In May 2022, Nigeria’s Securities and Exchange Commission introduced a robust regulatory framework for virtual asset service providers, including digital asset exchanges. The framework required compliance with various laws and regulations to foster market integrity, safeguard investors, and deter financial crimes. The rules mandated digital asset exchanges to register, adhere to anti-money laundering (AML) practices, report on their finances, and comply with other regulatory requirements. A 54-page document on the rules of this regulation was released to this effect. This regulatory environment, though challenging, presents a unique opportunity for the Nigerian cryptocurrency market to mature and thrive.
This is an opinion editorial written by Nathaniel Luz, the co-founder & CEO of Flincap, a platform for OTC crypto exchanges in Africa.
In March 2024, there was a proposed major amendment to the Commission’s rules on issuance, offering platforms and custody of digital assets. This proposed amendment required virtual asset service providers (VASPs) to raise two times the minimum paid-up capital required in the previous rules. This paid-up capital comprises funds in banks, fixed assets, or investments in quoted securities. The proposed amendment also included an increase in the filing, processing, registration, and sponsored individual fees. The increase was generally 300% for the filing, processing, and sponsored individual fees and 500% for the registration fees. VASPs were also required to submit more documents for the crypto license.
The proposed amendment was met with resistance in the Nigerian crypto community. Many reasoned that the requirement might be relatively easy for foreign players to acquire since they might have grown their capital. However, many rising local players will have difficulty meeting it. This amendment could be perceived as a ban on Nigerian crypto exchanges, and it’s crucial to understand and empathize with these difficulties.
The SEC’s use of force to ensure compliance with the license requirements could be more effective as a dialogue. Many people are already losing confidence in the crypto industry due to the high cost and stringent rules. While the high cost of the license is not an insurmountable hurdle, there remains a lack of trust between the Nigerian government and the cryptocurrency community. Many stakeholders in the community have held back on several investments because of the constant instability in the government’s disposition towards innovation. A more collaborative approach could help restore this trust and encourage compliance.
Until the history of distrust has been dealt with and confidence restored, getting people to trust the SEC and pay the fees necessary for the license might be challenging. Once these fees are paid, there would be no hope for recovery. Yet, there is no assurance that there won’t be further issues down the line, even when they meet all the requirements.
However, it is good that we have regulations, and exchanges should try to comply. Though many investors feel these regulations are a pointer to a hostile environment for crypto investments, it is not. Cryptocurrency has not been banned in the country, and people can continue to invest in the industry if they get the necessary licenses. There might be many issues stakeholders in the industry are dissatisfied with, a proper dialogue with the government might be impossible if we do not get the proper licenses to back up our readiness.
What is the way forward then? There is an urgent need for the Nigerian government, SEC, key stakeholders in the crypto market, and other affected parties to engage in a dialogue on these issues and reach a mutual agreement. We hope to restore confidence in the Nigerian government through dialogue and a definite agreement. Once there is a restoration of confidence, more people will obtain their licenses, and there will be a smooth flow of crypto operations in Nigeria. In the meantime, exchanges that can afford to get the license should do so as regulation demands. More local exchanges should be compliant and get the license, as this is the only way to get the government to listen to us. Dialogue will be easier when there are more exchanges with the license, emphasizing the urgency and importance of this collaborative approach.
What do you think about the CEO of Flincap’s perspective? Share your thoughts and opinions about this subject in the comments section below.
