The Securities & Exchange Commission (SEC or the Commission), on 11 September 2020, issued a public notice (the Notice) to regulate the operation of crypto assets (which may include cryptocurrencies) in Nigeria, where the crypto assets have the character of securities. This, according to the Notice, is in line with the powers of SEC to regulate the investments and securities business as contained in Section 13 of the Investment and Securities Act, 2007.
According to the Commission, “Crypto Asset” means a digital representation of value that can be digitally traded and functions as a medium of exchange, and/or a unit of account, and/or a store of value, but does not have legal tender status in any jurisdiction.
SEC stated in the Notice that crypto assets are securities and must be registered with SEC unless the issuer/sponsor of the crypto assets is able to prove otherwise to SEC’s satisfaction. Where an issuer/sponsor is of the view that its crypto asset is not a security, SEC requires such issuer/sponsor to make an initial assessment filing at http://sec.gov.ng/regulatory-sandbox-assessment/. The filing would involve providing general information about the nature of the crypto asset(s) and Nigerian incorporation certificate. This requirement for incorporation is consistent with Section 78 of the Companies and Allied Matters Act (CAMA 2020), which mandates foreign companies intending to carry on business in Nigeria to incorporate a company for that purpose.
SEC mentioned that it may require foreign issuers or sponsors to register a branch office in Nigeria; though exception applies in certain instances. The exception for registration of a branch office in Nigeria for a foreign issuers/sponsors is where a reciprocal agreement exists between Nigeria and the home country of the foreign issuer/sponsor. SEC may be required to clarify how it expects foreign issuers/sponsors to register a branch office, particularly because Nigeria’s corporate law framework does not have provisions for registration of branch offices. Besides, as mentioned above, SEC requires issuers/sponsors to register a Nigerian company ahead of submitting an initial assessment filing.
The Notice further provides that all Digital Asset Token Offering (DATOs), Initial Coin Offerings (ICOs), Security Token ICOs and other Blockchain-based offers of digital assets targeting Nigerian investors will henceforth be under the administrative control of SEC. A three (3) month grace period has been given by SEC for issuers/sponsors of existing digital assets offerings to either submit the initial assessment filing or documents for registration, as the case may be.
With the issuance of the Notice, it is no longer business as usual for issuers/sponsors of crypto assets as they will now be required to comply with SEC’s regulatory guidelines except where such assets are not considered by SEC to be securities. This will protect the interest of investors, through the creation of standards and regulatory scrutiny on crypto-assets.