC, will reconcile their positions on digital assets and cryptocurrencies in the country.

Author: Gate.io Observer: M. Olatunji
* This article represents only the views of the observers and does not constitute any investment suggestions.
*Gate.io reserves all rights to this article. Reposting of the article will be permitted, provided Gate.io is referenced. In all other cases, legal action will be taken due to copyright infringement.

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