Regulation of Cryptocurrency in Nigeria Expected by 2024
Ever since Bitcoin emerged in 2009, the world of cryptocurrency has been witnessing a series of intriguing developments. Governments across the globe have come to recognize the significance of digital assets and are now keen on formulating regulations and policies for the blockchain and crypto space. Nigeria, the most populous country in Africa, is no exception. With its tech-savvy and pro-blockchain youth, Nigeria is eager to embrace cryptocurrencies, leading the country to establish a framework for governing virtual assets.
In this Coinpedia module, we will delve into the crypto regulations in Nigeria in 2024 to get a better understanding of the situation.
Is Bitcoin Legal in Nigeria?
Cryptocurrencies do not hold legal tender status in Nigeria, as they are not recognized by the country’s Central Bank (CBN). In fact, the CBN imposed a complete ban on commercial banks engaging in any crypto transactions in 2021. The Nigerian financial system and banking sector are not directly linked to crypto trading. However, the CBN acknowledges the potential of digital assets and believes that they can enhance financial inclusion in the country. It is important to note that crypto is not illegal in Nigeria. Currently, there are no laws or legislation criminalizing the use of cryptocurrencies, and they are widely traded on crypto exchanges throughout the country.
Crypto Regulations in Nigeria
The CBN’s ban on crypto in 2021, coupled with the growing popularity of digital assets in Nigeria, prompted the Securities and Exchange Commission of Nigeria to establish 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. It clarifies and defines digital assets in Nigeria and states that all digital asset token offerings, initial coin 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 acquire a virtual asset service provider (VASP) license from the SEC by fulfilling application processing requirements, paying registration fees, and other applicable fees.
Additionally, crypto exchanges need to provide 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). Moreover, they are required to collect the bank verification number (BVN) of crypto company owners, verify the identities of customers, comply with know your customer (KYC) and anti-money laundering (AML) measures, and submit a white paper to the SEC for approval if they are issuing tokens.
To ensure compliance with Nigerian regulatory authorities, exchanges must have a physical presence in the country.
A licensed crypto exchange in Nigeria must adhere to SEC regulations and provide an undertaking to ensure the availability of records, personnel, resources, security measures, risk management, and appoint a chief information security officer to mitigate cyber risks.
In 2023, Nigeria’s Central Bank lifted the ban on crypto transactions, recognizing the importance of cryptocurrencies.
What’s New in Crypto Regulations in Nigeria in 2024?
The controversy surrounding Binance led the Nigerian government to take a stricter stance on exchanges operating in the country. Binance faced accusations of 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 Nigeria’s local fiat currency, the Naira, have prompted the government to revert to its old ways of restricting 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 accessing several crypto platforms like Binance for local users. The new SEC guidelines aim to ensure that “criminals are not registered as operators” in the capital market.
Taxation
Crypto transactions are taxable 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 cryptocurrencies. This tax applies to individuals, businesses, and any entities resident in Nigeria. The introduction of a 10% taxation on gains from the disposal of crypto was a significant development 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 reach $56.7 billion between July 2022 and June 2023. This growth highlights Nigeria’s vibrant crypto market and emphasizes the need for effective regulation.
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