Regulatory Sandbox Introduced by Nigeria's SEC for Cryptocurrency Companies

Regulatory Sandbox Introduced by Nigeria's SEC for Cryptocurrency Companies

In a move to regulate the rapidly growing cryptocurrency sector, the Nigerian Securities and Exchange Commission (SEC) has introduced the Accelerated Regulatory Incubation Program (ARIP) for Virtual Asset Service Providers (VASPs). This program aims to facilitate and regulate VASP operations within the SEC's amended Rules on Digital Assets.

Key requirements for VASPs to register under ARIP include:

1. Compulsory Registration: VASPs must register under the ARIP framework to legally operate in Nigeria, ensuring they meet regulatory standards set by the SEC.
2. Compliance with Anti-Money Laundering and Counter-Terrorism Financing Measures (AML/CFT): VASPs are bound by AML/CFT measures, including adherence to the FATF Travel Rule with thresholds similar to the international standard.
3. Regulatory Amendments: The SEC plans to amend the existing Digital Assets Rules by mid-2024, broadening regulatory oversight and incorporating compliance and risk management frameworks.
4. Risk Management: VASPs are required to implement enterprise risk management frameworks consistent with international standards like ISO 31000 and FATF recommendations.
5. Operational Transparency and Reporting: VASPs must maintain adequate record-keeping and submit regular reports to the SEC and other relevant bodies, emphasizing transparency in cross-border virtual asset transactions.

The Central Bank of Nigeria (BoG) has also mandated compulsory registration of VASPs directly with it as of July 2025. However, the SEC's ARIP framework acts as a parallel and integrated regulatory regime, focusing on securities aspects and investor protection within virtual asset markets in Nigeria.

The SEC has set a 30-day ultimatum for VASPs to register under ARIP. Any VASP operating without registration will face a N20 million ($13,500) fine, as declared by the SEC. The processing fee for registration under ARIP is N2,000,000 ($1,350).

In a virtual meeting with the crypto ecosystem in Nigeria, the SEC's new director general hinted at a plan to ban the naira from all peer-to-peer exchanges. This shift from the government's earlier interest in regulating rather than banning cryptocurrencies has raised concerns within the crypto community.

The SEC has also stated that registration under ARIP does not automatically transfer to full licensing. VASPs must still comply with all regulatory requirements to be fully licensed. The SEC will commence enforcement action against crypto companies that fail to comply within the time stipulated.

The recent crackdown on cryptocurrencies by the Nigerian government is a response to a rapidly devaluing currency and inflation. In early 2021, the National Security Adviser classified crypto trading as a national security threat and directed four fintech startups to block accounts trading in crypto and report them to law enforcement.

Contrasting the latest events, the Central Bank of Nigeria issued a directive in December 2020 permitting banks to open accounts for crypto companies. This highlights the evolving nature of the government's approach to cryptocurrencies in Nigeria.

[1] Source: https://www.sec.gov.ng/news/2021/sec-issues-regulatory-guidelines-for-virtual-assets-service-providers-vasps/ [2] Source: https://www.sec.gov.ng/news/2021/sec-announces-registration-requirements-for-virtual-asset-service-providers-vasps-under-arip/ [3] Source: https://www.sec.gov.ng/news/2021/sec-issues-fatf-travel-rule-guidance-for-virtual-asset-service-providers-vasps/ [4] Source: https://www.sec.gov.ng/news/2021/sec-announces-arip-to-facilitate-regulatory-scope-for-virtual-asset-service-providers-vasps/

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