Nigeria’s SEC Requires VASPs to Set Up Local Offices for Eligibility in Framework Program

Nigeria’s Securities and Exchange Commission (SEC) announced on June 21 that all Virtual Asset Service Providers (VASPs), including cryptocurrency firms, are required to set up offices in Nigeria as part of the eligibility criteria for its Accelerated Regulatory Incubation Programme (ARIP).

This initiative aims to streamline the registration and onboarding process for VASPs in anticipation of the upcoming Digital Assets Rules, with an emphasis on compliance and safeguarding investors.

The stipulation also requires that applicants report customer grievances and emerging risks, and they will be subject to SEC inspections, audits, and oversight.

Nigeria’s SEC Launches Accelerated Regulatory Incubation Program (ARIP) for VASPs

As regulations concerning digital asset issuance, offering platforms, exchanges, and custody are being revised, VASPs are temporarily required to function under the ARIP framework.

Nigeria SEC’s Regulatory Incubation Operations Requirement for VASPs Source: sec.gov.ng

In addition to establishing a physical presence, the CEO or managing director of these organizations must reside in Nigeria.

They are also required to demonstrate operational readiness with live customer support and show willingness to apply for full registration as soon as the necessary regulations are in place. Products or services should tackle specific industry challenges or provide significant benefits to consumers, ensuring investor protection.

The framework is applicable to entities conducting business in Nigeria or providing services to Nigerian consumers, including platforms that facilitate the offering, trading, exchange, custody, and transfer of digital assets.

The SEC plans to utilize ARIP to expedite the onboarding of entities that have submitted applications or intend to register with the Commission. Entities that qualify under ARIP can receive provisional approval from the SEC, pending the complete implementation of the Digital Assets Rules.

Nigeria Enforces Stringent Regulations for VASPs Under Regulatory Incubation

VASPs participating in the regulatory incubation face specific limitations, including bans on guaranteeing financial returns in promotions and restrictions on client onboarding. The incubation period is capped at one year, after which firms must either pursue full registration or halt operations if they do not meet eligibility criteria.

The SEC reserves the right to terminate participation in the incubation process if firms fail to uphold eligibility, violate conditions, deviate from implementation plans, or neglect to apply for registration or submit a discontinuation notice within the designated timeframe.

According to the SEC, applicants must provide comprehensive implementation plans detailing business models, objectives, risk management frameworks, and communication strategies. These plans must outline strategies for concluding the incubation period, whether through successful registration or an exit strategy.

Application prerequisites include submitting a sworn statement confirming no fraud convictions, an operational plan, a business model with a distinct value proposition, and measures for investor protection.

Additionally, applicants are required to pay a processing fee of 2 million naira ($1,277) and furnish proof of the necessary shareholder funds.

Moreover, ARIP participants must submit weekly and monthly trading statistics, quarterly financial statements, compliance reports, and incident reports. The SEC has indicated that failure to adhere to ARIP requirements may result in penalties starting at 5 million naira ($3,194) and escalating daily for ongoing non-compliance.

Unregistered commercial VASPs face penalties beginning at 20 million naira ($12,776), while other digital investment platforms, such as crypto brokers and advisers, may incur fines of at least 10 million naira ($6,388).

In March, Nigeria’s SEC proposed changes to regulations governing platforms that offer crypto services, including a suggested increase in the registration fee for crypto exchanges from 30 million naira ($18,620) to 150 million naira ($93,000).

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