Nigeria’s weekly billion-dollar crypto transactions come under regulatory scrutiny
The Securities and Exchange Commission (SEC) is set to monitor the weekly and monthly trading statistics of Virtual Assets Service Providers (VASPs) such as crypto automated teller machines (ATMs), exchanges, P2P platforms, custodians, among others.
This initiative is detailed in the recently released document by SEC entitled, ‘A Framework on Accelerated Regulatory Incubation Program for the Onboarding of Virtual Assets Service Providers (VASPs) and other Digital Investments Service Providers (DISPs).’
To structure the country’s crypto ecosystem, SEC is amending its rules on digital asset issuance, offering platforms, exchanges, and custodies. The amendment aims to expand the scope of regulation in line with current realities.
The arrangement includes a special window for onboarding VASPs tagged, ‘Accelerated Regulatory Incubation Programme (ARIP).’
In its ARIP, SEC said, “ARIP participants shall submit to the Commission the following: Weekly and monthly trading statistics (where applicable) and all reporting requirements.
“They shall submit quarterly financials as well as compliance reports to demonstrate compliance with conditions imposed by the Commission. Key issues arising from misconduct, fraud, or operational incident reports and, if any, measures taken by the participant to address such incidents.
“They shall also submit actions or steps taken to address customer complaints, emergent risks, or other issues relevant to Commission’s assessment of applicable regulatory requirements; and any other relevant matters.”
Nigeria has one of the largest peer-to-peer (P2P) crypto markets globally. According to Chainalysis, a global blockchain platform, crypto transactions in the country reached $56.7 billion between July 2022 and June 2023. This translates to $1.09 billion weekly.
According to Senator Ihenyen, lead partner and head of blockchain and virtual assets practice at Infusion Lawyers, “Nigeria can no longer afford to keep pushing digital assets underground for obvious economic and security reasons.”
He noted that the CBN’s recognition of the SEC’s role in regulating the digital assets space is good for the sector. “Our regulators will now work together to ensure consumer protection and investor safety,” Ihenyen further said.
One industry expert likened the development to the practice in South Africa.
“They’re basically saying that SEC will now take the lead on VASPs, a far departure from what it was during Godwin Emefiele’s time. This new move was done to meet the Financial Action Task Force (FATF) standard on anti-money laundering and crypto trading fund (AML/CTF) for digital assets, similar to what South Africa did. Execution is what will make the difference. We’ve never been lacking in regulations.”
Earlier in July, Wale Edun, minister of finance and coordinating minister of the economy, had tasked the newly inaugurated SEC board with addressing the complexities of crypto regulation.
“The SEC board should be willing to accept the challenge of regulating these new areas, particularly crypto, as they are fast-moving complex areas,” he said.
In May 2024, the Senate Committee on Capital Markets had called for crypto regulation to ensure accountability and protection of investors’ funds.
Osita Izunaso, chairman of the Committee, had said, “The issue of cryptocurrency must be regulated because Nigerians are trading in crypto. Since Nigerians are trading in crypto, why are we not regulating it? Where is the money going if we don’t regulate activities in the crypto market?”
The new regulatory mechanism aims to facilitate the onboarding of entities willing to carry out virtual asset activities and whose applications have been filed with the commission, analysts say.
“It will also provide an opportunity for the Commission to further understand the digital asset business models to enhance its regulation,” the SEC said recently.
Crypto participants will be required to submit weekly and monthly trading statistics to the SEC, providing the commission access to the billion-dollar industry.
The SEC’s move to monitor transactions aligns with the country’s efforts to implement a 7.5 percent value-added tax (VAT) on crypto transactions. In what the Federal Inland Revenue Service calls voluntary compliance, KuCoin began charging 7.5 percent VAT on transaction fees.
“Regulation and monitoring will make this (VAT compliance) easy. So, there will be some sort of compliance framework to effectively know the number of users,” said Chimezie Chuta, founder and coordinator of Blockchain Nigeria User Group.
But some industry insiders question the practicality of some of these requirements. A crypto exchange operator, who wished to remain anonymous, said: “I can understand the desire for a physical presence. But many of these crypto companies do not plan on having physical locations like banks for now, so I do not see how that will work out.”
Some experts believe the eventual regulation of crypto will improve tax revenues as crypto proceeds come under regulatory guidance. However, others say the industry is gradually becoming over-regulated.
“We are now like banks that are over-regulated. Between 2020 and now, we have had new regulations and changes to existing rules, but where has that taken us to?” asked a Lagos-based crypto player, who pleaded anonymity.
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