On September 14, 2020, the Securities and Exchange Commission (“SEC”) released a statement announcing its authority to regulate cryptocurrencies and digital assets in Nigeria, as detailed in our article dated September 23, 2020. In furtherance of this, SEC has recently released Proposed Rules for the Registration of Virtual Assets Providers (“VASPs“) in Nigeria, which we highlighted in our article dated April 15, 2022. In addition to this, SEC also released Proposed Rules on Issuance, Offering Platforms, and Custody of Digital Assets (the “Proposed Rules”).

In this article, we will highlight salient points to note from the Proposed Rules.

1. What is the definition of digital assets under the Proposed Rules?
   It can be inferred from the Proposed Rules that digital assets are digital tokens issued to raise funds through equity or debt financing. Categories of digital assets include crypto assets, utility tokens, non-utility tokens, etc. Note that such digital assets must be targeted at Nigerians or offered within Nigeria.
2. Who do the Proposed Rules apply to?
   The Proposed Rules apply to all issuers seeking to raise capital in Nigeria through digital asset offerings. It also applies to Digital Assets Offering Platforms and Digital Asset Custodians.
3. Who qualifies as an Issuer under the Proposed Rules?
   The Proposed Rules do not expressly define who/what companies will qualify as issuers. It can, however, be inferred from general capital market definitions, that an issuer in this case will be a startup or company that develops digital assets for the purpose of raising capital.
4. When will a Digital Asset qualify as securities under the Proposed Rules? The Proposed Rules provide that SEC shall determine whether the digital asset proposed to be offered qualifies as securities upon reviewing relevant information submitted by the issuer. A key document to be submitted is a white paper setting out information on: (i) the initial digital asset offering project; (ii) business plan; (iii) target audience;  (iv) intended use of the proceeds from the sale of the token, and other stated information.

5. What is the next step to take once a Digital Asset is approved as securities? Once the digital asset is approved as securities, the issuer is to register the digital asset with SEC. Requirements for registration include: (i) a registration statement of the digital assets, containing the name and ticker of the token, the price per token, etc; (ii) fulfilment of KYC procedures, disaster recovery plans; (iii) corporate governance disclosures; (iv) a solicitor’s opinion confirming that all applicable permits and licenses have been obtained; and (v) evidence of payment of the applicable fees. Where the issuer complies with registration requirements, SEC may register the digital assets. SEC may reject an application for registration of digital assets if, in its opinion, the proposed activity infringes public policy; is injurious to investors; or violates any of the laws, rules, and regulations implemented by SEC.

6. What are the requirements for registration as a Digital Asset Offering (DAO) Platform under the Proposed Rules?
   Digital Assets are required to be offered through a registered electronic DAO platform. Providers of DAO platforms are required to apply for its registration by providing stated documents including a copy of the certificate of incorporation; and must show a minimum paid-up capital of N500,000,000 (Five Hundred Million Naira).
7. Is there an investment limit prescribed by SEC? An investment in Digital Assets Offerings is subject to the following limits: i) for qualified institutional investors: no restriction on investment amount; ii) for high-net-worth individuals: a maximum of N50,000,000 (Fifty Million Naira) within 12 months; and iii) for retail investors: a maximum of N200,000 (Two Hundred Thousand Naira) per issuer with a total investment limit not exceeding N2,000,000 (Two Million Naira) within 12 months.

8. Who qualifies as a Digital Asset Custodian under the Proposed Rules?
   A Digital Asset Custodian is any company maintaining custody of virtual/digital assets for the account of another.
9. What are the requirements for registration as a Digital Asset Custodian under the Proposed Rules?
   Digital Asset Custodians are required to satisfy the existing capital market requirements for registration as a Custodian or Trustee. In addition to this, they are to obtain the approval of SEC to provide the services of a digital asset custodian.

CONCLUSION
It appears that the difference between this Proposed Rules and the Proposed Rules for the Registration of Virtual Assets Providers in Nigeria is that the former regulates general digital assets that are for the purpose of raising capital; whilst the latter regulates digital assets that are not for the purpose of raising capital. We expect that the scope of each Rule will be clarified when both Rules are finalised.

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