With the enactment of the Investment and Securities Act (ISA) 2025, virtual assets/digital assets including cryptocurrencies, Non-Fungible Tokens (NFTs), etc. can now be legally traded and transacted in Nigeria subject to satisfying applicable legal requirements.
Prior to the enactment of the ISA, the legality of trading or transacting in virtual/digital assets was uncertain especially following the Central Bank of Nigeria (CBN) circular of 2021 which directed all financial institutions to identify persons and entities transacting or operating cryptocurrency exchanges in Nigeria and ensure that their bank accounts are closed.
In 2022, the Nigerian Securities and Exchange Commission (SEC) issued the ‘New Rules on Issuance, Offering Platforms and Custody of Digital Assets’ (Digital Asset Rules) which set out the requirements for licensing and regulating different trading activities relating to virtual/digital assets including Virtual Assets Service Provider (VASP), Digital Assets Custodian (DAC), Digital Assets Offering Platform (DAOP) and Digital Assets Exchange (DAX) in Nigeria. Despite the issuance of these new rules by the SEC, the regulatory uncertainty on virtual/digital assets persisted until the enactment of the ISA 2025.
The SEC is the regulatory authority responsible for the registration and licensing of virtual assets including Virtual Asset Service Providers (VASPs). VASP is defined as an entity that conducts one or more of the following activities or operations for or on behalf of another person:
- Exchange between virtual assets and fiat currencies;
- Exchange between one or more forms of virtual assets;
- Transfer of virtual assets;
- Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and
- Participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.
Registration of VASPs is governed by the ISA 2025, Digital Assets Rules, and other applicable SEC rules and regulations.
Initial Assessment Filing and Accelerated Regulatory Incubation Program (ARIP)
All promoters of any initial digital asset offerings (including VASPs) within Nigeria or targeting Nigerians are required to comply with the SEC mandatory initial assessment filing before applying for Accelerated Regulatory Incubation Program (ARIP). To comply with the initial assessment filing, VASP promoters are required to complete and submit an assessment form and draft white paper providing the details of the digital assets offering, and information about the issuer. To fully comply with the initial assessment filing, the filing is required to be accompanied with a legal opinion providing the justifications for classifying the tokens to be sold through the digital asset offering as securities or not.
Upon the submission of an initial assessment filing, SEC would review it and notify the applicant of its eligibility to submit an application for ARIP. Participation in ARIP provides an applicant with an Approval in Principle to legally operate and provide its services in a regulated environment under supervision by the SEC. A successful participation in ARIP would entitle the applicant to apply for full registration with the SEC to provide its services to the broader public in Nigeria.
Requirements for the Registration of Virtual Assets Service Providers (VASP)
An applicant for a VASP license is required to be a company incorporated with the Corporate Affairs Commission (CAC) and must meet all the requirements stipulated by the SEC to obtain a VASP license in Nigeria. The requirements which a VASP applicant must meet include the following:
- Evidence of incorporation of a local entity including Certificate of Incorporation, Memorandum and Articles of Association (MEMART) and Status Report with the Corporate Affairs Commission (CAC).
- Latest audited accounts or audited statement of affairs of the company in the case of a new company.
- A business model with a clear or unique value proposition.
- Know Your Customer (KYC) procedures and risk management protocol.
- Copies of the rules of the applicant for investor protection, conflict of interest, customer protection, dispute resolution, etc.
- Evidence of sufficient financial, human and other resources for the operation of a VASP license
- Evidence of appropriate security arrangements in compliance with SEC Technology Risk Management requirements.
- A letter of no objection or approval letter issued to the applicant by regulator(s), where the applicant operates in other sectors.
- An office in Nigeria managed by a director of the applicant company resident in Nigeria.
- Sworn undertaking to maintain, keep proper records and render returns to the SEC.
- Sworn undertaking to comply with applicable SEC Rules and Regulations and the Investment and Securities Act, 2005 by a director or company secretary.
- Any additional requirements which the SEC may require.
Capital Requirements and Registration Fees
An applicant for a VASP license is required to have a minimum paid-up capital of N500,000,000 (Five Hundred Million Naira). The minimum paid-up capital could be bank balances, fixed assets or investment in quoted securities. A current fidelity bond covering at least 25% of the minimum paid-up capital is also required by the SEC.
The required registration fee payable to SEC for obtaining the VASP license is N30,000,000 (Thirty Million Naira). There are other fees payable to SEC for registration including application, processing and sponsored individuals’ fees.
Where the applicant complies with the registration requirements and pay the applicable registration fees, SEC may grant registration to the applicant and list the applicant in the list of its licensed capital market operators. However, the SEC may reject the application for registration if the proposed activity infringes public policy, is injurious to investors or violates any laws, rules and regulations implemented by SEC.
Conclusion
The enactment of ISA 2025 has put to rest the uncertainties surrounding virtual assets in Nigeria. This means that virtual assets are recognized in Nigeria as securities with SEC being the regulatory authority for these assets with powers to register Virtual Asset Service Providers (VASPs) and other digital assets service providers.
For a VASP to be registered, it must first submit an initial assessment filing to determine its participation in ARIP which is a form of Approval in Principle which allows the VASP to provide its services in a regulated environment under the supervision of SEC.
A successful participation in ARIP would further entitle the VASP to apply to the SEC for registration provided that it can meet the registration requirements and pay the fee stipulated by the SEC. If the SEC is satisfied it may grant registration to the applicant and list it in the list of registered capital market operators. However, SEC may also reject the application where the proposed activity is contrary to public policy or it is injurious to investors, etc.
Please note that the contents of this article are for general guidance on the Subject Matter. It is NOT legal advice.
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