The Securities and Exchange Commission (SEC) of Nigeria has designated crypto assets as securities as the authorities step up efforts to regulate Africa’s largest cryptocurrency market. The SEC says the classification of crypto assets for regulation is consistent with the country’s investment and securities laws of 2007.
In a statement released Sept. 14, the SEC directs that corporates and individuals “whose activities involve any aspect of blockchain-related and virtual digital asset services, must be registered.”
While the classification is seemingly targeting new crypto assets, the SEC says that “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.”
Furthermore, foreign issuers of crypto assets are expected to comply with regulations that may require them “to establish a branch office within Nigeria.”
Reacting to the announcement, the General Secretary of the Stakeholders in Blockchain Technology Association of Nigeria (SIBAN), Senator Iyere Ihenyen, commends the regulator for striving to “treat digital assets as alternative investment opportunities.”
Ihenyen says the classification means “investment or security-based digital assets offerings are caught here, whether it is the now dead or dying initial coin offerings (ICOs) that got many fingers burnt in 2017 or the security token offering (STO) that didn’t live up to expectations.”
Still, the SIBAN general secretary feels the SEC “should have clearly defined its test for what constitutes investment or security, rather than vaguely state that virtual crypto assets are securities unless proven otherwise.”
Ihenyen explains why he has reservations about this approach:
“The approach the SEC has taken may be problematic, not only for players and investors in the Nigerian market but also for everyone, including the courts and the regulator itself. More so, the burden of proving otherwise is placed on the issuer, a thing that could be easily abused by regulators and even law enforcement agencies.”
Instead, the SEC should have published a well-defined test for determining what constitutes a security or investment. Ihenyen says doing “this will save us all a lot of time, energy, and resources.”
Meanwhile, Chiagozie Iwu, the CEO of a local cryptocurrency exchange, Naijacrypto, says the SEC’s classification of crypto assets shows some level of recognition for digital assets by the regulator. However, he is quick to point out that the statement does not specifically address the legality or illegality of crypto assets.
The SEC regulations do not say anything about cryptocurrency exchanges and this, according to Iwu, means the SEC has “no classification for crypto exchange businesses yet.” Still, Iwu believes a more comprehensive report will be issued by the regulator shortly.
Meanwhile, Nathaniel Luz, a representative for Dash in Nigeria, says in accordance with the SEC’s classification, cryptocurrencies like “Dash falls under the ‘crypto asset – non-fiat virtual currency’ grouping.” This means this virtual currency cannot be “classified as a commodity or security plus the existence of dash since 2014 pre-dates the ICO days.”
Still, Luz says his organization “is open to working with the regulators should they require any clarifications regarding the classification of dash.”
In the meantime, the SEC’s classification comes at a time when the use of cryptocurrencies for international trade continues to grow in the country. Nigerians also use cryptocurrencies for sending remittances and for online payments. However, Iwu believes the move by the regulator is the culmination of a two-year effort to create a structure for cryptocurrencies. It is unrelated to the current foreign currency crisis.