Understanding the Role of a Virtual Asset Service Provider in Nigeria – By Oyetola Muyiwa Atoyebi and John Oladipo


Nigeria recorded an impressive adoption of digital currency before the banning of banks and other financial institutions, due to the commercial threat and use of cryptocurrency posed at that time. This was based on the fact that this is an uncharted arena in Nigeria with no regulations protecting citizens and residents from the issues or challenges facing the adoption and use of digital assets/currencies.

INTRODUCTION

Digital or virtual currency has gained popularity in the Nigerian financial space. According to data from Google Trends, Nigeria ranks #3 in search interest for the keyword “Bitcoin” at the time of writing. Bitcoin Peer-2-Peer trade denominated in Nigerian naira has also grown steadily in 2021, with Nigeria leading other African countries.[1] To further substantiate the above, the number continues to grow as many organizations such as law firms, banking institutions and technology companies continue to educate the interested public on this topic and its past issues, in depending on the organization that funds the training.

News regarding the adoption of digital currency in Nigeria has been focused and/or championed by the Central Bank of Nigeria, the supreme financial regulator, as it should be. Interestingly, the Securities and Exchange Commission (SEC) has come up with a new regulation that recognizes virtual assets.

For your information, the SEC previously issued a statement in 2019 “On Digital Assets and Their Classification and Treatment” (Statement) classifying cryptocurrency into four (4) types, namely:

a. Cryptographic asset.

b. Utility or non-security tokens.

vs. Security tokens.

D. Derivatives and collective investment funds of crypto assets, security tokens and utility tokens.

Recently, the SEC announced new regulations for digital assets as part of its drive to oversee digital/virtual assets. This is stated in a recently published document titled “New Rules on Offering Platforms, Issuance and Custody of Digital Assets” (New Rules).

Now, structured legal entities wishing to offer digital assets or virtual assets in Nigeria or Nigerians to the public for trading purposes must now obtain a Virtual Asset Service Provider (VASP) license.[2]

This article seeks to explain the meaning of VASP as per the current legal regime on digital currency in Nigeria.

What is VASP?

A virtual asset service provider is any entity that conducts one or more of the following activities or operations for or on behalf of another person:

I. Exchange between virtual assets and fiat currencies;

ii. Exchange between one or more forms of virtual assets;

iii. Transfer of virtual assets;

iv. Custody and/or administration of virtual assets or instruments enabling the control of virtual assets; and

v. Participation in and provision of financial services related to the offer and/or sale of a virtual asset by an issuer.[3]

It is also important to note the definition of certain key terms as provided by the new rules. Some of the terms of importance are:

  1. Virtual Asset: This means a digital token that represents assets such as a claim or claim on the issuer;
  • Digital Asset: It means a digital representation of value that can be transferred, digitally exchanged and can be used for payment or investment purposes.
  • Supply of digital assets: Must include ICOs and other DLT (Distributed Ledger Technology) offerings of digital assets;

In addition to a strong legal framework for VASPs, the new rules also provide rules guiding the modus operandi Decentralized Asset Exchange (DAX) which simply means an electronic platform that facilitates the trading of digital assets or virtual assets.[4]

A FRICTION?

As previously reported, Nigeria witnessed an impressive adoption of digital currency before the banning of banks and other financial institutions due to the commercial threat and use of cryptocurrency posed at the time due to the fact that this was an uncharted arena in Nigeria with no regulations protecting citizens and residents from the issues or challenges facing the adoption and use of digital assets/currencies.

Going further, in October 2021, the Federal Government of Nigeria launched its central bank digital currency also called “eNaira” after the Governor of the CBN told the 279e Monetary policy rates responding that digital currency will have a place in Nigeria, making it the first central bank digital currency in Africa.

Currently, banks and other financial institutions are still subject to the directive prohibiting the use of cryptocurrencies in Nigeria.

The emergence of these new rules issued by the SEC has defined digital assets/currencies as securities, while the CBN considers digital currency as currency Strictly speaking. The CBN Act provides that only the CBN is empowered to issue legal tender currency in Nigeria in any form.[5].

The import/implication of the above is that the digital asset will be treated as securities to be traded in the manner provided in the Investments and Securities Law.

CONCLUSION

It is important to note that there is no friction or conflict between the provisions of the new rules issued by the SEC and the position of the CBN on the adoption or use of digital currency in Nigeria.

The evolution of eNaira will adapt and/or incorporate in the near future the strong legal framework issued by the SEC in the adoption and use of digital currency/assets, allowing Nigerians or other exchanges interested in buying/trading digital assets using eNaira. .

AUTHOR: Oyetola Muyiwa Atoyebi, SAN, FCIArb. (UK).

Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of OM Atoyebi, SAN & Partners (OMAPLEX Law Firm) where he is also the Team Leader of Emerging Areas of Legal Practice.

Mr. Atoyebi has expertise in technology, media and telecommunications law, which has enabled him to advise and represent his vast clientele in a myriad of high profile transactions. He holds the honor of being the youngest lawyer in the history of Nigeria to be awarded the rank of Senior Advocate of Nigeria.

He can be reached at [email protected]

DONOR: John Oladipo.

John is a team leader in the dispute resolution team at the law firm OMAPLEX. He also has remarkable legal expertise in technology, media and telecommunications law.

He can be reached at john.oladipo@omaplex.com.ng.


[1] Remitano, “Nigeria Dominates P2P Bitcoin Trade Volume Ranks”, “https://remitano.com/forum/mw/post/10564-nigeria-dominates-p2p-bitcoin-trade-volume-ranks”, accessed June 22, 2022.

[2]Part D, Reg 4.0 of the New Rules on Issuance, Offering Platforms and Custody of Digital Assets (New Rules)

[3] Part D of the new rules

[4] Part D, Reg 3.0 of the new rules

[5] Articles 2, 17 and 19 of the CBN Law


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