Abdul Muhammed Law Practice
Abdulateef Muhammed the Lead Lawyer at Abdul Muhammed Law Practice outlines a practical guide to licensing requirements for cryptocurrency exchanges in Nigeria.
Introduction
Nigeria crypto has witnessed significant growth and a lot of attention. As the industry continues to evolve, regulatory frameworks have become essential to ensure financial stability, investor protection and market transparency.
The Securities and Exchange Commission (SEC) has introduced comprehensive rules, specifically Part E, to regulate Digital Asset Exchanges (DAX) in Nigeria.
This article aims to break down the licensing requirements for cryptocurrency exchanges, providing practical insights for industry players.
Requirements for DAX registration
Payment structure:
Filing/Application Fee: N100,000.
Processing Fee: N300,000,
Registration Fee: N30,000,000,
Sponsored Individuals Fee: N100,000.
Forms and capital:
Submission of SEC forms with payment evidence.
Minimum Paid-Up Capital: N500,000,000.
Fidelity Bond: 25% of minimum paid-up capital, subject to periodic review.
Verification of fund sources.
Individuals documentation:
Sponsored individuals and directors must comply with SEC Rules and Regulations for registration.
Corporate documentation:
Submission of certified copies of Certificate of Incorporation, Memorandum and Articles of Association, CAC forms, and audited accounts.
Governance and internal structures
Board approval:
DAX Platform requires Board approval subject to Commission’s endorsement.
CEO’s appointment:
CEO’s appointment for five years, subject to renewal, and compliance with specified criteria.
Governance framework:
Establishment of governance framework including rules, policies, and conflict of interest management.
Outsourcing plan, policy and rules
Accountability:
Accountability for outsourced functions and adherence to SEC rules is required.
Submission to commission:
Submission of proposed outsourcing rules and policy to the Commission for approval is mandatory.
Reporting requirements
Regular submission:
Regular submission of trading statistics, financial reports, and compliance reports is required.
Annual audited financial statements:
Annual submission of audited financial statements is mandatory.
Business cessation
Notification:
Mandatory notification of business cessation to the Commission.
Conflict of interest management
Establishment of policies:
Establishment of conflict of interest policies addressing proprietary trading and information management is obligatory.
Risk Mitigation and internal controls
Operational risks:
Capacity for the identification and mitigation of operational risks must be demonstrated.
Business continuity:
Business continuity plan addressing significant disruptions is required.
Trading operations and market transparency
Commission’s approval:
No trading facilitation is proper without Commission’s “no objection.”
Disclosure requirements:
Mandatory disclosure of market structure, order types, and real-time trading information.
Risk management:
Adequate arrangements must be in place to manage volatility, error trades, and system malfunctions.
Conclusion
Navigating the licensing requirements for cryptocurrency exchanges in Nigeria demands meticulous attention to detail and it is crucial for industry players to prioritize compliance with the applicable regulations.
There is need to work with knowledgeable cryptocurrency lawyers in the dynamic landscape of Nigerian crypto law and staying informed and adapting to emerging issues will be key to the sustained success and legitimacy of cryptocurrency operations in Nigeria.
In the closing, this article notes that reputable Nigerian crypto lawyers and proven thought leaders with extensive real life legal practice experience can offer expert legal counsel, blending their years of legal proficiency with a deep understanding of the evolving Nigerian crypto landscape.
Disclaimer: This article provides general information and does not constitute legal advice. Consult with legal professionals for advice tailored to your specific situation.
READ: Nigerian Crypto law series 12: Another look at the CBN cryptocurrency ban and its repeal
