SEC bypasses public to issue crypto regulation in Nigeria

The Securities and Exchange Commission (SEC) on Friday released a new regulation for the cryptocurrency market in Nigeria.

While it is the first of its kind in Africa, the SEC regulation is coming without an exposure draft. Usually, important guidelines like the New Rules on Issuance, Offering Platforms, and Custody of Digital Assets as the regulation is titled, are preceded by an exposure draft.

An exposure draft is an early version of a document that has been released to the public for comments. Following a sufficient period of time for public comments to be received and further consideration by the originator of the document, a final version is released.

Sources told BusinessDay that the SEC had invited some stakeholders to deliberate on the regulations. However, while the market was expecting an exposure draft to be made public first, the SEC has now issued final regulations.

BusinessDay learned that the SEC had a draft that was shared with a few stakeholders including select crypto exchanges for comments. However, it did not make the draft public before releasing the final regulations on Friday.

Experts also ask whether banks can now deal with crypto-related businesses given that some of the requirements can only be accomplished through banks. For banks to deal with crypto-related entities will only be possible if the Central Bank of Nigeria (CBN) gives them the go-ahead, which will mean the restrictions placed on the market have been lifted.

The regulation for example requires that applicants pay N100,000 for the filing or application fee, N300,000 for the processing fee, N30 million for the registration fee, and N100,000 for sponsored individuals fee. These fees are to be paid in a bank account operated by the SEC.

Following the restrictions placed by the CBN, bank accounts owned by crypto-related banks were closed on the directive of the apex bank. The CBN had gone as far as ordering banks to monitor transactions of individuals it considered crypto-exposed and close such accounts.

“How would we pay for the SEC registration fees?” asked an executive of one of the crypto exchanges.

Although the CBN appears not to be bulging from the ban it placed in February 2021, BusinessDay recently reported that the Nigerian Financial Intelligence Unit (NFIU) was putting together a piece of regulation for virtual assets service providers.

According to sources who spoke to BusinessDay, In February 2022, stakeholders in Nigeria’s blockchain and crypto industry were invited by an NFIU-led Virtual Assets Workstream over a National Assessment Risk (NRA).

The NFIU, an autonomous unit domiciled within the Central Bank of Nigeria (CBN), is the central national agency responsible for the receipt of disclosures from reporting organisations, the analysis of these disclosures, and the production of intelligence for dissemination to competent authorities.

The draft proposals follow the threat of sanction by the Financial Action Task Force (FATF) if Nigeria fails to improve its anti-money laundering and combating the financing of terrorism (AML-CFT) regulations before October 2022.

It is also possible that the SEC may have accelerated the release of the regulation in response to the FATF threat.

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Nonetheless, Owen Odia, Country Manager for Nigeria at Luno, one of the global cryptocurrency exchanges in Nigeria, sees the SEC regulation as a positive step for the cryptocurrency market in Nigeria. According to her, the new regulations 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,” Odia said.

Luno currently has over 3 million customers in Nigeria and secures an average of more than 4,000 downloads of its app per day in the country alone. The company said it is registered with the NFIU and adheres to stringent Know-Your-Customer and Anti-Money Laundering processes in all of its 40 operating countries.

“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 why they should continue to collaborate with industry players over the coming months and years.”