The Security & Exchange Commission, SEC released its long-awaited Digital Asset regulation that is meant to guide how digital assets such as cryptocurrencies are regulated in the country.
The new rules for Digital Assets are part of its effort to regulate digital/virtual assets such as Bitcoins and NFTs. This document titled, “New Rules on Issuance, Offering Platforms, and Custody of Digital Assets” cover regulation on five major items ranging from issuance of digital assets to rules that govern digital asset exchanges in the country.
Expectedly, the regulations have drawn several positive and negative remarks from cryptocurrency enthusiasts across the country and outside Nigeria. However, Nairametrics sought the specific opinion of crypto heavyweights whose views are largely respected locally and globally.
What Industry Players are Saying
Olumide Adesina, who is a financial analyst at Quantum Economics, with major coverages on crypto had this to say about the regulation, “It is crucial that the regulators in Nigeria tackles growing cases of crypto scams and dubious entities taking advantage of Nigerian investors in the crypto market.
- “The crypto market is notoriously volatile, so this regulation on the local level could bring more stability and sanity in the market. It is inevitable that regulations will come up, and they will have to come up at some point, stabilizing the market even more.
- “However, It’s difficult to regulate Bitcoin and classify it as a security since it’s a peer-to-peer network. Regulators in Nigeria have little control over Bitcoin. Bitcoin is unaffiliated with any financial institution or territory. DAOs and Decentralized exchanges are not described clearly in the law, and it is unclear whether this regulation will protect the public from some unregulated Crypto funds operating in Nigeria, and crypto derivatives that aren’t suitable for most retail investors.”
Speaking on the SEC’s proposed framework, Owen Odia, Country Manager for Nigeria at Luno, a leading global cryptocurrency exchange stated, “At Luno, we strongly believe today’s developments could mark a major breakthrough in not only delivering much-needed clarity and protection for crypto customers but also for businesses.”
- Owen also suggested Luno was open to assisting SEC navigating through the arduous task of regulating a largely dynamic space.
- “We are well-aware that regulators such as the SEC share this same mission; however, we are also conscious that this is by no means an easy task for them. They have to get to grips with a new technology that very few are yet to understand but it is for this reason that they should continue to collaborate with industry players over the coming months and years. “Due to our expertise, we believe we can play a crucial role in helping the SEC navigate the nuances of this technology so any eventual regulations manage the need to protect consumers without stifling the huge innovation we’ve seen in Nigeria over the last few years.”
Ajibola Lawal, an investment lead at Kaicho Capital had this to say, “Finally getting regulatory clarity from the Nigerian SEC is a welcome first step. And the sound you hear is the collective sigh of relief from the players involved in the space.
- “While there are a few sore points in the draft regulation, this is far better than having to deal with no communication at all from the regulators. The next logical step will be for participants in the blockchain space to engage with the SEC with a view to getting more fit-for-purpose regulation that truly promotes investor safety, and at the same time serves as an enabling environment for innovation.”
What associations are saying
Senator Ihenyen, Lead Partner at Infusion Lawyers and President of Stakeholders in Blockchain Technology Association of Nigeria gave his own view of the new SEC regulation. He stated,
- “It is highly commendable having Nigeria issue its first-ever regulation on virtual assets, which broadly includes cryptocurrency. For years, stakeholders have been harping on the need for Nigeria to support the emerging virtual assets sector towards harnessing the immense opportunities in the sector for economic growth and development while also ensuring consumer protection and investor safety. So it is good to see the SEC finally stepping up to its statutory role.
- He also highlighted the SEC’s exclusion of projects that are not securities but more inclined toward services as a major gap in the regulation.
- “Noticeably, the Rules are silent on the fate of projects that do not involve securities, for example, crypto assets or virtual assets that give users access to rights and services, such as utility tokens.”
- “Although the meaning given to ICOs in the Rules is quite broad, it is not clear whether the New Rules contemplate crowdfunding schemes other than ICOs, for example, initial dex offerings (IDOs) which is in fact the more popular scheme today. ICOs practically died after a failed outing in 2017.
- On the minimum capital, a gave a positive but measured assessment doubting whether the N500 million capital requirement will encourage investments.
- “On the requirements for registering a digital assets offering, moratoriums, limits of funds to be raised, and investment limits, I believe the requirements are understandable and fair given the need to ensure consumer protection and safety.”
- “Second, the idea of registering and licensing Digital Assets Offering Platforms (DAOPs) that serve as electronic platforms for offering digital assets is a welcome initiative. Because DAOPs will be listing digital assets issued by projects or their sponsors, requiring DAOPs to pay registration fees and also meet minimum paid-up capital and fidelity bond are understandable requirements.”
- “But a paid-up capital of 500million Naira and a Registration fee of 30million Naira will no doubt be considered prohibitively high for many operators, particularly for local operators. If the primary goal is to have a fair, transparent, and efficient virtual assets market, it is debatable whether imposing huge licensing fees and paid-up capital is necessarily the answer.”
- He also identified a gap in specifying the application for registring as a Digital Asset Custodian
- “The obligations of a DAC concerning audit, corporate governance, risk management, conflict of interest, AML-CFT, transaction handling, and other related concerns are understandable. The safety of digital assets cannot be compromised. But the Rules do not specify application, registration, and licensing fees.
The Crypto Coalition, attended by representatives from Binance, Luno, Quidax, Patricia, Bundle, Tradefada, Busha, Yellowcard, Roqquu, and a few others, had this to say about the regulation:
- “The operators are excited about the regulation and commend the effort that SEC has put into this forward-thinking innovation that brought about the rules for virtual assets and service providers in the industry. This step would aid the clarity and much-needed confidence that the public needs in the ecosystem.
- “There are however some concerns and unanswered questions around the position of the CBN in line with the new rules and the fee structure for licensing which we would be engaging directly with the SEC. Irrespective of this, we welcome the step and hope it serves as a foundation for ushering in a safer and secure future for cryptocurrency enthusiasts in Nigeria.”
It is unclear if the Central Bank of Nigeria is on the same page with SEC on the regulations. Sources inform Nairametrics that the apex bank still maintains cryptocurrencies are banned as transactions that can be allowed by commercial banks that it regulates.