SEC Releases Statement on Digital Assets, their Classification and Treatment

It’s a new dawn for crypto assets dealers as the Nigerian Securities and Exchange Commission (the “SEC”) on Monday 14th August 2020, published a statement on digital assets, their categorisation and treatment. It is important to note that the SEC recognizes that crypto assets are not guaranteed by any jurisdiction and are clearly distinguished from fiat currency and e-money.

In its statement, the SEC recognised the need to ensure that digital assets offerings operate in a manner consistent with investor protection, interest of the public, market integrity and transparency. For this reason, the SEC will going forward classify virtual crypto assets as securities unless otherwise established.

In such instances, the burden of proving that the crypto assets are not securities in such instance is placed on the Issuers or Sponsors of the crypto assets and such Issuers/ Sponsors are expected to discharge this burden by making an “Initial Assessment Filing” to the SEC. If the SEC finds that such virtual assets are indeed securities, then the Issuer or Sponsor must register the assets with the SEC. It is important to mention that the process of registration of virtual assets is two-phased. After the Initial Assessment Filing mentioned above, the Issuer/Sponsor will be required to file a proper application for registration with the SEC.

Furthermore, Digital Assets Token Offering (DATOs), Initial Coin Offerings (ICOs), Security Token ICOs and other Blockchain-based offers of digital assets offered in Nigeria by a Nigerian Issuer or Foreign Issuer targeting Nigerian investors will now be regulated by the SEC. Under this new regime, Issuers of existing digital assets offerings have a period of three (3) months to either submit an initial assessment filing or apply for registration proper as the case may be.

Who will be regulated?

  • Individuals or corporate bodies whose business involve any aspect of blockchain-related, and virtual digital services;
  • Issuers or Sponsors (start-ups or existing companies) of virtual digital assets; and
  • Foreign Sponsor or Issuers.

Categorisation and Treatment of Assets

The SEC defined Crypto Assets as a “digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and or (2) a unit of account; and or (3) a store of value, but does not have legal tender status in any jurisdiction” .

In addition to the above, the SEC has identified the four (4) categories of virtual assets as follows:

  1. Crypto Asset – treated as a commodity if traded on a recognised investment exchange and/or issued as an investment and thus subject to Part E of SEC Rules and Regulations 2013 (“SEC Rules”).
  2. Utility Tokens/Non-Security tokens - also regarded as commodities. However, spot trading and transactions in utility tokens does not fall under SEC’s coverage unless the same is conducted on a recognised investment exchange thereby subjecting it to Part E of the SEC rules.
  3. Security Tokens - recognised as securities pursuant to Part XVIII of the Investment and Securities (ISA) Act 2007.
  4. Derivatives and Collective Investment Funds of Crypto Assets, Security Tokens and Utility Tokens - treated as specified investments under ISA Act and SEC Rules.

There’s no further details on the above yet. We however expect that the SEC will issue a Guidelines/Regulations in this regards soon.

Please read more on SEC’s statement here.