The Fintech Association of Nigeria has presented its report to the Nigeria Securities Commission (SEC Nigeria) which has been accepted by the Capital Markets authority. The report specifies cryptocurrencies as commodities or securities as opposed to being currencies.
The Nigeria Capital Markets plans to implement the new roadmap in Q1, 2020 which is expected to change how cryptocurrency companies operate in Nigeria.
“Our recommendation was for cryptos to be designated as Commodities, but sometimes they end up as Securities. So, I believe SEC Nigeria wants to apply elimination model of classification.”
According to the report recommendations:
SEC needs to decide on its preferred classification of cryptocurrencies (either as Commodities, Securities or Currency). The recommended classification is either as Commodities or Securities but NOT as Currency
SEC should be responsible for the regulation of Virtual Financial Assets Exchanges and develop a framework around it
For the regulation of crowdfunding, interest based crowdfunding should be regulated by the Central Bank of Nigeria (CBN) while equity-based crowdfunding should be regulated by the SEC (ICO, STO or IPOs)
SEC should issue guidelines and standards for White Paper and ICOs:
– Advertising and issuance procedures should be defined without ambiguity
– SEC should create appropriate licensing regimes for new entrants into the crowdfunding ecosystem
– SEC should develop a detailed framework for VFA-based economy
AML and KYC Procedures: SEC should develop a stringent framework for KYC and due
diligence which will apply regardless of the legal status of an ICO or token
SEC should have clear taxonomies of tokens based on their nature, characteristics and
economic realities as their determining factors
‒ The taxonomy of traditional securities should remain intact, and serve as useful,
instructive and illustrative guide for the taxonomization of the new
cryptocurrency capital market investment products and services.
‒ The global best practices, with their roots in the Malta ICO Guide, should be
followed by SEC. The Malta Guide broadly taxonomises tokens as:
* Payment token
* Asset token
* Utility token
Alternative, but more descriptive global practice glossary terms, to which SEC must
have a recourse in regard to taxonomization efforts are:
‒ Securities (old products. See above)
When asked what this new development will mean for the crypto space in Nigeria, Chuta said:
“Blockchain-based securities present heightened risks related to loss and theft when compared to traditional securities, necessitating appropriate regulation for the platforms that facilitate trading or dealing in digital assets.
Regulation will take into account the functions that may be performed by each platform and apply both to platforms that operate in Nigeria and those that have Nigerian participants. Therefore, any platform providing or holding itself out as providing blockchain and digital assets services in or from within Nigeria, must be licensed by the commission.”
Chuta believes the coming regulation will provide stability to the ecosystem which is the foundation for innovation and adoption.
As regulation of cryptocurrencies and virtual assets across the continent picks pace, Nigeria is once again among the pioneers looking to define this new space and the acceptance of the Fintech Roadmap report by the regulators is a step in the direction that other jurisdictions can emulate.