BY CHARLES ABUEDE
In the midst of the ongoing hubbub in the crypto market which has seen traders in their loudest screech over their investment into some of the digital assets, such as Bitcoin, which at the time of writing was already down more than four percent under 24 hours to $29,767, Nigeria’s Securities and Exchange Commission (SEC) has brought out its much awaited new regulatory framework to guide activities in the country’s crypto sector, allowing it to regulate digital assets such as NFTs and Bitcoins.
This position signals a major shift by the capital market regulator from paths already taken by authorities amidst the industry’s growing popularity.
The SEC, which, through an established department has been investigating the crypto market since September 2021, in a document titled, “New Rules on Issuance, Offering Platforms, and Custody of Digital Assets” published on its website and basically permitting digital assets such as cryptocurrencies in Nigeria said: “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 is accurate and complete. Any false or misleading representation is a criminal offence and should be reported immediately to the Securities and Exchange Commission.’ And the commission will review applications within a period of 30 days and give its written feedback within 5 days after the review.”
It could be recalled, and as reported by Business A.M., that in February last year, the Central Bank of Nigeria (CBN), in a circular instructed deposit money banks (DMBs) to desist from the facilitation of crypto transactions as well as immediately closing up and reporting a domestic bank account flouting the order on crypto transactions and consequently, crypto exchanges were banned from working with financial institutions.
But the latest developments from the SEC could act as the precursor for a surprise move from the CBN to reverse its approach, providing critical foundations for mass crypto adoption across the country.
The circular from the capital market regulator takes account of a provision that ensures the issuer’s directors and senior management shall, in aggregate, own at least 50 percent equity holding in the issuer on the date of the issuance of the digital assets. This basically means that sponsors of ICOs are to own half of the entity that is issuing the security while stating that on post-issuance, “the issuer’s directors and senior management may sell, transfer or assign not more than 50 percent; provided that the quantum of equity being sold, transferred or assigned shall not be more than 50 percent of their respective holdings until completion of the initial digital asset offering project.”
Furthermore, SEC said, “An issuer may only raise funds subject to the following limit: Twenty times the Issuer’s shareholders’ funds i.e., the maximum quantum of funds permitted to be raised within any continuous 12- month period, subject to a ceiling of N10 billion or any other ceiling as the Commission may determine from time to time.” While in the event that the raise fails to meet its soft cap (defined as the minimum raise) it “shall refund all monies collected from the token holders within five (5) business days from the offer closing date.”
On the amounts to be invested, the circular from SEC highlighted the maximum amount retail investors can invest in the digital asset offering. Also, it said there will be no restrictions on investment for qualified institutional and high net worth investors, while for the retail investors, a maximum of N200,000 per issuer with a total investment limit not exceeding N2 million within a 12-month period.
Reacting to the latest development, Owen Odia, country manager, Nigeria, Luno, a global cryptocurrency exchange with over 10 million customers worldwide, in a mail to Business A.M, said, “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.
“Since launching in Nigeria in 2015, we’ve always prided ourselves on consistently adopting an open and proactive approach towards regulation and with the SEC’s new framework, our hope is that our current and potential users will have even greater confidence to trust us with their funds as we strengthen our push to raise the standards of our industry.
“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,” he concluded.
Luno presently has more than three million customers in Nigeria and secures an average of more than 4,000 instals of its app per day in the country alone. The platform is also registered with the Nigerian Financial Intelligence Unit and adheres to stringent KYC (Know Your Customer) and AML (Anti-Money Laundering) processes in all of its 40 operating countries.
Meanwhile, the new regulatory framework from the SEC will apply to all platforms that support the trading, exchange, and transfer of virtual assets; all issuers and sponsors of digital assets, as well as international and non-residential issuers and sponsors; and any operator that aggressively targets Nigerian investors.