Crypto assets have come to the forefront of society quickly. In an area where technology has surpassed the law in many jurisdictions, this guide aims to provide a current snapshot of the legal status of crypto assets around the world, current regulations, and forthcoming or proposed legislation.
Special thanks to Martin Sloan (Brodies) as well as the leaders of the TerraLex Technology & Digital Business Industry Sector Team and Finance & Banking Practice Group for developing the questions for this guide.
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According to a September 2020 Securities and Exchange Commission (SEC) statement All virtual cryptocurrency assets are to be considered securities unless proven otherwise by the sponsor and issuer of said asset.
Cryptocurrencies and other digital assets are not illegal in Nigeria. However, traditional banks and other financial institutions have been prohibited from facilitating cryptocurrency and other digital asset transactions by the Central Bank of Nigeria (CBN).
It is not clear whether cryptocurrencies and other digital assets are currently regulated in Nigeria. The SEC released new regulations titled “Rules on the Issuance, Offering Platforms and Custody of Digital Assets” on May 11, 2022. However, the CBN continues to prohibit traditional banks and other financial institutions from facilitating cryptocurrency transactions.
The SEC’s new rules stipulate that any individual or corporate entity whose activity involves crypto-related or digital asset services must be registered by the SEC and, as such, subject to regulatory guidelines. All digital assets token offerings, initial coin offerings, security token offerings, and other blockchain-based offers of digital assets within Nigeria or by Nigerian issuers, sponsors or foreign issuers targeting Nigerian investors shall be subject to regulation by the SEC. However, the CBN prohibits traditional banks and other financial institutions from facilitating cryptocurrency-related transactions through its directive dated February 7, 2021. Thus, the CBN and the SEC are the most likely primary regulators if cryptocurrency becomes regulated in Nigeria.
No specific anti-money laundering regulations for crypto asset activities have been introduced in Nigeria. However, the Money Laundering (Prevention and Prohibition) Act 2022 aims to deter the funneling of illicit money in and out of the financial system, including via activities linked with cryptocurrency and digital assets. The SEC’s new rules stipulate that digital asset exchanges, digital asset offering platforms, and digital asset custodians make provisions for efficient Know Your Customer and Customer Due Diligence measures to prevent money laundering and terrorist financing.
The SEC intends to regulate the use of blockchain through Part D of the new regulation, which defines virtual assets service providers as including any individual or corporate entity whose activities involve any aspect of distributed ledger technology, including blockchain. However, the CBN’s directive still prohibits banks and other financial institutions from facilitating cryptocurrency-based transactions.
There are no specific legal frameworks for the taxation of cryptocurrencies and other digital assets in Nigeria. However, the SEC’s new regulation includes a requirement for a “tax identification clearance certificate” for registering crypto assets. Hence, the Companies Income Tax Act and the Personal Income Tax Act are applicable
In its September 2020 statement on the regulatory framework released, the SEC classified crypto assets as non-fiat virtual currency that is to be treated as a commodity if traded on a recognized investment exchange or issued as an investment. However, the SEC’s statement on the regulatory framework has been put on hold due to the CBN’s directive, which prohibits traditional banks and other financial institutions from facilitating cryptocurrency-related transactions.
There are currently no regulations on conflicts of laws specific to cryptocurrency in Nigeria. However, Nigeria is a signatory to a host of international conventions and treaties relating to intellectual property, which should also apply to intangible assets.
No laws prohibit the use of smart contracts in Nigeria. Consequently, a smart contract transferring ownership of a crypto asset should be legally binding and enforceable in Nigeria provided the basic elements of a contract are present.
The SEC’s new regulation released on May 11, 2022, does not make provision for the possibility of taking security over crypto assets in Nigeria.
No inheritance tax provision for cryptocurrency and other digital assets exists in Nigeria.
The SEC has over the years released two proposed regulatory frameworks for regulating cryptocurrency and other digital assets: “Statement on Digital Assets and their classifications & treatment” and “Rules on issuance, offering platforms and custody of digital assets.” However, in its “Response to regulatory directives on cryptocurrency,” the CBN, which is the apex financial regulator in Nigeria, stated that traditional banks and other financial institutions are prohibited from facilitating cryptocurrency-based transactions.
There are divergent views and approaches toward regulating cryptocurrency in countries in Africa.
The actions of SEC and CBN have made the regulation of cryptocurrency and other digital assets in Nigeria unclear. To ensure the proper regulation of crypto assets, the SEC issued two regulatory frameworks, but the CBN continues to prohibit banks and other financial institutions from facilitating cryptocurrency transactions. The CBN bases this decision on the volatility of the cryptocurrency market. The CBN also believes that crypto transactions encourage money laundering and terrorist financing.
It is imperative that necessary measures are implemented to address these concerns to enable a clear regulatory framework for cryptocurrency transactions in Nigeria.
Disclaimer: This guide contains summaries of general principles of law. It is not a substitute for specific legal advice and should not be relied upon in relation to the application of the law or subject matter covered.
