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SEC Nigeria Regulates Cryptocurrencies And Digital Assets, Issues a New Statement

Gudtalent Chrisent

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sec Nigeria to regulate cryptocurrencies

Nigeria is known to be one of the top countries engaging in cryptocurrency activities. The buzz around crypto has been a long haul and due for regulation and finally, the Securities and Exchange Commission (SEC) in Nigeria has released regulatory guidelines for digital currencies and crypto-backed companies and calls it Digital Assets and Securities.

The goal according to Nigeria’s capital market and investment regulator is to protect investors and create standards for ethical practices around digital assets.

The statement which was released on SEC Nigeria website on the 11th of September, 2020 defined Crypto Assets as “a digital representation of value that can be digitally traded and function as (1) a medium of exchange; and /or (2) a unit of account; and/or (3) a store of value, but does not have a legal tender status in any jurisdiction.”

For the statement released, the Commission will regulate all Digital Assets Token Offerings (DATO), Initial Coin Offerings (ICOs), Security Tokens and other Blockchain-based offers within Nigeria by Nigerian issuers or by foreign issuers targeting Nigerian investors into their project.

To make this possible, SEC will be taking a three-pronged approach to regulating innovation in the crypto sector; these are: 

  1. Safety. 
  2. Market deepening.
  3. Providing solutions to problems.

Who Is The SEC Nigeria Cryptocurrency regulation Goin To Affect?

According to SEC Nigeria, crypto issuers or sponsors will be required to register their digital assets with the Commission.

Firstly, they are to make an initial assessment filing with SEC to prove that the assets they issue are securities. Then, there will be a filing for registration proper.

Those that have already issued digital assets or engaged in ICOs, maybe IEOs too will be given three months to comply with the stated registration requirements with the commission..

Consequently, every individual or corporate organization that engages in any aspect of Blockchain-related and digital asset services must register with the SEC and follow its regulatory guidelines.

Such services in question 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,” the SEC states.

While this seems to apply to crypto exchanges, crypto-based startups, and even individuals running their own exchange service within Nigeria, the Commission states that it might require foreign or non-resident startups or companies to establish a branch in Nigeria.

Foreign companies will be recognized if they belong to a country that either has a reciprocal agreement with Nigeria or is a member of the International Organization of Securities Commissions (IOSCO).

Categories Of virtual assets/instruments To Be Regulated By SEC Nigeria

S/N VIRTUAL DIGITAL ASSET TREATMENT
1. Crypto Asset- e.g non fiat virtual currency.

 

Treated as commodities if traded on a Recognized Investment Exchange and/or issued as an investment, and is subject to Part E of SEC Rules and Regulations and any other relevant sections and subsequent Rules which will be enacted in future
2. Utility Tokens or “Non-Security Tokens”
(e.g., virtual tokens. These tokens simply provide users with a product
and/or service.
Treated as commodities. However, spot
trading and transactions in Utility Tokens do not fall under SEC purview
unless conducted on a Recognized Investment Exchange and therefore subject to
Part E of SEC Rules and Regulations and any other relevant sections and
subsequent Rules which will be enacted in future
3. Security Tokens” (e.g., virtual tokens that
have the features and characteristics of a security. Represent assets such as
participations in real physical underlyings, companies, or earnings streams,
or an entitlement to dividends or interest payments. In terms of their
economic function, the tokens are analogous to equities, bonds, etc.
Deemed to be Securities pursuant to PART
XVIII (315) of ISA, “definition of Securities’’. All financial services
activities in relation to Security Tokens, such as operating primary /
secondary markets, dealing / trading / managing investments in or advising on
Security Tokens, will be subject to the relevant regulatory requirements.
Market intermediaries and market operators dealing or managing investments in
Security Tokens need to be registered / approved by SEC as   CMOs, Recognized
Investment Exchanges or Recognized Clearing Houses, as applicable.
4. Derivatives and Collective Investment Funds
of Crypto Assets, Security Tokens and Utility Tokens
Regulated as Specified Investments under the
ISA & SEC Rules and Regulations. Market intermediaries and market
operators dealing in such Derivatives and Collective Investment Funds will
need to be registered/approved by SEC.

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