Tech
The SEC’s new regulatory framework requires Nigerian cryptocurrency companies to have physical offices in Nigeria, among others
A circular issued in June by the Nigerian Securities and Exchange Commission (SEC) listed the establishment of an office in Nigeria as part of the eligibility requirements for companies classified as Virtual Assets Service Providers (VASPs) in the country. Virtual assets refer to any digital representation of value such as cryptocurrencies that can be used digitally in transactions.
According to a document Labeled “Framework On Accelerated Regulatory Incubation Program (ARIP),” the agency directed all operating and prospective VASPs (including cryptocurrency broker/dealers) to visit the SEC’s ePortal to complete the application process no later than 30 days from the date of the circular.
Under the ARIP, the SEC requires cryptocurrency companies to open an office in Nigeria. In addition, applicant companies must be incorporated by the CAC, have an office in Nigeria, and have their CEO resident in the country.
Read also: KuCoin to start collecting 7.5% tax on cryptocurrency transactions in Nigeria from next week
Now, this ARIP framework applies to virtual asset service providers and token issuers conducting business in Nigeria or offering services to Nigerian consumers, including platforms that facilitate the offering, trading, exchange, custody and transfer of virtual/digital assets.
The SEC says that while the rules for digital asset issuance, offering platforms, exchanges, and custody are in the process of changing, for now, virtual asset service providers must fall under ARIP.
This will allow qualified entities to obtain in-principle approval from the Commission pending the entry into force of the digital assets rules.
More details on SEC requirements for ARIP
The SEC is authorized by the Investments and Securities Act (ISA), 2007 to regulate and develop the Nigerian capital market and part of the law prohibits any expert or professional from carrying on any activity in the Nigerian capital market unless the Commission registers them.
Application criteria include:
- A sworn undertaking that the owner or business has not been convicted of fraud or dishonesty in Nigeria or abroad.
- An operational plan and business model that presents a clear and unique value proposition or that will contribute to the overall development of the capital market.
- A processing fee set at N2 million; applicants must provide proof of required equity funds.
In accordance with ARIP requirements, VASPs are required to submit weekly and monthly (where applicable) trading statistics to the SEC.
They are also required to file quarterly financial reports to demonstrate compliance with the conditions imposed by the SEC.
Additionally, cryptocurrency companies are required to submit reports of key issues arising from misconduct, fraud or operational incidents and, if any, the measures taken by the Participant to address such incidents.
Furthermore, they are expected to present actions or measures taken to address customer complaints, emerging risks or other issues relevant to the Commission’s assessment of the applicable regulatory requirements.
It is important that the structure requires cryptocurrency companies to be subject to on-site and off-site inspections, audits, and monitoring by the SEC.
Penalties for non-compliance
Participants who fail to comply with any of the established requirements will be liable to a fine of not less than N5,000,000 (five million naira) at first instance and at a later stage N200,000 (only two hundred thousand naira) for each day of default.
Furthermore, a fine of not less than N20,000,000 (Twenty Million Naira) will be imposed on all commercial VASPs operating trading, supply and custody platforms without proper authorization or registration by the Commission.
A penalty of not less than N10,000,000 (ten million naira) will apply immediately to all other digital investment platforms, including cryptocurrency brokers/dealers, advisors, market makers, etc. operating without the proper authorisation or registration by the Commission.
Furthermore, entities that fail to comply with the rules and regulations will be subject to sanctions, including suspension from capital market activities.
The State of Cryptocurrency Regulation in Nigeria
Although they take a contradictory approach, Nigerian authorities seem to be more willing to regulate the cryptocurrency sector lately.
Yesterday, one of Nigeria’s most popular cryptocurrency exchanges, KuCoin, announced that it will be levying a 7.5% value-added tax (VAT) on user transactions in Nigeria starting next Monday. While it is not yet clear what the source of the directive is, analysts assume it is in accordance with the requirements of Nigerian authorities.
Read here: KuCoin to start collecting 7.5% tax on cryptocurrency transactions in Nigeria from next week
However, the ongoing crackdown on cryptocurrency exchanges in the country casts a shadow over any prospect of regulation.
Nigerian authorities have been engaged in a lengthy legal battle with Binance, which has led to the arrest of two of the exchange’s executives.