crypto Nigeria regulation

Nigeria’s Securities and Exchange Commission, in charge of regulating investments and securities in Nigeria has some new words for all crypto traders, including crypto advisors in the country: all crypto assets are securities and must be registered! In a new statement, the commission is challenging anybody who says that the type of cryptos they offer are not securities (and therefore should not be registered) to prove so to it. This would be a very long process, including having to go through a legal battle — in the country’s Investments and Securities Tribunal — if need be.

What Do The Rules Say?

The rules are sweeping in their entirety. First, it says that all virtual crypto assets issued in Nigeria are securities, unless proven otherwise. In Nigeria, under the Investments and Securities Act, which establishes SEC, securities simply mean any shares or other instruments offered by a company, usually to members of the public.

Who Exactly Will Be Regulated Under The Rules?

The rules say that any person who renders any form of blockchain-related and virtual digital asset services must be registered by the Commission. Such services include, but not limited to receiving, transmitting or executing any crypto orders on behalf of other persons whether on a personal account or on a public platform. Activities also covered include advising generally on cryptos; rendering crypto-related custodian or nominee services.

Are All Crypto Assets To Be Registered?

By Section 54 of Nigeria’s Investment And Securities Act, SEC is only mandated to register all securities of a public company and all securities or investments of a collective investment scheme. A public company in Nigeria is one which has more than 50 members and which can invite members of the public to subscribe to its shares. A collective investment scheme is a scheme whereby members of the public are invited or permitted to invest money or other assets in a portfolio.

It follows therefore that SEC still retains the power to register crypto assets under a collective investment scheme, even though the crypto company is not a public company and does not invite members of the public to subscribe to its shares.

In any case, SEC is not registering crypto assets held by individuals unless the individual holding it trades generally in cryptos; that is to say, the individual runs a platform or a medium for receiving and dealing in cryptos.

The most important words are that the cryptos are traded on a recognised exchange or dealt with as an investment. Therefore where it is not traded on a recognised exchange or dealt with as an investment, it may not be registered with the commission.

Generally, utility Tokens or “Non-Security Tokens” (e.g., virtual tokens, which provide users with a product and/or service) need not be registered, unless they are traded on a recognised investment platform.

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What Happens To Existing Security Offerings?

By the new rules, all Digital Assets Token Offering (DATOs), Initial Coin Offerings (ICOs), Security Token ICOs and other Blockchain-based offers of digital assets within Nigeria or by Nigerian issuers or sponsors or foreign issuers targeting Nigerian investors will have three (3) months to either submit the initial assessment filing or documents for registration.

What Happens If The Issuer Of Cryptos Is Based Outside Nigeria, But Offers Cryptos In Nigeria?

By the new rules, the Commission may require Foreign or non-residential issuers or sponsors to establish a branch office within Nigeria. However foreign issuers or sponsors will be recognized by the Commission where a reciprocal agreement exists between Nigeria and the country of the foreign issuer or sponsor.

A recognition status will also be accorded, where the country of the foreign issuer or sponsor is a member of the International Organization of Securities Commissions (IOSCO).

The implication of this is that, under the new rules, it may be difficult getting foreign-based crypto issuers to register in Nigeria unless SEC forces them to open offices in Nigeria.

What Is The Process Of Registration

Registration is simple. First, the applicants are given the opportunity of proving that the virtual assets offered by them do not constitute securities by making an initial assessment filing.

However, where the finding of the Commission is that the virtual assets are indeed securities, then the issuer or sponsor must register the digital assets.

Are There Exemptions?

Yes. If the cryptos are offered through crowdfunding portals or other exempt methods.

What Happens If The Securities Are Not Registered?

Under Section 13(x) of ISA, SEC may seek judicial order to freeze the assets (including bank accounts) of any person whose assets were derived from the violation of the laws.

The Implication Of These For Crypto Startups And Traders In Nigeria

Those who will be most affected by the new rules are established Nigeria-based crypto platforms offering crypto-related services in the West African country. However, there is still ambiguity around the rules as the rules state that crypto assets are neither issued nor guaranteed by any jurisdiction, — they fulfill their functions only by agreement within the community of users of the crypto Asset. In others words, is it possible to legitimize what has no background in law? That is, shouldn’t crypto assets be treated as matters of personal contracts between parties? In any case, while the latest regulation may be an edge for platforms that are able to append the badge of legitimacy from SEC, nobody is really sure of how the government wants to wield its new cudgel. Anybody dissatisfied with the decisions of SEC may go to the Investment And Securities Tribunal.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer