Understanding the Role of a Virtual Asset Service Provider in Nigeria

Contributor: John O. Oladipo Esq.

INTRODUCTION

Digital or virtual currency has gained popularity in the Nigerian financial space. According to data from Google Trends, Nigeria ranks No. 3 by search interest for the keyword “Bitcoin” as of the time of this writing. Peer-2-Peer Bitcoin trading denominated in the Nigerian naira has also steadily increased in 2021, with Nigeria leading other African countries.[1] To further buttress the foregoing, the number keeps increasing as many organizations, such as law firms, banking institutions, and technology firms keep training the interested public on this subject matter and its antecedent issues, based on the organization anchoring the training deem fit.

The news about the adoption of digital currency in Nigeria has been focused on and/or championed by the Central Bank of Nigeria, the apex financial regulator, as it should be. Interestingly, the Securities and Exchange Commission (SEC) has come up with a new regulation that recognizes virtual assets.

By way of background, the SEC had earlier released a statement in 2019 ‘On Digital Assets and Their Classification and Treatment’ (Statement) categorizing cryptocurrency into four (4) kinds, to wit:

a. Crypto asset.

b. Utility or Non-Security Tokens.

c. Security Tokens.

d. Derivatives and Collective Investment Funds of Crypto Assets, Security Tokens, and Utility Tokens.

Recently, the SEC announced a new regulation for Digital Assets as a component of its drive to supervise digital/virtual assets. This is stated in a newly published document titled “New Rules on Offering Platforms, Issuance, and Custody of Digital Assets” (New Rules).

Now, structured corporate personalities wishing to offer to the public digital asset or virtual assets in Nigeria or to Nigerians for trading must now get a virtual asset service provider (VASP) license.[2]

This article seeks to expatiate the meaning of the VASP in line with the current legal regime on digital currency in Nigeria.

What is VASP?

A Virtual Asset Service Provider means any entity that conducts one or more of the following activities or operations for or on behalf of another person:

i. Exchange between virtual assets and fiat currencies;

ii. Exchange between one or more forms of virtual assets;

iii. Transfer of virtual assets;

iv. Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and

v. Participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.[3]

It is equally important to note the definition of certain key terms as provided by the New Rules. Some of the terms of importance are as follows:

  1. Virtual Asset: This means a digital token that represents assets such as a debt or equity claim on the issuer;
  2. Digital Asset: This means a digital representation of value that can be transferred, digitally traded, and can be used for payment or investment purposes.
  3. Digital Asset Offering: Shall include ICOs and other Distributed Ledger Technology (DLT) offers of digital assets;

In addition to a robust legal framework for the VASPs, the New Rules also provide for rules guiding the modus operandi of Decentralized Asset exchange (DAX) which simply means an electronic platform that facilitate the trading of digital assets or virtual assets.[4]

ANY FRICTION?

As earlier stated, Nigeria recorded an impressive adoption of digital currency before the ban on banks and other financial institutions due to the threat trading and the use of cryptocurrency posed at that time as a result of the fact that it was an uncharted arena in Nigeria with no regulation safeguarding the citizens and residents from the issues or challenges facing the adoption and use of digital asset/ currency.

Going further, sometime in October 2021, the Federal Government of Nigeria launched its Central Bank Digital Currency also called ‘eNaira’ after the governor of the CBN declared at the 279th Monetary Policy Rate meeting that digital currency will have its place in Nigeria, which makes it the first Central Bank Digital Currency in Africa.

Currently, the Banks and other Financial Institutions are still under the directive banning the use of cryptocurrencies in Nigeria.

The emergence of these New Rules issued by the SEC has defined digital assets/currency as Securities, while the CBN sees digital currency as a currency stricto sensu. The CBN Act provides that only the CBN has the authority to issue a legal tender in Nigeria in whatever form[5].

The import/ implication of the foregoing is that the digital asset will be treated as securities to be traded in the manner provided for in the Investments and Securities Act.

CONCLUSION

It is important to note that there is no friction or conflict between the provisions of the New Rules issued by the SEC, and the position of the CBN on the adoption or use of digital currency in Nigeria.

The evolution of the eNaira will in no distant future, accommodate and/or integrate the robust legal framework issued by the SEC in the adoption and use of digital currency/assets, allowing Nigerians or other interested fellows to buy/ trade digital assets using the eNaira.

REFERENCE

  1. Remitano, ‘Nigeria Dominates P2P Bitcoin Trade Volume Ranks’, ‘ https://remitano.com/forum/mw/post/10564-nigeria-dominates-p2p-bitcoin-trade-volume-ranks ‘, accessed June 22th, 2022.
  2. Part D, Reg 4.0 of the New Rules on Issuance, Offering Platforms and Custody of Digital Assets (New Rules)
  3. Part D of the New Rules
  4. Part D, Reg 3.0 of the New Rules
  5. Section 2, 17 and 19 of the CBN Act

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