SEC unveils regulatory framework for digital assets

By Taofik Salako Deputy Group Business Editor


Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC), yesterday unveiled initial regulatory framework for digital assets as part of its mandate to protect the investing public and regulate all investment and securities business in Nigeria.

In a circular issued by the management of the Commission, SEC noted that while digital assets offerings provide alternative investment opportunities for the investing public; it is 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.


According to the Commission, 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,” SEC stated.

SEC stated that it would henceforth regulate crypto-token or crypto-coin investments when the character of the investments qualifies as securities transactions.

SEC’s position is that virtual crypto assets are securities, unless proven otherwise and the burden of proving that the crypto assets proposed to be offered are not securities and therefore not under the jurisdiction of the Commission, is placed on the issuer or sponsor of the said assets.

Also, 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.

With these, 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.

“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 months to either submit the initial assessment filing or documents for registration proper, as the case may be,” SEC stated.

SEC will also regulate any individual or corporate entity whose activities involve any aspect of blockchain-related and virtual digital asset services. 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.

Also, issuers or sponsors, either start-ups or existing corporations, of virtual digital assets shall be guided by the Commission’s regulation. The Commission may also require foreign or non-residential issuers or sponsors to establish a branch office within Nigeria.

However, foreign issuers or sponsors will be recognised by the Commission where a reciprocal agreement exists between Nigeria and the country of the foreign issuer or sponsor.

As part of the framework, a recognition status will also be accorded where the country of the foreign issuer or sponsor is a member of the International Organisation of Securities Commissions (IOSCO).

The Commission defined “crypto asset” as a “digital representation of value that can be digitally traded and functions as a medium of exchange; and or a unit of account; and or a store of value, but does not have legal tender status in any jurisdiction. A crypto asset is – neither issued nor guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the crypto asset; and distinguished from fiat currency and e-money”.

SEC categorised virtual assets or instruments into four categories. The first category is crypto asset, such as non fiat virtual currency, which will be treated as commodities if traded on a recognised investment exchange or issued as an investment, and is subject to part E of SEC Rules and Regulations and any other relevant sections and subsequent rules which will be enacted in future.

The second category is utility tokens or “non-security tokens” such as virtual tokens. These tokens simply provide users with a product or service. They will be treated as commodities. However, spot trading and transactions in utility tokens do not fall under SEC purview unless conducted on a recognised investment exchange and therefore subject to Part E of SEC Rules and Regulations and any other relevant sections and subsequent rules which will be enacted in future.

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