Nigeria Plans to Implement Crypto Regulations in 2024

Ever since Bitcoin emerged in 2009, the world of cryptocurrency has been undergoing constant shifts. Governments around the globe have recognized the importance of digital assets and are now working towards creating regulations for the blockchain and crypto space. Nigeria, the most populous country in Africa, is no exception. With its tech-savvy and pro-blockchain youth, the country is eager to embrace crypto and is in the process of establishing a framework for governing virtual assets.

Is Bitcoin legal in Nigeria?

Cryptocurrencies are not considered legal tender in Nigeria as they are not recognized by the Central Bank of Nigeria (CBN). In fact, the CBN banned commercial banks from engaging in any crypto transactions in 2021. The financial system and banking sector of Nigeria are not connected to crypto trading. However, the CBN acknowledges the potential of digital assets and believes that they could improve financial inclusion in the country. It is important to note that crypto is not illegal in Nigeria, as there are currently no laws or legislation criminalizing its use. Cryptocurrencies are widely traded on crypto exchanges throughout Nigeria.

Crypto regulations in Nigeria

The CBN’s ban on crypto in 2021, coupled with the increasing popularity of digital assets in the country, prompted the Securities and Exchange Commission of Nigeria to develop a framework for crypto regulation. In 2022, the SEC published a comprehensive 54-page document titled “New Rules on Issuance, Offering Platforms and Custody of Digital Assets” on its website. This document provides guidelines for banking and financial institutions in Nigeria on how to interact with digital assets.

The document clarifies and defines digital assets in Nigeria and states that all digital asset token offerings, ICOs, and blockchain-based offerings within Nigeria or by Nigerian issuers will be regulated by the SEC. All crypto exchanges operating in Nigeria are required to obtain a permit, which grants the SEC access to their records. These exchanges must also obtain a virtual asset service provider (VASP) license from the SEC by complying with the application processing requirements, registration fees, and other applicable fees.

Crypto exchanges need to demonstrate evidence of a minimum paid-up capital of 500 million Nairas and a current fidelity bond covering at least 25% of the company’s minimum paid-up capital. They must obtain a license from the SEC and register with the Corporate Affairs Commission (CAC), collect the bank verification number (BVN) of the crypto company owners, verify the identities of customers, comply with KYC and AML measures, and submit a white paper to the SEC for approval in the case of token issuance.

Furthermore, exchanges must have a physical presence in Nigeria to ensure compliance with Nigerian regulatory authorities. Licensed exchanges must adhere to SEC regulations and provide an undertaking to ensure the availability of records, personnel and resources, security measures, risk management, and appoint a chief information security officer to mitigate cyber risks.

In 2023, the Central Bank of Nigeria lifted the ban on crypto transactions, recognizing the importance of cryptocurrency.

What’s new in crypto regulations in Nigeria in 2024?

The Binance controversy led to increased scrutiny on exchanges operating in Nigeria. Binance was accused of being involved in terror financing, which resulted in its partial exit from the Nigerian crypto market. On March 7, 2024, the SEC will integrate revised guidelines for licensing and registering virtual asset service providers operating in the region. These guidelines include measures to combat money laundering and the financing of terrorism.

The recent troubles faced by the local fiat currency, Naira, have prompted the government to restrict investor access to crypto services in an attempt to find a scapegoat for its rapid decline. On March 7, the SEC updated its guidelines for crypto service providers following the government’s block on access to several crypto platforms such as Binance for locals. The new SEC guidelines aim to prevent criminals from being registered as operators in the capital market.

Taxation

Crypto is subject to taxation in Nigeria. In May 2023, a specific bill was signed into law by then-president Buhari to clarify the tax status of digital assets in the evolving crypto space. The new law imposes a 10% levy on the disposal of all digital assets, including cryptocurrency. This tax applies to individuals, businesses, and any type of entity resident in Nigeria. The introduction of a 10% taxation on gains from the disposal of crypto took effect in May 2023.

According to New York-based blockchain research firm Chainalysis, the volume of crypto transactions in Nigeria grew by 9% year-over-year to $56.7 billion between July 2022 and June 2023. This growth highlights the presence of a vibrant crypto market in Nigeria and the need for effective regulation.

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