In an official statement, the Securities and Exchange Commission of Nigeria (SEC Nigeria) has officially recognized crypto assets as securities.
The regulator now officially defines a ‘crypto asset’ in Nigeria as ‘a digital representation of value that can be digitally traded and functions as:
- A medium of exchange
- A unit of account
- A store of value
but does not have legal tender status in any jurisdiction.’
The regulator will now be responsible for registering and approving all digital assets, treating cryptocurrencies and utility tokens as commodities.
“Virtual crypto assets are securities, unless proven otherwise.
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.” ~ SEC Nigeria
Following this statement, the regulator will now be responsible for regulating the following:
- Any person (individual / corporate) whose activities involve any aspect of blockchain-related and virtual digital asset services
- Issuers of virtual digital assets shall be guided by the Commission’s regulation
- According a recognition status for foreign digital asset issuance
SEC Nigeria is the regulatory body authorized in overseeing, approving, and registering security assets in the country.
Below is a table that shows how SEC categorizes and will thus treat virtual assets and instruments moving forward:
| S/N | VIRTUAL DIGITAL ASSET | TREATMENT |
| 1. | Crypto Asset- e.g non fiat virtual currency.
| Treated as commodities if traded on a Recognized Investment Exchange and/or issued as an investment, and is subject to Part E of SEC Rules and Regulations and any other relevant sections and subsequent Rules which will be enacted in future |
| 2. | Utility Tokens or “Non-Security Tokens” (e.g., virtual tokens. These tokens simply provide users with a product and/or service. | Treated as commodities. However, spot trading and transactions in Utility Tokens do not fall under SEC purview unless conducted on a Recognized Investment Exchange and therefore subject to Part E of SEC Rules and Regulations and any other relevant sections and subsequent Rules which will be enacted in future |
| 3. | Security Tokens” (e.g., virtual tokens that have the features and characteristics of a security. Represent assets such as participations in real physical underlyings, companies, or earnings streams, or an entitlement to dividends or interest payments. In terms of their economic function, the tokens are analogous to equities, bonds, etc. | Deemed to be Securities pursuant to PART XVIII (315) of ISA, “definition of Securities’’. All financial services activities in relation to Security Tokens, such as operating primary / secondary markets, dealing / trading / managing investments in or advising on Security Tokens, will be subject to the relevant regulatory requirements. Market intermediaries and market operators dealing or managing investments in Security Tokens need to be registered / approved by SEC as CMOs, Recognized Investment Exchanges or Recognized Clearing Houses, as applicable. |
| 4. | Derivatives and Collective Investment Funds of Crypto Assets, Security Tokens and Utility Tokens | Regulated as Specified Investments under the ISA & SEC Rules and Regulations. Market intermediaries and market operators dealing in such Derivatives and Collective Investment Funds will need to be registered / approved by SEC. |
Security tokens are tokens that represent tradable financial assets such as a share or bond from a company. Such tokens also represent a form of investment that pay dividends, share profits, or pay interest in a way that promise future profits.
Based on the Howey Test, securities are generally recognized as investment instruments that promise profit solely from the efforts of the promoter or a third party. This expectation of profit also means taxation will come into play.
Whether this landmark decision becomes a precedent to how crypto assets are recognized and thus regulated across Africa remains to be seen. It is however safe to say that this could very likely be the direction that other regulators take across the continent based on ongoing consultation in such jurisdictions as South Africa and Kenya.
NB: BitKE will be attending a meeting convened by the crypto and blockchain community in Nigeria and will update on what this means for the crypto community in Nigeria
