In May 2022, Nigeria’s Securities and Exchange Commission (SEC) introduced a comprehensive regulatory framework for virtual asset service providers, including digital asset exchanges. This framework required adherence to various laws and regulations to maintain market integrity, protect investors, and prevent financial crimes. Key mandates included the registration of digital asset exchanges, compliance with anti-money laundering (AML) practices, financial reporting, and other regulatory obligations. A detailed 54-page document outlining these rules was published. Despite its challenges, this regulatory environment presents a unique opportunity for the Nigerian cryptocurrency market to evolve and prosper.
This opinion piece is penned by Nathaniel Luz, the co-founder and CEO of Flincap, an OTC crypto exchange platform in Africa.
In March 2024, the SEC proposed significant amendments to its rules on the issuance, offering platforms, and custody of digital assets. These amendments required virtual asset service providers (VASPs) to double the minimum paid-up capital from previous regulations. This capital includes funds in banks, fixed assets, or investments in quoted securities. Additionally, there were substantial increases in fees: a 300% increase for filing, processing, and sponsored individual fees, and a 500% increase for registration fees. VASPs would also need to submit more documentation for the crypto license.
The proposed changes faced resistance within the Nigerian crypto community. Many argued that while these requirements might be manageable for foreign players with substantial capital, they pose significant challenges for emerging local players. This amendment could be perceived as a barrier to the growth of Nigerian crypto exchanges, and it’s crucial to acknowledge and address these difficulties.
The SEC’s strict enforcement of compliance could be more effective through dialogue. Many stakeholders are losing confidence in the crypto industry due to high costs and stringent regulations. Although the license’s high cost is not an insurmountable obstacle, there remains a trust deficit between the Nigerian government and the cryptocurrency community. This ongoing instability has led many stakeholders to hold back on investments. A collaborative approach could help rebuild this trust and promote compliance.
Addressing the historical distrust and restoring confidence is vital for encouraging compliance with SEC requirements. While paying the necessary fees for the license might be seen as a one-way commitment without guarantees of future stability, it is a step toward regulation. Despite concerns that these regulations signal a hostile environment for crypto investments, it is essential to note that cryptocurrency is not banned in Nigeria. Investments can continue, provided the necessary licenses are obtained.
The path forward involves urgent dialogue between the Nigerian government, SEC, key crypto market stakeholders, and other affected parties to reach a mutual understanding. By restoring confidence through constructive dialogue, more entities will obtain their licenses, ensuring a smoother operation of crypto activities in Nigeria. In the meantime, exchanges that can afford the license should obtain it, as compliance is crucial. More local exchanges should strive for compliance to facilitate government engagement. Increased compliance among exchanges will highlight the importance of a collaborative approach.
By Andrej Kovacevic
Updated on 22nd May 2024