The Securities and Exchange Commission (SEC) of Nigeria has recently introduced stringent guidelines for Virtual Asset Service Providers (VASPs) as part of its new regulatory incubation framework. The guidelines mandate that all fintech entrepreneurs involved in virtual assets must establish a local office in Nigeria, including leadership roles such as CEOs. These requirements are aimed at ensuring closer regulatory supervision and support for the development of the local market.
Under the new guidelines, applicants must have an office in Nigeria to facilitate regulatory oversight and customer interaction. They are also required to leverage innovative technology to offer new or enhanced financial services/products. Additionally, the business must fall within the financial services regulated by the SEC and must be prepared to commence operations with live customers. Furthermore, applicants must commit to applying for full registration as soon as the necessary rules are established. The product or service offered should address a specific problem or provide significant benefits to consumers or the industry while also ensuring the safety of investors.
In terms of operational requirements, applicants must demonstrate fitness and relevant skills in financial services and/or technology. They must provide full information to clients and regularly update the SEC to ensure 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. 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 for VASPs 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 are required to 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.
The new guidelines imposed by the SEC of Nigeria for Virtual Asset Service Providers are aimed at enhancing regulatory supervision and support for the local market. These guidelines, while stringent, are essential for ensuring the safety of investors and the development of innovative financial services/products within the country. It is crucial for fintech entrepreneurs to carefully adhere to these requirements to avoid any potential risks or complications in the regulatory incubation process.