Nigeria SEC Digital Asset Framework: Points to watch

Rules on Issuance of Digital Assets as Securities

  • All whitepapers must be submitted to the SEC for review. They must contain an overview of the project, tokenomics, use of proceeds from the sale and a timeline.
  • Whitepapers can be circulated pending SEC approval but must contain a disclaimer stating they have not been formally registered.
  • Applications must contain independent legal evaluation as to whether the proposed digital asset offering constitutes securities.
  • Token information, including price, ticker and tokenomics.
  • KYC procedures, risk management and security protocols for the token.
  • Independent legal certification that the issuer has acquired necessary licenses and certificates.
  • The issuer’s directors must hold at least 50% of the assets released until the end of the offering period.
  • The maximum funds raised can be 20x the issuer’s shareholders’ funds up to a cap of NGN 10bil.
  • The issuer must demonstrate the funds being raised are sufficient to fulfil the aims of the project, and if the soft cap is not met refund all investors within 5 days.
  • Sufficiently qualified institutional / HNW investors have no restrictions.
  • Retail investors can invest NGN 200k per issuance, with an annual limit of NGN 2mil.

Digital Assets Offering Platforms (DAOPs)

  • Application fee — NGN 100k
  • Processing fee — NGN 300k
  • Registration fee — NGN 30m
  • Sponsored individuals fee — NGN 100k
  • Evidence of required minimum paid up capital of NGN 500m, held in either liquid or illiquid assets.
  • Active insurance (fidelity bond) of at least 25% of minimum paid up capital.
  • DAOP boards must be approved by the SEC, with an appropriate charter specifying responsibilities and obligations.
  • DAOP CEOs must be appointed for a 5 year term, with a 2 term limit. They must fulfill specific experiential and educational requirements.
  • DAOPs must carry out due diligence and qualitative checks on the business of a new issuer, including compliance and whitepaper transparency.
  • Clearly highlight necessary risk warning statements associated with individual issuers and projects.
  • Establish requisite whistleblowing, segregation of function and compliance protocols.
  • Set up a robust, board-approved risk management framework addressing events posing a significant risk to operations.
  • Develop an internal audit function.
  • Publicly disclose conflicts of interest, including holdings it may have in issued assets or referral schemes.
  • All assets held on behalf of investors must be clearly and accurately recorded in a protected, multi-signature account.
  • This account must be operated by a Central Securities Depository registered by the SEC.
  • Only release funds once the targeted amount sought has been raised and there is no material change to either the issuer or the DAOP.

Digital Asset Custodians (DACs)

  • Consistent and proved compliance with SEC reporting requirements as to the handling and management of client assets.
  • Establishing and maintaining written policies containing a clear line of reporting, authorisation and segregation of functions.
  • Lines of reporting must also include anti-corruption and whistleblowing procedures that are consistent with the nature and scale of the DAC.
  • Provable safeguarding and security policies with respect to client data confidentiality.
  • DAC risk management systems must include strategies to monitor and mitigate material risks. These risks must be regularly internally audited and reported to senior management.
  • Adopt SEC recognised industry standards and practices for key generation and management.
  • Ensure employees involved in the key generation process are prevented from having unauthorised access to client assets.
  • Allow clients access to their assets independently of the DAC.
  • These assets must be probably segregated from the DAC’s own assets, tracked by accurate and up to date records.
  • Foreign DACs must have a separate account for Nigerian custodian services.

Virtual Asset Providers (VASPs)

  • Exchange between virtual assets and fiat.
  • Exchange between virtual assets.
  • Transfer for virtual assets.
  • Administration of virtual assets.
  • Provision of financial services related to offer/sale of virtual assets.
  • VASPs have an office in Nigeria managed by the director of the company.
  • Collect self-declared risk assessment forms and make clear to users that loss resulting from trading activities is not covered by any protection fund.
  • Relevant declaration of fees, education materials and complaints mechanisms for users.
  • Provide the SEC access to the platform when required.

Digital Assets Exchange (DAX)

  • DAX operators’ business plans must address events that could pose a significant risk of disrupting operations.
  • DAXs’ internal guidelines must incorporate the use of a secondary site to ensure that critical IT systems can resume operations in case of disruptive events.
  • The SEC must issue a ‘no-objection’ to any digital assets listed on a DAX before they can be traded.
  • DAXs must submit an application to the SEC containing the asset’s whitepaper, legal compliance information and security protocols (including number of nodes and history of hacks).
  • All trading activity, market structure, order types must be recorded and disclosed to the SEC.
  • The DAX must have systems in place to detect and deter market manipulation, manage volatility and ensure transparent execution, clearing and intra-day settlement.

Conclusion

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Adaverse Accelerator

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Adaverse is a Cardano Ecosystem Accelerator that aggregates entrepreneurs, strategists and mentors building its most robust foundation in Africa.

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