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Business News of Friday, 13 May 2022

Source: nairametrics.com

Nigeria’s SEC issues rules to governing transactions in cryptocurrency, NFT, other digital assets

Securities and Exchange Commission (SEC) Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) has released new rules for Digital Assets as part of its effort to regulate digital/virtual assets such as Bitcoins and NFTs.

This is contained in a recently released document titled, “New Rules on Issuance, Offering Platforms, and Custody of Digital Assets” essentially legalizing digital assets such as cryptocurrencies in Nigeria.

Recall when Nairametrics reported the SEC Director-General’s declaration in September 2021 that a department had been established to investigate the crypto market.

Digital Asset Players will now include Digital Asset Offering Platforms (DAOPs), Digital Asset Custodians (DACs), Virtual Assets Service Providers (VASPs), and Digital Assets Exchange (DAX).

The Rules apply to all platforms that support the trading, exchange, and transfer of virtual assets; all issuers and sponsors of virtual/digital assets, including international and non-residential issuers and sponsors; and any operator that aggressively targets Nigerian investors.

The new regulation creates roles for different players in the digital asset space, each playing a key role in the new sector.

The new regulations essentially classify digital assets as securities providing other regulators such as the Central Bank of Nigeria.

The CBN had in February 2021 banned cryptocurrencies stating that it has “no comfort in cryptocurrencies at this time and will continue to do all within its regulatory powers to educate Nigerians to desist from their use and protect our financial system from the activities of fraudsters.

The Securities and Exchange Commission (SEC) responded that it “has disclosed that there is no policy conflict between the capital market apex regulator and the Central Bank of Nigeria (CBN) over the ban placed on Cryptocurrency transactions in the banking industry.”

SEC also stated, “As regards our recent policy pronouncement, it is important to clarify that the CBN circular of February 5, 2021, did not place any new restrictions on cryptocurrencies, given that all banks in the country had earlier been forbidden, through CBN’s circular dated January 12, 2017, not to use, hold, trade and/or transact in cryptocurrencies,”

SEC Defines “Digital Assets” as “a digital token that represents assets such as a debt or equity claim on the issuer”.

SEC also defines Securities Token Offering – Securities Token Offering (STO)” means any offering and sale of digital tokens that are considered securities.
SEC defined the Digital Assets Offering (DAO) Platform as an electronic platform controlled by a DAO operator that hosts a DAO.

While a Digital Asset Custodian is defined as a business that provides safekeeping, storage, holding, or maintenance of virtual/digital assets for the account of another person.

All promoters, entities, or businesses proposing to conduct initial digital asset offerings within Nigeria or targeting Nigerians, are expected to submit the assessment form and the draft white paper.

White papers are expected to include disclaimers stating the following in bold capital letters “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 commission will review applications within a period of 30 days and give its written feedback within 5 days after the review.

SEC also includes a provision that ensures the issuer’s directors and senior management shall, in aggregate, own at least 50% equity holding in the issuer on the date of the issuance of the digital assets.

This essentially commits the sponsors of ICOs to own half of the entity that is issuing the security.

On Post issuance, it also states that “the issuer’s directors and senior management may sell, transfer or assign not more than 50%; provided that the quantum of equity being sold, transferred or assigned shall not be more than 50% of their respective holdings until completion of the initial digital asset offering project.”