SEC Nigeria Officially Defines, Classifies and Provides Regulatory Treatment for Digital Assets

The Security and Exchange Commission of Nigeria has published an official statement on digital assets, their classification and treatment.

This was made known via a press release on SEC Nigeria’s website. The Commission believes that virtual crypto assets are securities and it’s their duty to regulate any cryptocurrency investment that qualifies as a security.

But in cases where the issuer or sponsor of a proposed crypto asset offering states that their crypto asset is not a security and as such will not be regulated by the commission. The issuer or sponsor is now mandated to proof that by making an initial assessment filing.

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In a scenario where the findings of the commission after the initial assessment filing has been submitted finds that the virtual assets are securities. Then the issuer or sponsor must register the digital assets.

SEC Nigeria said:

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

The SEC Nigeria classified virtual digital assets into four categories and also proposed how each category will be treated as follows:

Category One: Crypto Asset- e.g non fiat virtual currency.

Treatment: Treated as commodities if traded on a Recognized Investment Exchange and/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.

Category Two: Utility Tokens or “Non-Security Tokens (e.g., virtual tokens. These tokens simply provide users with a product and/or service.

Treatment: Treated as commodities. However, spot trading and transactions in Utility Tokens do not fall under SEC purview unless conducted on a Recognized 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.

Category Three: Security Tokens (e.g. virtual tokens that have the features and characteristics of a security. Represent assets such as participations in real physical underlyings, companies, or earnings streams, or an entitlement to dividends or interest payments. In terms of their economic function, the tokens are analogous to equities, bonds, etc.

Treatment: Deemed to be Securities pursuant to Part XVIII (315) of ISA, “definition of Securities’’. All financial services activities in relation to Security Tokens, such as operating primary/secondary markets, dealing/trading/managing investments in or advising on Security Tokens, will be subject to the relevant regulatory requirements. Market intermediaries and market operators dealing or managing investments in Security Tokens need to be registered/approved by SEC as CMOs, Recognized Investment Exchanges or Recognized Clearing Houses, as applicable.

Category Four: Derivatives and Collective Investment Funds of Crypto Assets, Security Tokens and Utility Tokens.

Treatment: Regulated as Specified Investments under the ISA & SEC Rules and Regulations. Market intermediaries and market operators dealing in such Derivatives and Collective Investment Funds will need to be registered/approved by SEC.