In a bid not to be left behind in the world of cryptocurrency, Nigeria’s government has formally come up with a legal framework backing the trading of bitcoins, Ethereum, Litecoin, and Non-Fungible Tokens (NFTs) and other digital assets in Nigeria (find the download link below).
The rule book issued by Nigeria’s Securities and Exchange Commission (SEC) titled, “New Rules on Issuance, Offering Platforms and Custody of Digital Assets” supports the call by the Minister of State for Budget and National Planning Clem Ikanade Agba in December 2021 that cryptocurrency should be regulated instead ban.
Meanwhile, a latest update from the Central Bank of Nigeria (CBN), which was made available on December 22, 2023, is permitting banks to allow crypto users in Nigeria to fund their crypto wallets through their bank account.
The 54-page crypto rule book defined a digital asset as “a token that represents assets such as a debt or equity claim on the issuer which shall be regulated by SEC and of course, it led to the amendment of the Finance Bill which now required crypto traders in Nigeria to pay 10% tax on profits.
Below is the summary of part A of the new guidelines entitled, “Rules on Issuance of Digital Assets as Securities”
Any issuer who plans to raise capital through digital asset offerings shall fill out an assessment form which must be submitted to SEC containing the following details:
1) Brief description of the business of the issuer;
2) Detailed information on how the proposed initial digital asset offering project will benefit investors
3) Information on how the digital asset will deepen the market, sustainability and scalability
4) Brief description of the initial digital asset offering,
5) Brief description of the distributed ledger technology, value of each token
6) It shall also contain of returns, profits, bonuses, rights and/or other privileges (monetary and non-monetary) to the buyer of the token;
7) How the firm plans to use of proceeds from sale of the token plus the percentage allocation to each use category
8) Proposed offer period
9) Timeline for the completion of the project to be financed with the proceeds of the offering;
10) Discussion on the determination of the accounting and the valuation treatments for the digital token including all valuation methodology and reasonable presumptions adopted in such calculation;
11) Technical description of the protocol, platform or application of the digital token
12) The issuer shall clarify its target market in the form
13) Currency or other assets that will be received as payment for the tokens
14) Soft cap and hard cap for each kind of token
15) Price per token, including amounts of discounts and/or premiums
16) And finally, information in relation to the distribution of the digital tokens
In addition, SEC also points out that exchanges must be fair, reasonable, and transparent with their fees
The new SEC rule book also mandates all cryptocurrency exchanges operating in Nigeria or plans to target Nigerian-based crypto community to provide the SEC with a list of crypto assets they intend to trade and must get a “no objection” letter for each asset.
Definitions of key digital assets terminologies:
1. Asset Offering shall include ICOs and other Distributed Ledger Technology (DLT) offers of digital assets.
2. Initial Coin Offering (ICO) means a distributed ledger technology capital-raising involving the issuance of tokens to the general public in return for cash, cryptocurrencies or other assets.
SEC also says an ICO project is the underlying business or project referred to in a white paper for which the issuer seeks to raise capital through an initial digital asset offering.
The SEC Rule Book on Cryptocurrency on digital assets which is divided into five parts carefully covers all aspects of trading: buying and selling of crypto, NFTs, altcoins, stablecoins, and registration procedures for a cryptocurrency exchange in Nigeria.
What Does SEC Rule Book on Cryptocurrency Mean for Nigeria?
Recalled that the SEC, which is one of the agencies of Nigeria’s Finance Ministry, had disclosed in September 2021 that it had established a specialized division to study crypto investments. This is the outcome of the division which had been working behind the doors since 2021.
Obviously, it’s a new dawn for cryptocurrency in the most populous African country which in early 2021 through the Central Bank of Nigeria (CBN) restricted crypto trading in the country.
The Nigeria’s apex bank boss, Godwin Emefiele, had directed all financial institutions to block bank accounts that were used to fund crypto-related wallets.
With the new rule, Nigeria has now re-defined the direction its headed in the emerging digital assets which we believed can not be ignored.
Although the government through its apex bank launched Nigeria’s Central Bank Digital Currency in October 2021, it was widely condemned among crypto community in the country who believed that the apex bank ‘banned’ crypto trading for them to embrace its digital currency dubbed eNaira.
Since the launch of the eNaira, little has been heard about it, it enjoyed some downloads on apps stores, but it’s marred with bad reviews. And many users of the app vowed to uninstall it.
The new rule book on digital assets in Nigeria also means that Nigeria will be toeing the path of South Africa’s policy on digital assets which crypto exchanges in the former apartheid country are enjoying while the government also generates revenue from crypto taxation.
Additionally, Nigeria’s government will be able to generate funds like SA from registrations while the Federal Inland Revenue Service or FIRS may start generating taxes from crypto traders which will be remitted to the federation account.
It’s believed that the country had lost billions of naira in revenue which should have come from crypto registrations and taxes.
However, exchanges may in the long run increase their trading fees and charges to cover up the millions of naira that would go into the purse of Nigeria’s government.
Reference:
SEC (May 11, 2022). “Download Rules on Issuance Offering and Custody of Digital Assets by SEC Nigeria. Sec.gov.ng. Retrieved May 16, 2022