The volatility of the crypto market and its popularity have pushed the Nigerian Financial Intelligence Unit (NFIU) and the Securities and Exchange Commission (SEC) to set New rules (drafts) for the virtual assets service providers (VASPs). Although the market at the moment is bearish weeks after experiencing a sharp selloff, driven by a strong dollar that has reached new highs in two decades, resulting in cryptocurrencies, especially Bitcoin and Ethereum breaking their key support levels of $40K and 3K respectively.
In February 2021, the Central Bank of Nigeria (CBN) banned banks and other financial institutions from conducting or transacting any form of business with crypto-related entities and individuals. It although stated preference for Central Bank Digital Currencies (CBDCs).
The apex bank through its Acting Director, Corporate Communications, Osita Nwansobi noted that “The use of cryptocurrencies in Nigeria is a direct contravention of existing law", he, however, added that "It is also important to highlight that there is a critical difference between a Central Bank issued Digital Currency and cryptocurrencies, as the names imply, while Central Banks can issue Digital Currencies, cryptocurrencies are issued by unknown and unregulated entities.”
In February 2022, the NFIU, an autonomous unit domiciled within the Central Bank of Nigeria (CBN), through its Virtual Assets Workstream over a National Assessment Risk (NRA) invited stakeholders in Nigeria’s blockchain and crypto industry to a discourse. The NFIU, an autonomous unit domiciled within the Central Bank of Nigeria (CBN), is the central national agency responsible for the receipt of disclosures from reporting organisations, the analysis of these disclosures and the production of intelligence for dissemination to competent authorities.
The draft proposals follow the threat of sanction by the Financial Action Task Force (FATF) if Nigeria fails to improve its anti-money laundering and combating the financing of terrorism (AML-CFT) regulations before October 2022. The FATF defines a “virtual asset service provider” or VASP as any natural or legal person that conducts one or more of the following activities or operations for or on behalf of another natural or legal person: Exchange between virtual assets and fiat currencies; an exchange between one or more forms of virtual assets; transfer of virtual assets; safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.
Nigeria does not currently have an AML-CFT policy it implements for VASPs, a situation that portends money laundering and terrorism financing risks for the country.
Although the CBN has not lifted the ban, the SEC appears will be returning to the discussion with stakeholders in the market and preparing possible drafts, as sources indicate that the commission may be acting on the threat from FATF.
The rules include the SEC Capital Market Operators and Virtual Asset Service Providers Anti-Money Laundering and Combating the Financing of Terrorism) Regulations 2022; proposed Rules for Regulation of Virtual Asset Service Providers (VASPs); and Rules on Issuance, Offering Platform and Custody of Digital Assets.
SEC’s regulation will mainly focus on crypto or digital assets as investments and securities under the Investments and Securities Act (ISA), while NFIU is expected to focus on AML-CFT compliance for VASPs.
