The Securities and Exchange Commission (SEC) of Nigeria has introduced strict guidelines for Virtual Asset Service Providers (VASPs) to set up a local office in Nigeria as part of its new regulatory incubation framework.
Furthermore, the guidelines – set out in the recently released ‘SEC Regulatory Incubation Guidelines’ – require all fintech entrepreneurs, especially those involved in virtual assets, to have a physical presence in Nigeria. The provision includes leadership roles at companies, including CEOs.
The new requirements are part of a broader initiative to ensure closer regulatory oversight and support for local market development.
The initiative comes after the country’s challenges in maintaining the value of its local fiat currency amid a local boom in crypto adoption, which has put direct pressure on the Naira.
Important Provisions for VASPs
Pre-qualification requirements include that applicants must have an office in Nigeria to facilitate regulatory oversight and customer interaction. They must use innovative technology to offer new or improved financial services or products.
The company must fall under the financial services regulated by the SEC. Applicants must be prepared to start activities with live customers and must commit to applying for full registration once the necessary rules are established.
The product or service must address a specific problem or provide significant benefits to the consumer or industry. Products must be safe for investors, and companies must complete a FinTech Assessment Form and contact the SEC early.
Operational requirements stipulate that applicants must demonstrate aptitude and relevant skills in financial services and/or technology. Companies must provide complete information to their customers and update the SEC regularly to ensure compliance with all relevant laws and regulations.
Compliance with the requirements to combat money laundering and the financing of terrorism is mandatory. Procedures for holding and controlling customer assets should be clearly defined, and monthly reports should be filed with the SEC.
Restrictions and Conditions
VASPs under regulatory incubation are subject to specific restrictions, including a ban on guaranteeing returns in financial promotions and a limit on the number of customers they can admit.
The incubation period is limited to one year, after which companies must apply for full registration or cease operations if they do not meet the eligibility criteria.
The SEC reserves the right to terminate a company’s participation in the regulatory incubation process if it no longer meets the eligibility criteria, violates any restrictions or conditions, deviates from its implementation plan, or fails to to apply for registration or submit a notice of termination after one period. year.
Applicants must submit a detailed implementation plan describing the business model, objectives, timeline, risk management framework and communication strategies with customers. This plan should also include steps for dealing with the end of the incubation period, either through successful registration or an exit strategy.