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    Home»Cryptocurrency»Despite Implicit Ban, Nigeria Rules Crypto as Securities; Can It Stand?
    Despite Implicit Ban, Nigeria Rules Crypto as Securities; Can It Stand?
    Cryptocurrency

    Despite Implicit Ban, Nigeria Rules Crypto as Securities; Can It Stand?

    May 17, 2022No Comments9 Mins Read
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    In February last year,
    the Central Bank of Nigeria (CBN) sparked
    widespread criticism

    after it ordered commercial banks in the country to close down accounts of
    cryptocurrency traders in the country.

    This order, considered
    an implicit ban, has not been lifted. Yet, the Nigerian Securities and
    Exchange Commission (SEC) last week issued new
    rules
    on the issuance,
    offering and custody of digital assets.

    Lamido Yuguda, the
    Director General of SEC Nigeria, signed the new rules in Abuja, Nigeria’s
    capital, although the Commission had initially put off its cryptocurrency regulatory preparations following the CBN’s order.

    The rules outline instructions on the issuance of digital assets as securities. It also outlines
    the requirements that digital assets offering platforms (DAOPS), digital asset
    custodians (DACs), virtual assets service providers (VASPs), and digital assets
    exchanges (DAX) must meet to operate in the country.

    Keep Reading

    The New Rules: An Overview

    The rules define digital
    asset as “a digital token that represents assets such as a debt or equity claim
    on the issuer.”

    This means that digital
    assets such as cryptocurrencies are considered securities in the country.

    Digital assets,
    therefore, are to be bought and sold through digital asset offerings such as
    initial coin offering (ICO) or securities token offering (STO).

    The new rules state that
    issuers of digital token cannot raise more than N10 billion (about $25
    million) within a year.

    An issuer’s directors
    and senior management are also expected to hold at least a total of 50% equity
    in their company at the date their tokens are to be issued.

    ADVERTISEMENT

    On the other hand, a
    digital assets offering platform’ shareholding in any of the issuers hosted on
    its platform cannot exceed 30%.

    While the regulation
    permits qualified institutional and high net worth investors to invest as much
    as they want, it limits retail investors to
    N200,000 ($482) per issuer with a total investment limit not exceeding N2
    million ($4,820) within a year.

    Among other fees, the
    new rules require digital asset exchanges (DAX) and virtual assets service
    providers (VASP) to pay N30,000 million ($72, 250) in registration fees. It
    also requires that they have N500 million ($1,205,000) in minimum paid-up
    capital which could be in bank balances, fixed assets or investment in quoted
    securities.

    Their current fidelity
    bond is also expected to cover at least 25% of the minimum paid-up
    capital.

    A VASP is also expected
    to have an office in Nigeria managed by a director of the company.

    A digital assets
    custodian (DAC), among other duties, is expected to ensure compliance with all
    relevant laws, regulations and guidelines, including but not limited to
    anti-money laundering/combating the financing of terrorism and proliferation
    financing laws and regulations.

    Among other provisions,
    the rules also outline guidelines for risk management, internal audit, conflict
    of interest management, outsourcing.

    ‘Lots of Grey Areas’

    A common criticism
    echoed by critics of the new rulings is that they are not encouraging to
    early-stage startups in the cryptocurrency and digital asset space in the
    country.

    Financial Market
    Analyst, Olumide Adesina, told Finance Magnates that SEC Nigeria as a
    financial body established to protect investors does not take the country’s
    large crypto retail investor market into consideration.

    Adesina explained,
    “While the SEC has a lot of good intentions, it left a lot of things grey. For
    example, it never spoke about Nigerians having exposure to certain unregularized
    assets.

    “In terms of exchange
    fees and all those things, the SEC forgot we have decentralized exchanges where
    they lack central jurisdiction; it failed to address the implication of that.
    It failed to address non-custody wallets.

    “So, while it made
    specific rulings on what retail investors can use, it created more loopholes
    than saving the retail investors.”

    Emmanuel Ogbuka, a
    Lagos-based lawyer specializing in fintech regulatory compliance, believes the
    rules will create an enabling environment for monopolies to spring up.

    “The SEC rules might
    turn out to be seen as very counter-productive, designed to permanently destroy
    and severely limit Nigeria’s fintech space, very discriminatory, anti-financial
    inclusion, and might witness more cryptocurrency trading companies going deeper
    and operating underground using alternative legal structures,” Ogbuka wrote in
    an analysis on Tekedia.

    On his part, Ndubuisi Ekekwe, a Nigerian-born professor, entrepreneur and Lead Faculty at Tekedia Institute, believes the order to banks to stop cryptocurrency support services is a stumbling block.

    “The experts have explained the new cryptocurrency regulations in Nigeria. Of course, I am still waiting for the Central Bank of Nigeria to withdraw its directive which paused or froze the ability to operate a bank account as a crypto-related business in Nigeria. Until that is done, the new Securities and Exchange Commission (SEC) regulations will not have the immediate impact in the sector,” Ekekwe wrote in a LinkedIn post.

    Adesina further pointed
    out to Finance Magnates that the classification of digital asset as securities creates a problem
    for assets like Bitcoin that have not central authorities.

    He noted that crypto
    exchanges cannot interact with a securitized asset, citing the delisting
    of XRP
    from Coinbase and other
    exchanges after the US SEC filing against Ripple.

    “The crypto community in
    Nigeria needs to brace up for more lobbying in stakeholders’ meetings,” Adesina
    added.

    In February last year,
    the Central Bank of Nigeria (CBN) sparked
    widespread criticism

    after it ordered commercial banks in the country to close down accounts of
    cryptocurrency traders in the country.

    This order, considered
    an implicit ban, has not been lifted. Yet, the Nigerian Securities and
    Exchange Commission (SEC) last week issued new
    rules
    on the issuance,
    offering and custody of digital assets.

    Lamido Yuguda, the
    Director General of SEC Nigeria, signed the new rules in Abuja, Nigeria’s
    capital, although the Commission had initially put off its cryptocurrency regulatory preparations following the CBN’s order.

    The rules outline instructions on the issuance of digital assets as securities. It also outlines
    the requirements that digital assets offering platforms (DAOPS), digital asset
    custodians (DACs), virtual assets service providers (VASPs), and digital assets
    exchanges (DAX) must meet to operate in the country.

    Keep Reading

    The New Rules: An Overview

    The rules define digital
    asset as “a digital token that represents assets such as a debt or equity claim
    on the issuer.”

    This means that digital
    assets such as cryptocurrencies are considered securities in the country.

    Digital assets,
    therefore, are to be bought and sold through digital asset offerings such as
    initial coin offering (ICO) or securities token offering (STO).

    The new rules state that
    issuers of digital token cannot raise more than N10 billion (about $25
    million) within a year.

    An issuer’s directors
    and senior management are also expected to hold at least a total of 50% equity
    in their company at the date their tokens are to be issued.

    ADVERTISEMENT

    On the other hand, a
    digital assets offering platform’ shareholding in any of the issuers hosted on
    its platform cannot exceed 30%.

    While the regulation
    permits qualified institutional and high net worth investors to invest as much
    as they want, it limits retail investors to
    N200,000 ($482) per issuer with a total investment limit not exceeding N2
    million ($4,820) within a year.

    Among other fees, the
    new rules require digital asset exchanges (DAX) and virtual assets service
    providers (VASP) to pay N30,000 million ($72, 250) in registration fees. It
    also requires that they have N500 million ($1,205,000) in minimum paid-up
    capital which could be in bank balances, fixed assets or investment in quoted
    securities.

    Their current fidelity
    bond is also expected to cover at least 25% of the minimum paid-up
    capital.

    A VASP is also expected
    to have an office in Nigeria managed by a director of the company.

    A digital assets
    custodian (DAC), among other duties, is expected to ensure compliance with all
    relevant laws, regulations and guidelines, including but not limited to
    anti-money laundering/combating the financing of terrorism and proliferation
    financing laws and regulations.

    Among other provisions,
    the rules also outline guidelines for risk management, internal audit, conflict
    of interest management, outsourcing.

    ‘Lots of Grey Areas’

    A common criticism
    echoed by critics of the new rulings is that they are not encouraging to
    early-stage startups in the cryptocurrency and digital asset space in the
    country.

    Financial Market
    Analyst, Olumide Adesina, told Finance Magnates that SEC Nigeria as a
    financial body established to protect investors does not take the country’s
    large crypto retail investor market into consideration.

    Adesina explained,
    “While the SEC has a lot of good intentions, it left a lot of things grey. For
    example, it never spoke about Nigerians having exposure to certain unregularized
    assets.

    “In terms of exchange
    fees and all those things, the SEC forgot we have decentralized exchanges where
    they lack central jurisdiction; it failed to address the implication of that.
    It failed to address non-custody wallets.

    “So, while it made
    specific rulings on what retail investors can use, it created more loopholes
    than saving the retail investors.”

    Emmanuel Ogbuka, a
    Lagos-based lawyer specializing in fintech regulatory compliance, believes the
    rules will create an enabling environment for monopolies to spring up.

    “The SEC rules might
    turn out to be seen as very counter-productive, designed to permanently destroy
    and severely limit Nigeria’s fintech space, very discriminatory, anti-financial
    inclusion, and might witness more cryptocurrency trading companies going deeper
    and operating underground using alternative legal structures,” Ogbuka wrote in
    an analysis on Tekedia.

    On his part, Ndubuisi Ekekwe, a Nigerian-born professor, entrepreneur and Lead Faculty at Tekedia Institute, believes the order to banks to stop cryptocurrency support services is a stumbling block.

    “The experts have explained the new cryptocurrency regulations in Nigeria. Of course, I am still waiting for the Central Bank of Nigeria to withdraw its directive which paused or froze the ability to operate a bank account as a crypto-related business in Nigeria. Until that is done, the new Securities and Exchange Commission (SEC) regulations will not have the immediate impact in the sector,” Ekekwe wrote in a LinkedIn post.

    Adesina further pointed
    out to Finance Magnates that the classification of digital asset as securities creates a problem
    for assets like Bitcoin that have not central authorities.

    He noted that crypto
    exchanges cannot interact with a securitized asset, citing the delisting
    of XRP
    from Coinbase and other
    exchanges after the US SEC filing against Ripple.

    “The crypto community in
    Nigeria needs to brace up for more lobbying in stakeholders’ meetings,” Adesina
    added.

    This article was originally published by Financemagnates.com. Read the original article here.
    Share. Facebook Twitter Pinterest LinkedIn Tumblr Email

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