Victor Ugochukwu · Dec 14, 2020 . 5min read
Nigeria’s Watchdog, SEC broadly classifies Crypto and Digital Assets as Securities
SEC Nigeria didn't create any new law but modified existing legislation in its bid to start regulating digital and crypto assets.
By Victor Ugochukwu · Sep 16, 2020 . 13min read
Nigeria’s regulatory watchdog, Securities and Exchange Commission – SEC on Monday, September 14th, released its first statement on crypto and digital assets classifying them with an emphasis on securities.
In its statement, SEC admits digital assets offers investment opportunities to the public and hence must be regulated. SEC says these opportunities will be regulated in “a manner that is consistent with investor protection”. This is in the interest of the public to foster “market integrity and transparency.”
Like its counterparts in the US, SEC Nigeria adopts the Investment and Securities Act of 2007. This means SEC didn’t create any new law but applies existing legislation in its bid to start regulating digital assets.
Among the parties who now fall under SEC’s purview to be regulated includes individual or corporates whose activities involve “any aspect of Blockchain-related and virtual digital asset services”. This covers dealers on own account, portfolio managers, investment consultants, custodians cryptocurrency exchanges etc.
And for what will be regulated, SEC Nigeria issues a blanket statement saying “virtual crypto assets are securities unless proven otherwise”. Interestingly, SEC absolves itself of the burden of proving that the crypto assets offered are not securities. Hence, the onus is on the issuer to prove and not them. However, it doesn’t stop SEC from wielding its powers as it deems it fit when any party flouts set rules.
SEC Nigeria classification of digital assets
The apex regulatory body for securities and investment in Nigeria classifies digital assets into four categories. These are;
Crypto Asset (non-fiat virtual currency): Although SEC doesn’t single out any digital asset here, Bitcoin most likely falls under this group. SEC says it classifies these as commodities if traded on investment exchanges and/or issued as an investment.
Utility Tokens: The regulator treats this as commodities but says that it exempts spot trading and transactions in Utility Tokens from regulation under its purview.
Security Tokens: These virtual tokens that have the features and characteristics of a security. SEC says Security Tokens need to be registered and will be subject to the relevant regulatory requirements.
Derivatives and Collective Investment Funds of Crypto Assets: Market intermediaries and market operators dealing in such Derivatives and Collective Investment Funds will register and get SEC approval.
More importantly, SEC gives a position on Digital Assets Token Offering (DATOs), Initial Coin Offerings (ICOs), Security Token ICOs and other Blockchain-based offers of digital assets. Whether any party conducts any of these within or from outside Nigeria, they shall be subject to the regulation of the Commission. Moreover, for already existing digital asset offerings before its public statement, it gives them three months to file for registration.
Nigeria’s local blockchain and crypto community’s reaction to SEC’s position
As expected, the local community has been reacting to the regulator’s position. Cryptodose Media reached out to a few of them to get their opinion on the development.
Senator Ihenyen, a lead partner at Infusion Lawyers & Partners and Secretary-General of Stakeholders in Blockchain Technology Association in Nigeria, saw this as “a good step in the right direction”. He went further to share,
For me, I think it is significant because it is the first (official) recognition of digital asset by any regulator in NigeriaSenator Ihenyen
Senator also spoke concerning SEC’s position based on regulating with existing laws. He said:
The US SEC, for example, adopted the same approach. So it may be correct to describe SEC’s regulatory approach as a conservative one. And this is understandable.
He went on further concerning the fact that due to the fast proliferation of solutions within the space consumers needs protection.
The disruptive and ever-evolving blockchain & crypto industry badly needs consumer protection as well as investor protection. So it’s in everyone’s best interest–except the bad actors of course–that SEC steps in
Emeka Ezike, Community Manager for Huobi Africa with his base in Nigeria said,
SEC made a good move to regulate the space that could help fight off Ponzi which is actually biting deep
However, Emeka thinks otherwise of SEC’s claim that it is not trying “to hinder technology or stifle innovation”. He says;
But what I don’t see in the released recognition is a support system to ensure that regulations mean good for the continuous thriving of people and business in the space. They are regulating with an outside understanding or old ideology. How do you really regulate individuals? An individual can have up to 200 wallets.
Nigeria’s Blockchain Industry Association holds an emergency meeting with stakeholders.
Stakeholders in Blockchain Technology Association of Nigeria – SiBAN upon SEC statement release held an emergency meeting on 15th Septemeber. Some members of the association expressed concerns as to the ambiguity of SEC’s language.
For instance, Arinze John, a certified blockchain expert and co-founder of VaultBridge asked what does SEC Nigeria mean with the “Any person, (individual or corporate) whose activities involve any aspect of Blockchain-related and virtual digital asset services”? His concerns stem from the fact that some non-financial aspects of the blockchain and cryptocurrency exist. Arinze mentioned the example of tokenizing wills which doesn’t intend to capture financial gains from others. He asked:
Does it mean I have to come and register with SEC Nigeria to ask for permission if I decide to tokenize my will and put it on the Blockchain?
To conclude, the association sought several opinions from the community members and plans to engage with SEC Nigeria further.
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