Monday, September 14, 2020  / 03:20 PM  / BySEC Nigeria / Header Image Credit: iPleaders Blog

Introduction

Digital assets offerings provide alternativeinvestment opportunities for the investing public; it is thereforeessential to ensure that these offerings operate in a manner that isconsistent with investor protection, the interest of the public, marketintegrity and transparency. The general objective of regulation is not tohinder technology or stifle innovation, but to create standardsthat encourage ethical practices that ultimately make for a fair andefficient market.

Section 13 of the Investment and Securities Act,2007 conferred powers on the Commission as the apex regulator of theNigerian capital market to regulate investments and securities business inNigeria. In line with these powers, the SEC has adopted a three-prongedobjective to regulate innovation, hinged on safety, market deepening andproviding solution to problems. This will guide its strategy, itsregulations and its interaction with innovators seeking legitimacy andrelevance.

Consequently, the SEC will regulate crypto-tokenor crypto-coin investments when the character of the investments qualifiesas securities transactions.

What Will Be Regulated?

1. The position of the Commission is that virtual crypto assets aresecurities, unless proven otherwise. Thus, the burden of proving that thecrypto assets proposed to be offered are not securities and therefore notunder the jurisdiction of the SEC, is placed on the issuer or sponsor ofthe said assets.
2. Issuers or sponsors are expected to satisfy the burden of proving that thevirtual assets do not constitute securities by making an initial assessmentfiling. However, where the finding of the Commission is that the virtualassets are indeed securities (not structured to be exclusivelyoffered through crowdfunding portals or other exempt methods), then theissuer or sponsor must register the digital assets.
3. The registration process for virtual assets will therefore involve atwo-prong approach - an initial assessment filing to satisfy the burden ofproof and a filing for registration proper, either made directly by theissuer or sponsor or where the burden of proof is not satisfied.
4. Similarly, all Digital Assets Token Offering (DATOs), Initial CoinOfferings (ICOs), Security Token ICOs and other Blockchain-based offers ofdigital assets within Nigeria or by Nigerian issuers or sponsorsor foreign issuers targeting Nigerian investors, shall be subject tothe regulation of the Commission. Existing digital assets offerings priorto the implementation of the Regulatory Guidelines will have three (3)months to either submit the initial assessment filing or documents forregistration proper, as the case may be.

 Who WillBe Regulated?

1. Any person, (individual or corporate)whose activities involve any aspect of Blockchain-related and virtualdigital asset services, must be registered by the Commission and as such,will be subject to the regulatory guidelines. Such services include, butare not limited to reception, transmission and execution of orders onbehalf of other persons, dealers on own account, portfolio management,investment advice, custodian or nominee services.
2. Issuers or sponsors (start-ups or existing corporations) of virtualdigital assets shall be guided by the Commission's regulation. TheCommission may require Foreign or non-residential issuers or sponsors toestablish a branch office within Nigeria. However foreign issuers orsponsors will be recognized by the Commission where a reciprocalagreement exists between Nigeria and the country of the foreign issuer orsponsor.
3. A recognition status will also be accorded, where the country of theforeign issuer or sponsor is a member of the International Organization ofSecurities Commissions (IOSCO).

For these purposes, the Commission has adoptedthe following with respect to virtual crypto assets:

"Crypto Asset" means a digital representation ofvalue that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status in any jurisdiction.A Crypto Asset is - neither issuednor guaranteed by any jurisdiction, and fulfils the above functions onlyby agreement within the community of users of the Crypto Asset;and Distinguished from Fiat Currency and E-money."

The SEC hereby categorizes the following virtualassets/instruments as follows: 

Related Resource

Download thereport of the Tech London Advocates (TLA)'s Blockchain Legal and RegulatoryGroup which provides a clear framework and much needed guidance on the use ofblockchain in the legal services sector HERE

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