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Interpretation of Nigeria’s SEC Regulation of Cryptocu...
Interviews

Interpretation of Nigeria’s SEC Regulation of Cryptocurrency in Nigeria

 

Coinnewsextra Weekly Virtual Blockchain And Crypto Panel Discussion with Chuta Chimezie (Founder Blockchain Nigeria User Group and CEO at Blockspace Africa), Lucky Uwakwe (Founder SaBi Groups), Adedeji Owonibi (CFE, CFA, CCI, CBE, CCFI, Senior Partner Financial Forensics, and Virtual Assets Regulatory Advisor), and Paul Ezeafulukwe (Project blokgrup, President of the stakeholders in Blockchain association of Nigeria) based on the Interpretation of the Nigeria’s SEC Regulation of Cryptocurrency in Nigeria.

Interpretation of Nigeria's SEC Regulation of Cryptocurrency in Nigeria

In the 24th Episode of Coinnewsextra Weekly Virtual Blockchain And Crypto Panel Discussion Proudly sponsored by Emtech, Nimedix Ecosystems, HODL Coin, and Moderated by Ucheoma Ohaeri (CEO Coin News Extra), Four Stakeholders in the Nigeria Crypto and Blockchain space discussed about the SEC Regulation released recently.

On the 11th September 2020, the Securities and Exchange Commission, Nigeria classified Crypto as securities that must be regulated.

But Is it the right time for Regulating crypto assets in Nigeria?

Chuta Chimeze in response to this said, “Policies, Regulation and standardisation are part of the foundation for Mass adoption which practically everyone is desiring to see in the ecosystem.”

A lot of people who are operating in the crypto asset space are risk takers and people who are more subjective to things like having to remain the way Satoshi Natomoshi described the Blockchain(P2P, trustiness and have nothing to do with the Government).

But going by that standard will not encourage many people to come into the ecosystem because the people who play in that type of environnement are the minority, they are not in the majority at all. 

So to get more people into the crypto asset ecosystem to utilize Blockchain technology for any utility purpose for which it was designed for, then policy making and Regulation are key parts that can help to drive Mass adoption. 

This is the only thing that can bring people who live and operate in an organised environment, institution and establishment that go according to governance purposes and design.

According to Adedeji, there is no time that is too early or too late. The fact that the SEC in Nigeria is bringing some clarity or trying to show intentions to actually regulate the Crypto space gives Nigeria a head within Africa as a role model to look up to. 

Over the years, We have seen abuses, scams, security tokens touted as utility tokens and how people make away with money they have entrusted with and other kinds of irregularities. ” Is it the right time? Yes! But at the same time they(SEC) should factor what they can regulate particularly because there are some things that can’t regulate”, said Paul.

Talking about what can be regulated, Lucky said,”Things to be regulated are very few right now and they can start with that.”

THE SEC REGULATION

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Case Study 1: “Consequently, the SEC will regulate crypto-token or crypto-coin investments when the character of the investments qualifies as securities transactions.” 

THE INTERPRÉTATION

Chuta

The first part of this is for us to note the fact that the investment and security act of 2017 established by SEC in Nigeria puts the responsibility of Regulating the capital market on their shoulders. And in order to do that, they make rules and regulations especially in issuance of securities or asset classes they are familiar with.

But when it comes to crypto assets, you find out that there are so many complications, misunderstood and very thin lines that divide most of these offerings. We have very few people that know about Security Tokens.

When people issue some of these tokens, they go out into the ignorant public and lure them in pretence that what they issue is “Xyz” whereas what they are issuing is something else.

When people are doing Capital raising that is not following crowd funding models and rules but they are using tokens and they are telling people that they will give the general public this in exchange for this, then the SEC will question your action and the token. With this, the wheat can be separated from the shaft. 

Adedeji

Within the Blockchain ecosystem, there are different classifications to what the crypto asset can actually do. It can be modeled to what you want and it depends on the technology that is backing it.

You will have to know what kind of activities that your crypto asset or token is playing. If you offer any token or solicit money or any kind of money or investment from someone  that … should be a security under the purview of the security and Exchange Commission to regulate.

If you are using your platform to exchange money, everyone knows that the Central Bank will be of interest if you are using it to solicit for investment from people without going to Nigeria stock market to do that. Of course everyone knows that the SEC will want to look at it. 

The US SEC uses almost the same policy that you must explain that whatever you are offering is not a security but utility token. But if you don’t and still offer it, you will refund all you collected from anyone within the United States who buys the token.

Paul

We have issues where some tokens were classified as Utility tokens. Whenever you offer somebody any offering with a claim that the person will get a particular amount, It is more like you are selling shares to the person which  falls under the preview of SEC but some people who don’t understand or want to abuse the system will call it a utility token. A utility token is very different from a security token. And that’s what the SEC wants to differentiate in space.

COMPANIES THAT FALLS UNDER THE REGULATION

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There is no clear cut from the Regulation documents but Paul said, from what SEC has said and put out in publication, everybody falls under the Regulation.

From a clearer note and as quoted from the publication as thus:

 “WHO WILL BE REGULATED?

Any person, (individual or corporate) whose activities involve any aspect of Blockchain-related and virtual digital asset services…

It shows that only Individual entities or corporate entities like the Exchanges, Blockchain companies, individual entities, Blockchain service Providers fall under the Regulation.

But note that, there are still some controversies based on the statement in the publication.

Case study 2: “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.”

WHAT CRITERIA CAN THE SEC USE TO DETERMINE THIS BECAUSE OF THE BORDERLESS NATURE OF THE BLOCKCHAIN?

Chuta in response said:

This has been a major issue in the world,but it is important that the baseline rules are set.

The baseline rule is that if you are issuing IEO,ICO and your company or agency has a footprint in Nigeria, you will need to primarily sort out yourself on that guide.

“It is also left for the SEC to set a rule that will make the foreigners selling their tokens to Nigerians subject to the SEC”, He added.

“In implementing that, they should get their footprint in Nigeria and if they dare issue to any Nigerian without informing the SEC to know about it, then the Law will catch up on them”, Adedeji said.

We don’t need to look at what they can do outside but inside. Looking at how to implement it outside the border is a long technical discussion but the SEC is making a move.

WITH THIS STATEMENT, IS IT AN INDICATION THAT NIGERIA GOVERNMENT ARE CRYPTO FRIENDLY

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They have not been particularly against or unfriendly to it; they have just been cautious and have been watching the activities and making sure it is not against the law of the Land.

It is now a subject matter on a public domain against the former state that does not allow talking about bitcoin on the public media Platform. It was once like plague but now big organizations, companies, media platforms are and can now talk about Blockchain and Crypto conveniently.

In conclusion, Will the Regulation hinder innovation?!

SEC has made it clear that their position does not hinder possible growth as stated in the publication as thus: “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.”

The Regulation in any way will not hinder innovation.

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