A few days ago, precisely on the 29th of August, 2024, the Security and Exchange Commission (SEC) gave an update on their Accelerated Regulatory Incubation Program which they launched in May 2022 for the introduction of the Rules on Virtual Asset Service Providers, announcing that only two (2) Digital Assets Exchanges have been granted “Approval-in-Principle” to commence operation under the Accelerated Regulatory Incubation Program (ARIP).

We will be right to therefore infer that this newest update of the 29th of August has given the latest official nod to the fact that cryptocurrency trading and their exchange platforms are now officially recognized and approved in Nigeria. 

Mind you that before now, the legal status of crypto trading/ exchange in Nigeria was in limbo; whether it is illegal or not”. There was no parliamentary legislation officially proscribing cryptocurrencies and their trading in Nigeria neither was there an official or statutory approval or recognition of it but with the SEC now issuing licenses to cryptocurrency vendors and exchanges via the SEC 2022 rules now gives a legal/ government official recognition to crypto trading in Nigeria on the premise that every crypto vendor/ platform is mandated to comply with the legal requirement by getting the expected licenses to be officially recognized and be legally allowed to operate in Nigeria. 

This cat-and-dog fight between crypto trading and the Nigerian government can be linked to the series of allegations that crypto vendors and criminals use Crypto exchanges/platforms to launder money, evade tax and finance terrorism. This led to the CBN in February 2021 banning commercial banks in Nigeria from engaging in any cryptocurrency transactions. However, this ban was later reversed almost two years later in December 2023 as the CBN lifted the ban on banks operating accounts for crypto service providers. 

Subsequently, in May 2024 when it seemed that the crypto space was enjoying uninterrupted peace from the Nigeria government, it was reported that the national security advisor was to declare crypto trading a national security threat, a situation that was expected to usher in another crackdown on P2P trading and the restricting or placing of Post No Debit (PND) on every bank accounts linked to crypto trade or transactions; this was catalytic of “the two elephant fight” between the Binance exchange platform and the Nigerian government. 

There is no gainsaying that the Nigerian government (could be) right on their stand that crypto platforms are the avenues for terrorism financing, money laundering and tax evasion hence why May 2022 SEC rules had that in contemplation as they mandated crypto exchanges to carry out a strict Know your Customers (KYC) on its users and also get Anti Money Laundering (AML) compliances like the Special Control Unit against Money Laundering (SCUML) certificates from the Economic and Financial Crimes Commission (EFCC)to checkmate money laundering. 

(The Know Your Customer (KYC) process is performed to verify the identity of new customers and to prevent illegal activities, such as money laundering or fraud. KYC is undertaken as part of Anti-Money Laundering (AML) and Anti-Terrorism Funding (ATF) requirements). 

As for the allegation of tax evasion, we are yet to know the official stand on taxing crypto, its legal status is yet unknown although the Federal Inland Revenue Service has stated that cryptocurrency transactions are taxable as capital gains but this is contradictory to CBN's stand that crypto is not a legal tender; you cannot therefore, lawfully tax an “illegal tender”.

The place of SEC in all of these;

Although the Security and Exchange Commission is a creation of the law and, therefore a statutory government agency, it is subject to be under the CBN and its activities to be ratified by the CBN. 

According to section 13 of the Investment and Securities Act (ISA), 2007, The Securities and Exchange Commission (SEC) is the main regulatory institution of the Nigerian capital market. This is to say that the SEC is “the go-to guy” for licenses and regulations in the capital market spaces in Nigeria covering Fintechs like digital assets exchange (DAX)/ crypto vending platforms, securities exchanges and capital trade, asset management platforms/corporations, betting platforms, and all other fintech platforms. The core purpose of the SEC is provided in Section 13 of the ISA, 2007 which is to protect investors or platform users from losing their funds or from being defrauded and to checkmate illegal activities in the capital market space. 

By the SEC rule of May 2022, all crypto exchanges providing services in Nigeria are required to secure a permit from CBN via the SEC. This is to say that digital Asset exchanges (DAX) will now need to obtain a virtual asset service provider (VASP) license from the SEC before they can be legal to operate. In fact at the cause of its recent update of 29th of August 2024, while letting Nigerians know that they intend to implement the SEC 2022 rules to the later, the SEC reiterated that “only approved digital exchanges and platforms are legally authorized to carry out the business of crypto trading in any form in Nigeria” and they advised the public to refrain from dealing with any crypto platform who have not applied to and received the SEC’s approval under the ARIP or the RI Program as informations of those who have been licensed by SEC will always be made public on the SEC platforms where both intending customers and investors will go to confirm if the platform have been duly licensed before engaging with them.