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Nigeria’s SEC Release Regulations For Digital Assets, Calls Them Securities

The Securities and Trading Commission of Nigeria has released new laws regarding the nation’s issue, exchange, and storage of digital assets. These regulations may be seen here. It comes twenty months after the first statement the Commission provided on how it will define and regulate digital assets.

The stance taken by the SEC is also opposed to that of the Central Bank of Nigeria (CBN), which forbids Nigerian financial establishments from transacting with companies that deal with cryptocurrencies. The new laws adopted by the SEC demand that cryptocurrency exchange platforms for token issuance have trust accounts with financial institutions.

Overall, this change could lend legitimacy to cryptocurrencies and related businesses, which, in the long run, could lead to the opening of new doors for the use of cryptocurrencies in Nigeria. A framework for how financial institutions in the nation might engage with cryptocurrencies may be provided by SEC rules to CBN, and CBN may use this framework.

Any Nigerians or businesses supplying any form of crypto goods and services to Nigerians will now be required to get a Virtual Asset Service Provider (VASP) license before operating in the country.

Exchange Platforms

All cryptocurrency exchanges that want to operate in Nigeria must get a permit from the regulatory authority, which gives the Commission access to the companies’ transaction data. In addition to providing information on trade on a weekly and monthly basis, exchanges are obliged to publish financial reports quarterly and yearly.

Distribution Of Tokens

Any venture that intends to solicit initial coin offerings (ICOs) from Nigerians or conducts ICOs within the country itself must inform the SEC of its plans. This can be done by filling out a form and submitting a detailed copy of their whitepaper.

If the Commission determines that the proposed token is a security, the firm will need to ensure that they comply with the country’s laws on securities.

Additionally, the SEC will allow fundraising projects of about NGN 10 billion, equivalent to around $24.1 million depending on the current official currency rate. This number may be revised by the Commission when it seems appropriate.

Digital Assets Operating Platform (DAOP)

In addition to this, the Commission came up with a list of tasks connected to the functioning of the DAOP.

An operator of a DAOP is required to undertake due diligence on any project that offers digital assets via its platform and use its judgment to determine whether or not the project is appropriate for raising money. An obligation placed on a DAOP is to ensure that investors get the most recent information on listed projects. 

Additionally, the platform has to keep an eye on how projects are spending their money to guarantee that the money is going toward the goals outlined in each project’s whitepaper.

Although the legislation has provisions for the operation of digital asset custody businesses in Nigeria, they do not mandate that DAOP operators or exchanges use independent custodians. 

A DAOP is permitted to perform its custody services so long as it complies with all of the applicable requirements. This is stated in the regulations. There are no specific standards that stipulate how exchanges should maintain user assets.

In addition, the regulations do not provide a great deal of clarity about how or the location in which assets may be held. To offer some background, crypto law in Japan mandates that custody service providers store at least 95% of their client’s assets in a cold wallet. However, the Nigerian regulation mandates that custodians keep their customers’ assets separate from theirs.

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