Nigeria Issues Crypto Regulatory Guidelines: Here’s Why It Matters

Nigeria’s Securities Exchange Commission, on Sept. 15, 2020, issued regulatory guidelines for crypto assets. The guidelines also seek to regulate businesses that deal with crypto assets.

This is the first time that the West African country’s investment regulator is taking a public stance on cryptocurrencies. It had previously only warned investors about the risks associated with unregulated investment vehicles such as bitcoin.

A spokesperson of SEC Nigeria, on a phone call, said that the document, which is published on the commission’s website, is only a clarification on how the investment regulator views and intends to regulate crypto assets.

The spokesperson didn’t offer any comment on when the commission expects to have a signed law.

Here are the essential points from the document:

All Crypto Assets Are Securities, With A Few Exceptions

“The position of the Commission is that virtual crypto assets are securities, unless proven otherwise,” the document states, adding that it is the responsibility of the issuer or sponsor to prove that proposed crypto assets are not securities.

It’s unclear how the commission defines an “issuer or sponsor” is. The spokesperson said a complete definition would be available when there is a public law on crypto assets.

In general, though, issuers and sponsors will need to prove that their proposed crypto assets only offers a utility value (merely provides access to goods and services) to be exempted from Nigeria’s securities laws.

However, SEC Nigeria said it would treat crypto assets that function as non-fiat virtual currency as commodities if traded on an approved exchange. By translation, bitcoin is considered a commodity.

Crypto-Related Services May Need Regulatory Approval To Operate in Nigeria

The wording of the document suggests that anyone engaging in crypto-related services such as exchanges, wallets, custodial accounts will need regulatory approval to operate in Nigeria, according to Dean Steinbeck, chief operating officer at blockchain company Horizon Labs.

Yele Bademosi, the founder and CEO of Bundle Africa, said: “It’s (the SEC’s guideline) a step in the right direction; getting some kind of regulatory clarity on crypto-assets is net positive for the growth and legitimization of our nascent industry.”

Binance Africa declined to comment on the guidelines.

Still, the publication employs vague language, which can make it hard for foreign issuers to offer services to residents of Nigeria.

“On its face, the persons and entities covered by this law are extremely broad and may require non-Nigerian entities to register in Nigeria. This puts crypto-related service providers and issuers in a pickle,” said Steinbeck, who is also a lawyer. “They must either submit to the costly and unclear regulation in Nigeria — and presumably every other country that gets around to making similar laws — or live in fear that Nigeria will pursue claims against them.”

Steinbeck added that while there are exemptions for foreign issuers whose country of incorporation has a reciprocal agreement in place with Nigeria or where the issuer is a member of the International Organization of Securities Commissions (IOSCO), who or how those exemptions apply is still unknown.

The Significance of the regulatory clarification in Nigeria

A recent study from the blockchain data analytics firm Chainalysis ranks Nigeria eighth out of 154 countries for crypto adoption.

Nigeria saw crypto transactions worth $2.3 billion between July 2019 and June 2020, according to Chainalysis data.

Cryptocurrencies are gaining prominence against the backdrop of a weak local currency. The Nigerian Naira has lost about 35% of its value against the U.S. dollar so far in 2020. Some have seen cryptocurrencies, including stablecoins, as an easy way to protect their wealth.

Nigeria is also one of the countries that are harnessing crypto’s storied potential for cheaper and faster remittances and cross-border settlement. The West African country received an estimated $23.8 billion in remittance in 2019, World Bank data shows. This significantly outstrips the $3.3 billion foreign direct investment that Nigeria received in 2019.

Another World Bank data shows that Sub-Saharan Africa is the most expensive region to send money, with the average fee estimated to be 8.71% as of the end of the second quarter.

Therefore, as more people see that cryptocurrency works efficiently for remittance, it becomes more likely that Nigeria will witness a sustained growth of crypto transaction volume.

“The new regulation put forth by Nigeria’s Securities and Exchange Commission is comprehensive and includes ICOs, digital asset token offerings, and stablecoins,” said Jesse Spiro, global head of policy at Chainalysis. “We’re particularly interested to see how this will impact the country’s peer to peer (P2P) cryptocurrency economy, as Nigeria represents the 6th largest P2P economy in the world.”

“P2P exchanges are an important channel for people there to onboard into cryptocurrency, and those involved in P2P trading are now subject to registration and regulation by the Nigerian SEC,” Spiro added.