Abdul Muhammed Law Practice
Abdul Muhammed Law Practice re-visits the SEC regulations and outlines a short guide for Nigerian cryptocurrency players.
The recent reversal of the Central Bank of Nigeria’s (CBN) ban on cryptocurrency transactions has ushered in a new era amidst the existing comprehensive regulations previously laid down by the Securities Exchange Commission (SEC) to govern the issuance, trading, and custody of digital assets.
Let’s delve into the SEC regulations and their implications for cryptocurrency service providers in this article.
Overview of SEC rules on cryptocurrency
The SEC rules, dated May 11, 2022, are structured into different parts, each addressing specific aspects of the crypto ecosystem. These include regulations for Digital Assets Offering Platforms (DAOPs), Digital Asset Custodians (DACs), Virtual Assets Service Providers (VASPs), and Digital Asset Exchanges (DAX).
Purpose
The foundation of the regulations lies in ensuring transparency, investor protection and compliance within the evolving digital asset landscape. The regulations emphasize the need for clear guidelines to govern the issuance of digital assets as securities.
DAOPs
The regulations in Part B outline registration requirements and operational guidelines for DAOPs. Key aspects include compliance with minimum capital requirements, submission of corporate documents, and governance structures.
DACs
Digital Asset Custodians (DACs) are tasked with providing safekeeping, storage and custody services for virtual assets and Part C establishes registration requirements, obligating DACs to operate transparently, securely and in the best interest of clients.
VASPs
Virtual Assets Service Providers (VASPs) operate in a variety of capacities, including trading platforms and digital asset issuers. Part D focuses on registration requirements, emphasizing the importance of market integrity, investor protection, and adherence to anti-money laundering laws.
DAX
Digital Asset Exchanges (DAX) are vital for facilitating the trading of virtual assets. Part E lays out a comprehensive regulatory framework for DAX, covering aspects such as registration fees, corporate governance, reporting requirements and risk management.
Implications for cryptocurrency service providers
Issuance of digital assets as securities:
Issuers must undergo a thorough review process by submitting a comprehensive assessment form and draft white paper. If deemed securities, issuers must apply for registration, adhering to specific requirements.
Moratoriums on equity interest ensure a commitment from issuers’ directors and senior management.
DAOPs and DACs compliance:
DAOPs must comply with minimum capital requirements and provide a fidelity bond.
DACs must prioritize client interests, adhere to risk management frameworks and ensure secure storage of clients’ virtual assets.
VASPs obligations:
VASPs must undergo a detailed registration process, declaring their ability to operate a fair and transparent market and ensure compliance with anti-money laundering laws, transparent fee structures, and the establishment of continuous awareness programs are mandatory.
DAX registration requirements:
DAX operators must adhere to stringent financial requirements, including a minimum paid-up capital of N500,000,000. Governance structures, outsourcing plans, and conflict of interest management are critical for DAX registration.
Navigating the future
In the wake of the CBN’s recent decision to lift the ban on cryptocurrency transactions, the SEC regulations acquires even greater importance and provide a framework for a secure and transparent crypto ecosystem in Nigeria.
Cryptocurrency service providers must carefully navigate these regulations, ensuring compliance with registration requirements, governance structures and risk management protocols.
The regulations work to foster the safe growth of the cryptocurrency sector in Nigeria, providing a clear path for players to operate responsibly and contribute to the development of this transformative industry.
Disclaimer: This article provides general information and does not constitute legal advice. Consult with legal professionals for advice tailored to your specific situation.
READ: Cryptocurrency: effectiveness of existing regulations in in Nigeria
