Abdul Muhammed Law Practice
Abdul Muhammed Law Practice’s Lead Lawyer Abdulateef Muhammed examines initial coin offerings (ICO) regulations in Nigeria.
Introduction
Understanding Nigeria’s cryptocurrency regulatory landscape is crucial for industry players with any sort of interest in initial coin offerings (ICO).
Nigeria’s Securities Exchange Commission (SEC) released comprehensive rules on cryptocurrencies, dated May 11, 2022, shedding light on ICOs.
This article will delve into Nigeria’s approach to ICO regulations and compare it with other jurisdictions.
Nigeria’s SEC rules on ICOs
Part A of the SEC rules addresses the issuance of digital assets as securities, including ICOs. Here’s a breakdown of what Nigeria’s ICO regulations provide.
Applicability:
The rules apply to all issuers intending to raise capital through digital asset offerings, including ICOs.
Definitions:
Key terms such as “ICO,” “Soft Cap,” “Hard Cap,” and “White Paper” are defined, providing clarity to participants.
Initial assessment:
Promoters must submit a comprehensive assessment form and draft white paper, which the SEC reviews within 30 days to determine if the digital assets qualify as securities.
Security determination:
If the digital asset is deemed a security, the issuer must apply for registration.
Registration requirements:
Upon a positive determination, the issuer submits a registration application containing token information, KYC procedures, security protocols and corporate governance disclosures.
Moratorium on equity interest:
Issuers’ directors and senior management must collectively own at least 50% equity on the issuance date, with restrictions on selling more than 50% until the project’s completion.
Limit on funds raised:
Issuers may raise funds up to twenty times their shareholders’ funds, with a maximum ceiling and a requirement to refund if the amount raised falls below the soft cap.
Investment limits:
Investment limits are defined for qualified institutional and high net worth investors, as well as retail investors.
Exemptions from registration:
Certain scenarios, such as crowdfunding portals, judicial sales, or isolated transactions are exempt from registration requirements.
Comparative analysis – United States
In the U.S., ICOs are subject to SEC regulations, and the Howey Test is often applied to determine whether a token is a security.
The regulatory approach aims to protect investors while fostering innovation.
Comparative analysis – United Kingdom
The Financial Conduct Authority (FCA) in the UK provides guidelines on the regulatory status of crypto assets.
Depending on the characteristics of the token, it may fall under existing regulatory frameworks.
Comparative analysis – South Africa
South Africa takes a principles-based approach, and the regulatory status of ICOs is determined on a case-by-case basis. The country emphasizes investor protection and compliance with existing laws.
Comparative analysis – Singapore
Known for its crypto-friendly approach, Singapore provides guidelines on the classification of digital tokens. ICOs are subject to regulatory scrutiny and issuers must comply with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations.
Conclusion
Nigeria’s SEC rules on ICOs reflect a commitment to transparency, investor protection and compliance with the evolving digital asset landscape.
I emphasize the need for stakeholders in the Nigerian cryptocurrency sector to stay informed and adapt to regulatory developments.
The comparative analysis shows that while regulatory approaches differ, the core focus remains on balancing innovation with investor protection across diverse jurisdictions.
As the crypto legal landscape evolves, staying abreast of these regulations is paramount for the sustainable growth of the industry in Nigeria and beyond.
Disclaimer: This article provides general information and does not constitute legal advice. Consult with a Nigerian cryptocurrency lawyer or other legal professionals for advice tailored to your specific situation.
READ: Nigerian crypto law series 15: Cryptocurrency taxation
