In another first for Africa, Nigeria’s Securities and Exchange Commission (SEC) has released new rules for Digital Assets as part of its effort to regulate digital/virtual assets such as Bitcoin and NFTs.
This is contained in a recently released document titled, “New Rules on Issuance, Offering Platforms, and Custody of Digital Assets” essentially legalizing digital assets such as cryptocurrencies in Nigeria.
The rules apply to all platforms that:
Support the trading, exchange, and transfer of virtual assets
Issue and sponsor virtual/digital assets including international and non-residential issuers and sponsors
Any operator that aggressively targets Nigerian investors
For starters, entities looking to offer any kind of crypto products and services in Nigeria or to Nigerians must now secure a virtual asset service provider (VASP) license.
This will be in addition to relevant category licenses with the following categories identified:
For instance, an exchange would need a digital asset exchange license in addition to the VASP permit essentially giving the commission access to the exchange’s records.
It’s also notable that an exchange cannot facilitate the trading of any digital asset unless SEC has first issued a ‘no objection’ about such asset.
Digital Asset Offering Platforms (DAOPs)
The SEC regulatory framework defines a digital assets offering platform (DAOP) as portals where issuers can launch an initial digital asset offering such as an ICO.
Apart from the rules that such services will have to comply with, monitoring the usage of funds by projects to ensure that they’re used for purposes stated in their respective whitepapers will now be done.
Digital Asset Custodians (DACs)
The SEC defines DACs as a person who provides the services of providing safekeeping, storing, holding, or maintaining custody of virtual assets/digital tokens for the account of another person.
The regulations require that:
A DAC shall ensure that, at all times, it has up-to-date transactional records relating to the clients’ virtual assets/digital tokens including:
Details of any transaction including the purpose of a transfer, amount and details of the counterparty
Relevant signatories and transaction approval/rejection evidence
Transaction value any other information as may be specified by the Commission
Per the rules, a DAOP can provide its own custody services provided it complies with relevant regulations.
Following the Central Bank of Nigeria’s (CBN) circular in February 2021, crypto exchanges in Nigeria remain banned from working with financial institutions. However, the new SEC rules require token issuance platforms and exchanges to maintain trust accounts with receiving banks.