The Securities and Exchange Commission (SEC) of Nigeria recently released the “SEC Regulatory Incubation Guidelines,” introducing stringent requirements for Virtual Asset Service Providers (VASPs) operating in the country. These new guidelines are aimed at enhancing regulatory oversight, supporting local market development, and addressing the challenges faced by Nigeria in maintaining the value of its fiat currency amid a growing adoption of cryptocurrencies.
One of the key requirements outlined in the SEC guidelines is that all fintech entrepreneurs, especially those involved in virtual assets, must have a physical presence in Nigeria. This includes setting up an office to facilitate regulatory oversight and customer interaction. Additionally, applicants must leverage innovative technology to offer new or enhanced financial services, fall within the SEC-regulated financial services sector, and address specific industry problems or consumer needs.
In addition to the physical presence requirement, VASPs under regulatory incubation must demonstrate fitness and relevant skills in financial services and technology. They are also mandated to adhere to Anti-Money Laundering and Counter-Terrorism Financing regulations, define procedures for holding and controlling client assets, and submit monthly reports to the SEC. Moreover, firms are restricted from guaranteeing returns in financial promotions and are subject to limits on client onboarding.
The incubation period for VASPs is limited to one year, during which they must either apply for full registration with the SEC or cease operations if they do not meet eligibility criteria. The SEC reserves the right to terminate a firm’s participation in the incubation process if they fail to meet requirements, breach restrictions, deviate from their implementation plan, or do not apply for registration or submit a notice of discontinuance by the end of the one-year period.
Applicants are required to submit a detailed implementation plan outlining their business model, objectives, timeline, risk management framework, and communication strategies with customers. This plan should also include steps for handling the end of the incubation period, whether through successful registration or an exit strategy. It is essential for firms to engage with the SEC early on and provide regular updates to ensure compliance with all relevant laws and regulations.
The new SEC guidelines for VASPs in Nigeria mark a significant shift towards closer regulatory supervision and support for local market development. By introducing strict pre-qualification and operational requirements, the SEC aims to ensure the safety of investors, promote innovation in financial services, and address the challenges posed by the increasing adoption of cryptocurrencies. Fintech entrepreneurs in Nigeria must carefully adhere to these guidelines to navigate the regulatory landscape and contribute to the growth of the local fintech industry effectively.
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