The Securities and Exchange Commission (SEC) of Nigeria has introduced stringent guidelines for Virtual Asset Service Providers (VASPs) to establish a local office in Nigeria as part of its new regulatory incubation framework.
Additionally, the guidelines — detailed in the recently released “SEC Regulatory Incubation Guidelines” — mandate that all fintech entrepreneurs, particularly those involved in virtual assets, must have a physical presence within Nigeria. The stipulation includes leadership roles at firms, including CEOs.
The new requirements are part of a broader initiative to ensure closer regulatory supervision and support for local market development.
The initiative comes after the country’s challenges with maintaining the value of its local fiat currency amid a local boom in crypto adoption, which has put direct pressure on the Naira.
Key provisoins for VASPs
Pre-Qualification Requirements include that applicants must have an office in Nigeria to facilitate regulatory oversight and customer interaction. They must leverage innovative technology to offer new or enhanced financial services or products.
The business must fall within the financial services regulated by the SEC. Applicants should be prepared to commence operations with live customers and must commit to applying for full registration as soon as the necessary rules are established.
The product or service should address a specific problem or provide significant benefits to consumers or the industry. Products must be safe for investors, and firms must complete a FinTech Assessment Form and engage with the SEC at an early stage.
Operational Requirements stipulate that applicants must demonstrate fitness and relevant skills in financial services and/or technology. Firms must provide full information to clients and regularly update the SEC, ensuring compliance with all relevant laws and regulations.
Adherence to Anti-Money Laundering and Counter-Terrorism Financing requirements is mandatory. Procedures for holding and controlling client assets must be clearly defined, and monthly reports must be submitted to the SEC.
Restrictions and conditions
VASPs under regulatory incubation are subject to specific restrictions, including a prohibition on guaranteeing returns in financial promotions and a cap on the number of clients they can onboard.
The incubation period is limited to one year, after which firms must either apply for full registration or cease operations if they do not meet eligibility criteria.
The SEC reserves the right to terminate a firm’s participation in the regulatory incubation process if it no longer meets the eligibility criteria, breaches any restrictions or conditions, deviates from its implementation plan, or fails to apply for registration or submit a notice of discontinuance after one year.
Applicants must submit a detailed implementation plan outlining the 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.
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