Through Blockchain, digital assets were introduced to the world in 2009 with no central controlling authority. Very quickly, cryptocurrency transactions became popular in various parts of the world including Nigeria and have remained unregulated. Specifically, the Central Bank of Nigeria declared in 2018 that cryptocurrencies are not regarded as legal tender, discouraging Nigerians from participating in cryptocurrency transactions. Recent events however continue to suggest that cryptocurrency is largely embraced as Nigeria remains the largest source of bitcoin trading in Africa.
In recognition of the above, the Nigerian Securities and Exchange Commission ("SEC") on September 14, 2020 issued its Statement on Digital Assets and Their Classification and Treatment (the "Statement"). The Statement proposes a set of rules which seek to regulate cryptocurrencies and other digital assets classified as securities. This article highlights some salient provisions in the Statement and their effects on transactions relating to digital assets in Nigeria.
- WHAT CLASS OF DIGITAL ASSETS WILL BE REGULATED?
According to the Statement, digital assets provide investment opportunities. The SEC, being the primary regulator of investments and securities in Nigeria, assumes jurisdiction over the regulation of digital assets, provided they can be classified as securities.
It is SEC's position that all virtual crypto assets are deemed as securities, except otherwise proven by the issuer of the asset who is required to make an initial filing with SEC. Where upon assessment, the asset is found to constitute securities, it will have to be registered with SEC. Consequently, all digital assets including Digital Assets Token Offering (DATOs), Initial Coin Offering (ICOs), Security Token ICOs and other Blockchain-based offers of digital assets classified as securities by SEC, will need to be registered.
- WHO WILL BE REGULATED UNDER THE PROPOSED RULES?
Any person engaging in receiving, dealing, transmitting and executing orders on behalf of people, portfolio management, investment advice, custodian or nominee services as it relates to virtual digital assets services must be registered by SEC. The regulation will cover digital assets within Nigeria, by Nigerian issuers or sponsors and foreign issuers targeting Nigerian investors. Foreign issuers or sponsors will be recognized where a reciprocal agreement exists between Nigeria and the foreign country or where the country is a member of the International Organisation of Securities Commission. Foreign issuers or sponsors may, however, be required to establish a branch office within Nigeria.
Although countries have continuously stated that cryptocurrencies do not qualify as an official legal tender, the unprecedented growth rate of digital assets have forced countries to issue rules regulating digital asset transactions. In Nigeria, specifically, the SEC has stated that the intention of the proposed rules is to safeguard the interest of participants, rather than stifle the growth of technology. The rules if implemented with these factors in mind, will ensure protection and transparency of digital asset transactions in Nigeria.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.