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Nigeria SEC publishes digital asset regulations amid central bank crackdown

Nigeria’s securities watchdog has published comprehensive regulations for the digital asset sector, the first of its kind in the country. The guidelines come amid a crackdown on the sector by the Central Bank of Nigeria (CBN), which has prohibited banks from servicing Bitcoin-related accounts.

Titled “Rules on Issuance Offering and Custody of Digital Assets,” the set of guidelines covered everything from the issuance of digital assets as securities to the regulations governing virtual assets service providers (VASPs). 

Those seeking to issue ICOs that target Nigerian investors must present a draft of their white paper to the Securities and Exchange Commission (SEC) beforehand. It shall then assess the project, including whether the said tokens qualify as securities.

If approved, the issuer will only be allowed to raise 20 times his shareholders’ funds with a ceiling of 10 billion nairas ($24.2 million). The amount collected must be demonstrably sufficient to undertake the project as outlined in the white paper. If unable to hit the soft cap, the issuer shall refund all the investors within five days. Nigerians can only invest a maximum of $484 in one ICO unless they are institutional investors.

The SEC also issued guidelines for digital asset offering platforms as well as digital asset custodians, with both being subjected to the highest level of scrutiny and being required to meet global standards in operations and security before being licensed to serve Nigerians. 

Key generation and management, conflict of interest, segregation of clients’ assets, outsourcing, audits, custody of the assets, and more were all discussed in the 54-page document.

VASPs will be required to obtain a license before serving Nigerians, and to get one, they will have to fulfill a very long list of requirements by the SEC, ranging from their corporate structure and security of the platform to risk management and compliance.

Exchanges will be scrutinized even more stringently. For starters, they will be required to pay upwards of 30 million nairas ($73,000) in registration and processing fees and have a minimum capital of $1.2 million. They will also have to prove that they have mechanisms in place to deal with conflict of interest, transparency, asset protection, risk management, and more.

The Nigerian digital currency community is welcoming of the regulations, which according to one of the country’s largest exchanges, could bring the much-needed clarity that the industry has been seeking.

“We strongly believe today’s developments could mark a major breakthrough in not only delivering much-needed clarity and protection for crypto customers, but also for businesses.” Owen Odia, the country manager for Nigeria at Luno, stated speaking to CoinGeek.

Odia told CoinGeek that the SEC had taken quite some time before offering clarity to the industry, but it’s only because the watchdog’s also trying to come to grips with the technology. “…it is for this reason why they should continue to collaborate with industry players over the coming months and years,” he added.

Moving forward, Odia called on the SEC and other regulators in the West African country to collaborate with stakeholders to come up with regulations that can push the industry ahead. Currently, Luno has over 3 million users in Nigeria alone.

Exchanges like Luno and other key stakeholders “can play a crucial role in helping the SEC navigate the nuances of this technology so any eventual regulations manage the need to protect consumers without stifling the huge innovation we’ve seen in Nigeria over the last few years,” Odia added.

While the SEC may be onboard with pushing the digital asset industry ahead through enabling regulations, the Central Bank of Nigeria (CBN) hasn’t been as friendly. As CoinGeek has previously reported, CBN has taken several drastic measures to slow down the explosive adoption of digital assets in the country.

In February 2021, the central bank prohibited all commercial banks from serving digital currency-related users. It ordered banks to identify all accounts linked to digital assets and shut them down immediately. Later that year, it would freeze some accounts for trading digital assets. The ban, as experts told CoinGeek at the time, would hold Nigerians back and leave them vulnerable. 

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