The Securities and Exchange Commission (SEC) Rules on the Issuance, Offering Platforms & the Custody of Digital Assets in Nigeria, otherwise known as “The SEC Crypto Rules“, changed the Cryptocurrency service sector (for worse as reasonably believed in many quarters) by basically eliminating the Start-up niche area, turning certain components of the Cryptocurrency Value Chain such as Digital Asset Exchange (DAX) services into a glorified gathering of monopolies capable of complying with the rather humongous 500 Million Naira share capital requirement imposed by SEC.
However, the focus of this article is on a certain area of Cryptocurrency services which was relatively left untouched by SEC and which constituted a large part of the feedback from my last article on Cryptocurrency – The Virtual Asset Service Provider or VASP.
This article will be looking at this type of Cryptocurrency service which serves as a ray of hope for Cryptocurrency start-ups by dealing with the topics of :-
– What virtual assets are under the SEC rules.
– What VASPs actually do under the SEC rules.
– The registration requirements for VASPs in Nigeria.
– Obligations of VASPs under the SEC rules.
– Exceptions to the SEC rules on Cryptocurrency Business license acquisitions if they exist.
What exactly are virtual assets under the SEC rules?
Virtual assets are digital representations of value that can be transferred, digitally traded and can be used for payment or investment purposes.
Under the SEC rules, virtual or digital assets DO NOT include digital representations of fiat currency (like Stablecoins) or digital representations of securities or other financial assets.
Digital assets are NOT virtual assets because a digital asset under the SEC rules is defined as a digital token that represents assets such as a debt or equity claim on the issuer.
What exactly do VASPs do?
VASPs under the SEC rules are entities that conduct one or more of the following activities or operations FOR or ON BEHALF of another person :-
- Facilitating exchanges between virtual assets and fiat currencies.
- Exchanges between one or more forms of virtual assets.
- The transfer of virtual assets.
- The safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets.
- Participating in and/or providing financial services related to an issuer’s offer and/or sale of a virtual asset.
What this means is that VASPs are Cryptocurrency service professionals that facilitate the trading it safekeeping of VIRTUAL assets (not Digital Assets) strictly on behalf of other people in exchange for a fee.
A VASP would thus be a licensed Cryptocurrency digital virtual asset trading facilitation, adminstration and safekeeping/escrow agency.
What are the requirements for the registration of VASPs under the SEC Crypto Rules?
To register a VASP under the SEC rules you need to satisfy a number of requirements that include the following :-
– A company limited by shares registered with the Corporate Affairs Commission (CAC).
– A completed SEC VASP licensing application form accompanied by the following :-
- A sworn undertaking that the applicant company will be able to operate in an orderly, fair & transparent market in relation to the securities including derivatives that are offered or traded through its platform.
- Evidence that the applicant company’s directors, officers or anybody responsible got its operations or financial management are fit & proper taking into that they are suitably qualified to assume the position and are well versed in Cryptocurrency operations.
- A business model with a clear or unique value proposition capable of significantly contributing to the overall development of the capital market.
- Evidence of no circumstances likely to cause improper conduct of business operations by the applicant.
It should be noted here that VASPs are NOT under the 500 Million Naira share capital requirement imposed on Digital Asset Exchanges (DAX) and Digital Asset Offerings Providers (DAOPs) or the requirement for SEC-accredited officers in its management board or board of directors.
It should also be noted that the requirements mentioned above do not constitute the exhaustive list of requirements outlined by SEC. As a result, any group of persons planning to set up this type of Cryptocurrency service business need to consult a lawyer going forward.
What are the obligations imposed on VASPs by SEC?
Some of the obligations imposed by the SEC rules on VASPs include the following :-
- That all VASPs shall obtain and retain self-declared risk acknowledgement forms from its clients prior to investing in an exchange.
- That VASPs ensure that all of its disclosures are accurate, clear and not misleading.
- That all VASPs ensure fair user treatment.
Do any conditions for exemption or a variation from the requirements of the SEC rules exist?
Yes, they do. If you are planning to set up any Cryptocurrency service, you need to consult your lawyer on what these conditions are and if they apply to your business.
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