CBN to work with SEC to regulate cryptocurrencies in Nigeria.

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The Securities and Exchange Commission (SEC) has teamed up with Central Bank of Nigeria (CBN) to regulate cryptocurrencies in Nigeria.
The press release reads:
The Securities and Exchange Commission (SEC) has received several comments and inquiries from the public on a perceived policy conflict between the SEC Statement on Digital Assets and their Classification and Treatment of September 11, 2020, and the Central Bank of Nigeria (CBN) Circular of February 5, 2021. We see no such contradictions or inconsistencies.

In recognition of the fact that digital assets may have the full characteristics of investments as defined in the Investments and Securities Act 2007, the SEC Statement asserts that trading in such assets falls under SEC’s regulatory purview, except proven otherwise. The primary objective of the Statement was not to hinder or stifle innovation but to establish standards of ethical practices that ultimately make for a fair and efficient securities market.

The SEC made its statement at the time, to provide regulatory certainty within the digital asset space, due to the growing volume of reported flows. Subsequently, in its capacity as the regulator of the banking system, the CBN identified certain risks, which if allowed to persist, will threaten investor protection, a key mandate of the SEC, as well as financial system stability, a key mandate of the CBN.

In light of these facts, we have engaged with the CBN and agreed to work together to further analyse, and better understand the identified risks to ensure that appropriate and adequate mitigants are put in place, should such securities be allowed in the future.

Consequently, it has become necessary to provide the following clarifications about the implementation of SEC’s Capital Market FinTech Strategy:

For the purpose of admittance into the SEC Regulatory Incubation Framework, the assessment of all persons (and products) affected by the CBN Circular of February 5, 2021, is hereby put on hold until such persons are able to operate bank accounts within the Nigerian banking system.

The planned implementation of the SEC Regulatory Incubation Guidelines for FinTech firms who intend to introduce innovative models for offering capital market products and services will continue.

The SEC will continue to monitor developments in the digital asset space and further engage all critical stakeholders with a view to creating a regulatory structure that enhances economic development while promoting a safe, innovative and transparent capital market.

Digital assets offerings provide alternative investment opportunities for the investing public; it is therefore essential to ensure that these offerings operate in a manner that is consistent with investor protection, the interest of the public, market integrity and 
transparency. The general objective of regulation is not to hinder technology or stifle innovation, but to create standards that encourage ethical practices that ultimately make for a fair and efficient market. 

Section 13 of the Investment and Securities Act, 2007 conferred powers on the Commission as the apex regulator of the Nigerian capital market to regulate 
investments and securities business in Nigeria. In line with these powers, the SEC has adopted a three-pronged objective to regulate innovation, hinged on safety, market deepening and providing solution to problems. This will guide its strategy, its regulations and its interaction with innovators seeking legitimacy and relevance. 
Consequently, the SEC will regulate crypto-token or crypto-coin investments when the character of the investments qualifies as securities transactions.

WHAT WILL BE REGULATED?
1. The position of the Commission is that virtual crypto assets are securities, unless proven otherwise. Thus, the burden of proving that the crypto assets proposed to be offered are not securities and therefore not under the jurisdiction of the SEC, is placed on the issuer or sponsor of the said assets.
2. Issuers or sponsors are expected to satisfy the burden of proving that the virtual assets do not constitute securities by making an initial assessment filing. 
However, where the finding of the Commission is that the virtual assets are 
indeed securities (not structured to be exclusively offered through crowdfunding portals or other exempt methods), then the issuer or sponsor must register the 
digital assets.
3. The registration process for virtual assets will therefore involve a two-prong 
approach – an initial assessment filing to satisfy the burden of proof and a filing 
for registration proper, either made directly by the issuer or sponsor or where the burden of proof is not satisfied.
4. Similarly, all Digital Assets Token Offering (DATOs), Initial Coin Offerings (ICOs), Security Token ICOs and other Blockchain-based offers of digital assets within Nigeria or by Nigerian issuers or sponsors or foreign issuers targeting Nigerian investors, shall be subject to the regulation of the Commission. Existing digital assets offerings prior to the implementation of the Regulatory Guidelines will have three (3) months to either submit the initial assessment filing or documents for registration proper, as the case may be.
WHO WILL BE REGULATED?
1. Any person, (individual or corporate) whose activities involve any aspect of 
Blockchain-related and virtual digital asset services, must be registered by the 
Commission and as such, will be subject to the regulatory guidelines. 
Such services include, but are not limited to reception, transmission and execution of orders on behalf of other persons, dealers on own account, portfolio 
management, investment advice, custodian or nominee services.

2. Issuers or sponsors (start-ups or existing corporations) of virtual digital assets shall be guided by the Commission’s regulation. The Commission may require Foreign or non-residential issuers or sponsors to establish a branch office within 
Nigeria. 

However foreign issuers or sponsors will be recognized by the Commission where a reciprocal agreement exists between Nigeria and the country of the foreign issuer or sponsor. 
3. A recognition status will also be accorded, where the country of the foreign issuer or sponsor is a member of the International Organization of Securities 
Commissions (IOSCO).

For more details on the regulation click the hyperlink texts below 

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