The Securities and Exchange Commission (SEC) of Nigeria is ramping up its oversight of Virtual Assets Service Providers (VASPs) by closely monitoring their weekly and monthly trading activities. This move is part of a broader strategy outlined in the SEC’s newly released document, “A Framework on Accelerated Regulatory Incubation Program for the Onboarding of Virtual Assets Service Providers (VASPs) and other Digital Investments Service Providers (DISPs).”
The SEC aims to strengthen the country’s crypto ecosystem by updating regulations on digital asset issuance, offering platforms, exchanges, and custodians to better reflect current market conditions. This includes the introduction of the Accelerated Regulatory Incubation Programme (ARIP), designed to streamline the onboarding process for VASPs.
Enhanced Reporting Requirements
Under ARIP, participants are required to submit comprehensive reports to the SEC, including weekly and monthly trading statistics, quarterly financial statements, and compliance reports. These submissions are intended to demonstrate adherence to regulatory conditions and address issues related to misconduct, fraud, or operational incidents. Additionally, VASPs must report on actions taken to resolve customer complaints and emergent risks.
Nigeria is a significant player in the global peer-to-peer (P2P) crypto market, with transactions reaching $56.7 billion between July 2022 and June 2023, averaging $1.09 billion weekly, according to data from Chainalysis.
Industry Reactions
Senator Ihenyen, lead partner and head of blockchain and virtual assets practice at Infusion Lawyers, stressed the importance of bringing digital assets under regulatory oversight for economic and security reasons. “Nigeria can no longer afford to keep pushing digital assets underground,” he said. Ihenyen also praised the Central Bank of Nigeria’s (CBN) recognition of the SEC’s role in regulating digital assets, emphasizing that collaborative regulation will enhance consumer protection and investor safety.
An industry expert noted that this development mirrors practices in South Africa, aligning with the Financial Action Task Force (FATF) standards on anti-money laundering and crypto trading fund (AML/CTF) for digital assets. “Execution is what will make the difference,” the expert said, highlighting the need for effective implementation.
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Government and Legislative Support
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In July, Finance Minister Wale Edun tasked the newly inaugurated SEC board with addressing the complexities of crypto regulation. “The SEC board should be willing to accept the challenge of regulating these new areas, particularly crypto, as they are fast-moving complex areas,” Edun stated.
In May 2024, the Senate Committee on Capital Markets called for crypto regulation to ensure accountability and protect investors’ funds. Committee Chairman Osita Izunaso remarked, “The issue of cryptocurrency must be regulated because Nigerians are trading in crypto. Since Nigerians are trading in crypto, why are we not regulating it?”
Future Outlook
The new regulatory framework aims to facilitate the onboarding of entities involved in virtual asset activities and improve the SEC’s understanding of digital asset business models. This will help enhance regulation and potentially boost tax revenues as crypto transactions come under regulatory scrutiny.
Crypto participants will be required to submit weekly and monthly trading statistics to the SEC, providing the commission with access to the billion-dollar industry. The SEC’s initiative aligns with Nigeria’s efforts to implement a 7.5 percent value-added tax (VAT) on crypto transactions.
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Challenges and Criticisms
Despite the potential benefits, some industry insiders question the practicality of certain requirements. A crypto exchange operator, who wished to remain anonymous, expressed concerns about the mandate for a physical presence, noting that many crypto companies do not plan on establishing physical locations like banks.
While some experts believe that increased regulation will improve tax revenues, others warn of over-regulation. “We are now like banks that are over-regulated. Between 2020 and now, we have had new regulations and changes to existing rules, but where has that taken us to?” asked a Lagos-based crypto player.
The SEC’s new framework represents a significant step towards a more regulated and transparent crypto market in Nigeria, with the potential to enhance consumer protection and investor safety. However, the success of these measures will depend on effective implementation and industry cooperation.