Regulation
Nigerian SEC Imposes Local Offices for Entry into Crypto Sandbox
July 13, 2024 at 1:52 p.m.
Updated: July 13, 2024 at 1:52 p.m.
2 min read
Nigeria’s SEC unveils strict requirements for crypto firms, including local presence and stiff penalties, as it seeks to regulate the booming digital asset market amid global challenges.
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Nigeria’s Securities and Exchange Commission (SEC) has issued a new mandate requiring cryptocurrency companies to set up an office in Nigeria to be considered for regulation.
Driving the news
In June, the SEC asked cryptocurrency companies operating in Nigeria to apply to its sandbox program, dubbed Accelerated Regulatory Incubation Program (ARIP).
- New SEC Information website orders entities interested in the sandbox to have a physical office in Nigeria.
Dive
Some other requirements include:
- The CEO or Managing Director must be resident in Nigeria.
- Applicants must be actively engaged in investment and securities activities and either apply for registration or have pending applications related to virtual assets with the SEC.
- Applicants must provide a sworn undertaking confirming, among other things, that the applicant, its directors, managing director and key personnel have not been convicted of fraud, dishonesty or other relevant offences.
- They must also submit an operational plan and business model with a clear value proposition, as well as provisions for investor protection.
Penalties
According to the SEC, failure to comply with any of the stipulated requirements may result in a penalty of at least ₦5,000,000 in the first instance and an additional ₦200,000 for each day of default.
- Companies operating without authorization or registration with the SEC will be liable to a fine of at least ₦10,000,000.
- For commercialized VASPs operating trading, offering and custody platforms without proper authorization, the penalty is not less than ₦20,000,000.
Once the ARIP program is completed, participants should transition smoothly back to enrollment.
- The SEC may grant formal registration approval, adopt new regulations based on the knowledge gained through ARIP, or issue a denial of authorization to operate in Nigeria under existing rules and regulations.
Read between the lines
The stipulation that applicants must be investment and securities firms implies that the Nigerian SEC treats cryptocurrencies as securities.
- This could have significant implications on the types of crypto assets that will be allowed in Nigeria.
- This could limit the range of cryptocurrencies and tokens that can be traded or offered to those who meet the criteria of securities under Nigerian law if strict enforcement is adopted.
Key context
The SEC’s new proactiveness in cryptocurrency regulation comes amid uncertainties in the local digital asset scene.
The big picture
This framework comes amid global challenges in regulating digital assets.
- A July 2024 FATF report shows that 97% of African countries struggle to comply with crypto rules.
- Nigeria, a key market in Africa’s cryptocurrency sector, faces unique challenges. Although it issued a cryptocurrency regulation in 2022, it lacks a clear licensing regime.
- Recently, Nigeria has adopted a regulatory approach through enforcement, engaging in a Legal battle with cryptocurrency exchange Binance.
- With the ARIP Framework, the SEC hopes to fill these regulatory gaps, making it easier for entities to register while allowing the SEC to better understand and regulate digital asset business models.