SEC issues new guidance on digital assets

* Mandate crypto exchanges to get the commission license

* IMF seeks new payment system to accommodate digital currencies

Francois Ndubuisi in Abuja

Nigeria’s supreme capital market regulator, the Securities and Exchange Commission (SEC), has issued new guidelines on the issuance and custody of digital assets in the country, a move that could bolster crypto adoption in the world. country.

This comes as the International Monetary Fund (IMF) has called for the development of new public infrastructure to connect various payment systems, including digital currencies.

The SEC’s latest guidance: “New Rules for the Issuance, Offering Platforms and Custody of Digital Assets”, released over the weekend, comes after the commission said on September 14, 2020 that it would adopt a three-pronged approach to regulating innovation in the crypto industry, including security, market deepening, and problem-solving provision.

According to the commission, a digital asset is “a digital token that represents assets such as a claim or claim on the issuer.”

Divided into five parts, Part A of the new guidelines covers the rules for issuing digital assets as securities; Part B covers Rules on Registration Requirements for Digital Asset Offering Platforms (DAOPs), while Part C covers Rules on Registration Requirements for Asset Custodians digital (DAC).

Part D dwells on the Virtual Asset Service Provider (VASP) Rules and Part E captures the Digital Asset Exchange (DAX) Rules.

In the new guidelines, the SEC requires crypto issuers or sponsors to register their digital assets with the commission. Issuers are also required to file with it an initial valuation to prove that the assets they are issuing are securities and then file for registration in due form.

Under the new guidelines, those who have already issued assets or engaged in
“The Initial Coin Offering (ICO) will have three months to comply with the stated registration requirements.”
Every individual or corporate organization that engages in any aspect of blockchain and digital asset-related services must register with the SEC and follow its regulatory guidelines, according to the SEC.

He said: “These services include, but are not limited to, receiving, transmitting and executing orders on behalf of others, proprietary trading, portfolio management, investment, custodian or agent services.”.
The commission said it may require startups or foreign or non-resident companies to establish a branch in Nigeria, adding that foreign companies will be recognized if they belong to a country that has a reciprocity agreement with Nigeria or is a member of the International Organization of Securities Commissions (IOSCO).

With the new guidelines, the SEC instructs entities seeking to offer any type of crypto products and services in Nigeria or Nigerians to obtain a Virtual Asset Service Provider (VASP) license.
This is in addition to the relevant category licenses, implying that an exchange would need a digital asset exchange license in addition to the VASP permit.

The VASP license has underlying obligations, including a requirement that licensees obtain self-declared risk acknowledgment forms from users while issuing a disclaimer stating that investment losses are not covered by any protection fund.

VASPs must also apply anti-money laundering and anti-terrorist financing (AML/CFT) standards.
In addition to the VASP rules, the new SEC rules cover areas such as operating a digital asset exchange, issuing tokens, operating a digital asset offering platform and requirements for digital asset custodians.

Under the new guidelines, all crypto exchanges providing services to Nigerians are now required to obtain a permit, which obliges the commission to have access to their records.
These exchanges must also submit weekly and monthly trading information as well as quarterly and annual financial and compliance reports.

The new rule prevents an exchange from facilitating trading in any digital asset unless the SEC has first issued a “no objection” to that asset.
This implies that an exchange will have to submit applications for each asset it intends to list, and the application must demonstrate that the exchange has enough information about the project and its associated risks.
The new guidelines stated that the SEC would allow projects to reach 10 billion naira – based on the official exchange rate.

Regarding the issuance of tokens, the SEC states that any project aiming to make initial coin offerings in Nigeria or targeting Nigerians must register its intention with the Commission by filing an evaluation form and submitting a detailed copy of its White Book.

If the SEC considers the proposed token security, the issuer must comply with the country’s securities laws.
According to the SEC, a DAOP operator must necessarily carry out due diligence on any project aiming to offer digital assets through its platform and exercise its judgment on the ability of the project to raise funds.

Following the October 2020 #EndSARS protests, the Central Bank of Nigeria (CBN) had issued a circular on February 5, 2021 to banks and other financial institutions prohibiting the trading of cryptocurrencies and facilitating the payment of cryptocurrency exchanges. currencies.

The apex bank further instructed all banks and other financial institutions to identify individuals or entities that engage in cryptocurrency transactions or operate cryptocurrency exchanges and to close the accounts of such individuals or entities.

The letter had caused great concern among the public, with many worrying about the potential negative effect it could have on Nigeria’s growing cryptocurrency market and innovation in the fintech industry.
There were calls for the commission to clarify whether there was a contradiction in the policies of the two regulators.

The SEC had, on September 14, 2020, issued a statement announcing its intention to regulate “digital assets” that include cryptocurrencies.

Consequently, the SEC on February 11, 2021 said that it would partner with the CBN to analyze and better understand the identified risks of cryptocurrency to ensure that appropriate regulations are in place if cryptocurrency transactions currency were allowed in the future.

The capital market regulator said it would not stifle innovation but would work with the CBN to ensure stability.
The Commission said it suspended approval of cryptocurrencies and related products after the CBN ordered banks to terminate accounts linked to digital assets.

The new SEC guidelines on digital assets come after the October 25, 2021 launch of the Central Bank of Nigeria (CBDC) digital currency, eNaira by the CBN.
Meanwhile, the IMF has called for the development of new public infrastructure to connect various payment systems, including digital currencies.

Chief Executive Kristalina Georgieva said countries must work together to build new “roads, railways, bridges and tunnels” – using public digital platforms to connect payment systems.
Georgieva said so in a report published on the IMF’s website, titled “Dealing with Fragmentation: How to Modernize the International Payments System”.
According to her, the new payment system would help counter the fragmentation of the international monetary system.

“It would be a new way to connect people, markets and economies in the digital world,” she said.
She said it would make international payments more efficient, safer and more inclusive.
“Essentially, it would reduce the risk of fragmentation,” she added.

“It’s a tall order, but not insurmountable. Climbing this mountain is worth it.
“And for that, our Swiss friends can be our guides again – with their history of cooperation and, literally, their mountaineering expertise.”

The IMF said the world must think like a mountaineer by using state-of-the-art equipment, adapting to existing terrain and “building on our team”.
The Bretton Woods institution said the platform is to connect various forms of money that countries will legally use and support.

“This includes commercial bank deposits, but potentially also central bank digital currencies, and even some stablecoin deals – if well designed and regulated,” he said.

“Such a platform is particularly important for economies with less advanced payment systems. By adopting various forms of currency, we can make payments work for everyone, in every country.
Furthermore, the IMF added that as payments become more efficient, capital flows will also continue to evolve.