The Nigerian Security and Exchange Commission (SEC), has issued new guidelines (pdf) on issuance of digital assets in Nigeria, amid growing call for regulation as Nigerians increasingly embrace digital markets.
The SEC outlined five-part rules that covers many areas of the digital market. There are as follows: 1. PART A – Rules on Issuance of Digital Assets as Securities 2. PART B – Rules on Registration Requirements for Digital Assets Offering Platforms (DAOPs) 3. PART C – Rules on Registration Requirements for Digital Asset Custodians (DACs) 4. PART D- Rules on Virtual Assets Service Providers (VASPs) 5. PART E- Rules on Digital Assets Exchange (DAX).
The stock market regulator said the first rule is applicable to all issuers seeking to raise capital through digital asset offerings, including digital token and Initial Coin Offering (ICO).
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“Except in cases of follow-on offerings, all promoters, entities or businesses proposing to conduct initial digital asset offerings within Nigeria or targeting Nigerians, shall submit the assessment form and the draft white paper,” the rules say.
The SEC said the white paper must contain all necessary information that will include Brief description of the initial digital asset offering, the distributed ledger technology, value of each token, lock-up period (if any), returns, profits, bonuses, rights and/or other privileges (monetary and non-monetary) to the buyer of the token. A technical description of the protocol, platform or application of the digital token, as the case may be, the associated benefits of the technology, risks in investing in the tokens among others.
”In the case of whitepapers of initial digital asset offering projects, pending assessment by the Commission, a disclaimer that the whitepaper does not represent an offer to sell, and a statement in bold letters that ‘THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE TOKENS OR DETERMINED IF THE TOKENS ARE SECURITIES AND THUS, SHALL BE REGISTERED, OR THAT THE CONTENT OF THE WHITEPAPER ARE ACCURATE AND COMPLETE. ANY FALSE OR MISLEADING REPRESENTATION IS A CRIMINAL OFFENCE AND SHOULD BE REPORTED IMMEDIATELY TO THE SECURITIES AND EXCHANGE COMMISSION,” the rules say.
The Commission added that it shall, after it receives a complete initial assessment filing, review same within 30 days from receipt to determine whether the digital asset proposed to be offered, constitutes a “security” under the Investment and Securities Act 2007. The determination of the Commission shall be communicated in writing to the issuer within 5 days from the conclusion of the review.
Other key aspects of the digital business covered by the new rules include the registration requirements and the cost of applications. For instance, an applicant seeking to register a Digital Assets Offering Platform (DAOP) is required to pay N100,000 application fee, N300,000 processing fee, N30 million registration fee and N100,000 sponsored individual fee.
Other requirements include, minimum paid-up capital and fidelity bond – N500 million and current Fidelity Bond covering at least 25% of the minimum paid-up capital as stipulated by the Commission’s rules and regulations.
On Digital Assets Exchange (DAX), an applicant seeking to register as a DAX Operator is required to pay N100,000 as Filing/Application Fee – N300,000 Processing Fee, N30 million registration fee and N100,000 as sponsored individuals fee.
The rules also stipulated the period of a tenure and education qualifications for principal officers of a DAOP. The Chief Executive Officer of a DAOP is required to hold office for a period of five (5) years in the first instance and may be re-appointed for a further period of five (5) years and no more.
“The appointment of a Chief Executive Officer and Principal Officers of a DAOP shall be subject to the prior approval of the Commission. The Chief Executive Officer and other Principal Officers of a DAOP shall be registered by the Commission as Sponsored Individuals be persons of proven integrity with no record of criminal conviction; hold at least a university degree or its equivalent; have at least five (5) years cognate experience,”
And a principal officer should “not have been found complicit in the operation of an institution that has failed or been declared bankrupt or has had its operating license revoked as a result of mismanagement or corporate governance abuses; not have been found liable for financial impropriety or any other misdemeanor by any court, panel, regulatory agency or any professional body or previous employer; comply with any other criteria which the Commission may, in the public interest, determine from time to time,” the rules say.
While the regulation has long been advocated and expected, concern remains that it may not provide a lasting solution to the current situation of Nigeria’s digital market. The concern is based on whether the Central Bank of Nigeria will accept the new rules.
The SEC was caught off guard last year when the CBN issued the directive prohibiting all regulated financial institutions from making crypto transactions. The Commission had backed the burgeoning market and was working on its Capital Market FinTech Strategy before the CBN’s order.
Though the regulatory bodies agreed in the wake of the controversy to work together to develop a framework for Nigeria’s digital market, the CBN’s hostility toward cryptocurrency has not changed as the apex bank strongly believes the digital asset undermines the naira. Banks are still mandated to freeze accounts carrying out crypto transactions and many fintechs offering crypto services have been targeted and shut down.
It is not clear if these new rules by the SEC will change the status quo even though it is believed to have been developed in collaboration with the CBN.