SEC Classifies Cryptocurrency as Securities

The Securities and Exchange Commission (SEC), the apex regulator of the Nigerian capital market says it planned to regulate cryptocurrency investments as securities transactions in Nigeria.

In a released statement dated September 11, 2020, the Commission stated that the general objective of the exercise is not to hinder technology or stifle innovation but to create standards that would encourage ethical practices and ultimately make for a fair and efficient market.

As the apex regulator, the Commission said it relied on Section 13 of the Investment and Securities Act, 2007  to regulate investments and securities business in the country.

In line with these powers, the Commission said it has adopted a three-pronged objective to regulate innovation, hinged on safety, market deepening, and providing a solution to problems, as it noted that this would guide its strategy, regulations, and interaction with innovators seeking legitimacy and relevance.

It further said that digital assets offerings provide alternative investment opportunities for the investing public and it is, therefore, essential to ensure that these offerings operate in a manner that is consistent with investor protection, the interest of the public, market integrity, and transparency.

On what will be regulated, the Commission’s  statement read:

1. The position of the Commission is that virtual crypto assets are securities unless proven otherwise. Thus, the burden of proving that the crypto assets proposed to be offered are not securities and therefore not under the jurisdiction of the SEC is placed on the issuer or sponsor of the said assets.

2 Issuers or sponsors are expected to satisfy the burden of proving that the virtual assets do not constitute securities by making an initial assessment filing. However, where the finding of the Commission is that the virtual assets are indeed securities (not structured to be exclusively offered through crowdfunding portals or other exempt methods), then the issuer or sponsor must register the digital assets.

3. The registration process for virtual assets will therefore involve a two-prong approach – an initial assessment filing to satisfy the burden of proof and a filing for registration proper, either made directly by the issuer or sponsor or where the burden of proof is not satisfied.

4. Similarly, 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 of documents for registration proper, as the case may be.

Also, on who will be regulated, the Commission said:

1. Any person, (individual or corporate) whose activities involve any aspect of Blockchain-related and virtual digital asset services, must be registered by the Commission and as such, will be subject to the regulatory guidelines. Such services include, but are not limited to reception, transmission, and execution of orders on behalf of other persons, dealers on own account, portfolio management, investment advice, custodian, or nominee services.

2. Issuers or sponsors (start-ups or existing corporations) of virtual digital assets shall be guided by the Commission’s regulation. The Commission may require Foreign or non-residential issuers or sponsors to establish a branch office within Nigeria. However foreign issuers or sponsors will be recognized by the Commission where a reciprocal agreement exists between Nigeria and the country of the foreign issuer or sponsor.

3. A recognition status will also be accorded, where the country of the foreign issuer or sponsor is a member of the International Organization of Securities Commissions (IOSCO).


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