On 14 May 2022, it was announced that the Nigerian Securities and Exchange Commission (“SEC”) released new regulations guiding the issuance, exchange and custody of digital assets in Nigeria. These regulations are known as the Proposed Rules for the Registration of Virtual Assets Service Providers (“VASP”) in Nigeria.

The Proposed Rules, once finalized, will apply to platforms that facilitate the trading, exchange and transfer of virtual assets. Under the Proposed Rules virtual assets are considered digital representations of value which can be used as a medium of exchange/payment, or a unit of an account and are traded digitally. 

The Proposed Rules will apply to all entities whose activities involve, blockchain-related and virtual asset services as well as entities that provide portfolio management services, investment advice, custodian or nominee services, amongst others. 

In addition, foreign and non-residential operators that actively target Nigerian investors directly or indirectly through agents, promotions, publications in Nigeria or direct emails to Nigerian addresses will also be subject to the Proposed Rules. 

To be considered a VASP the following must be present within the transaction: 

• exchange between virtual assets and fiat currencies i.e., legal tender; 
• exchange between one or more forms of virtual assets; 
• transfer of virtual assets; 
• safe keeping and/ or administration of virtual assets or instruments; and 
• participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset, for or on behalf of another entity. Examples of VASPs include virtual asset exchanges, wallet providers, brokers etc.

The Proposed Rules require all entities that conduct business as VASPs to be registered with the SEC. The appropriate SEC form must be filed along with certain documents. 

The Proposed Rules also create and recognize a category of operators known as the Digital Assets Exchange Operators (“DAX Operators”) who are essentially VASPs that operate (electronic) platforms which facilitate the trade of virtual assets. To be registered and to conduct business as a DAX Operator, prospective operators must apply to be registered with the SEC, have a minimum paid-up capital of N500m, procure an insurance bond covering of at least 25% of its paid-up capital and obtain approval from SEC in order to facilitate the trading of virtual assets.

The Proposed Rules are a step in the right direction and encourage local and foreign companies desiring to trade in virtual assets in Nigeria by creating an enabling regulatory environment for such transactions.  However, there is still a lot of vagueness about the actual procedures such as the forms to be filled, transaction fees and operating requirements. We expect the final version will provide a concise guide to investors, companies and members of the public intending to deal with digital assets.