SEC mandates Nigeria CEO, local office for crypto firms

The Securities and Exchange Commission has revealed that crypto firms seeking licences will be required to establish local offices in Nigeria as well as have their chief executive officer resident in the country.

This was disclosed in the new regulatory incubation framework, titled ‘A Framework on Accelerated Regulatory Incubation Program for the Onboarding of Virtual Assets Service Providers and Other Digital Investments Service Providers’ shared on its website.

According to the regulator, the Accelerated Regulatory Incubation framework is to facilitate the onboarding of entities that proposed to carry on virtual asset activities and whose applications have been filed with the Commission, and for other potential applicants that perform such activities.

On eligibility for the programme, the SEC said, “Entities who can apply into the ARIP shall be incorporated and have an office in Nigeria and its Chief Executive Officer/Managing Director or its equivalent shall be resident in Nigeria; be performing investments and securities business; be seeking registration or have pending virtual asset related applications with the Commission.”

Nigeria has just imposed a 7.5 per cent Value-Added Tax on crypto transaction fees. This was revealed by a cryptocurrency exchange, KuCoin, on Wednesday,  when it told its users it would start VAT collection on July 8, 2024.

Cryptocurrency platforms have been subjected to intense scrutiny following the exit of Binance, which was accused by the Nigerian government of manipulating the naira-to-dollar exchange rate.

Other key highlights of the framework include, “ARIP participants shall be subject to the Commission’s onsite and off-site inspection, audit and monitoring and shall make such periodic reports and returns as may be specified by the Commission.

“The Commission may require ARIP participant to furnish it, at such time and in such manner as it may direct, with such information as the Commission may reasonably require for the proper discharge of its functions under this framework.ARIP participant shall make its premises, systems, books and records readily available to the Commission, its officers or any person appointed by the Commission for inspection, audit and other supervisory purposes.”

The SEC added that ARIP applicants would pay a non-refundable processing fee of N2m, showing evidence of required shareholder fund, a current fidelity bond covering at least 25 per cent of the required shareholder fund.

Regardless, the SEC  said that it reserves the right to impose additional financial requirements for ARIP participants commensurate with the nature, operations and risks posed by the participants’ business operations.

Participants in the ARIP are mandated to incorporate appropriate safety measures to identify and manage potential risks and mitigate the consequences of failure, such as undisclosed risk of financial loss or other undisclosed risks to customers, investors and market participants.

“Participants shall put in place a risk management framework which shall form part of an operational plan. The operational plan shall address, at minimum, the integrity, conduct, and investor protection requirements applicable to the applicant during the ARIP period.

“Specifically, the controls shall require compliance with applicable rules and regulations regarding the prevention of money laundering, including travel rules, counter-terrorism financing, counter-proliferation financing and other illicit activities as contained in the AML/CFT/CPF Law.”

In terms of penalties, the regulator said that ARIP participants who fail to comply with any of the stipulated requirements will be fined N5m at the first instance and a further N200,000 for every day of default.

For all commercialised VASPs operating trading, offering and custody platforms without due authorisation, the penalty is N20m and N10m for digital investment platforms, including crypto brokers/dealers, advisers, market makers etc. operating without due authorisation or registration by the commission.