SEC’s Crypto Licensing Rules Disadvantage Nigerian Exchanges, Analyst Says

Nigerian crypto analyst Rume Ophi has called for revising the crypto licensing guidelines issued by the Nigerian Securities and Exchange Commission (SEC), claiming that they are unfair to local crypto exchanges and favor foreign ones. Ophi said that the SEC’s virtual asset services providers (VASP) guidelines do not consider the needs and realities of indigenous exchanges, which should have been prioritized in the regulatory framework.

According to the SEC’s document, titled “New Rules on Issuance, Offering Platforms and Custody of Digital Assets,” crypto exchanges and other service providers must obtain a VASP license from the SEC by meeting certain requirements, such as paying a registration fee and having a minimum upfront capital of 500 million naira ($556,620).

High Entry Barrier For Local Exchanges

Ophi argued that this amount is too high for many local exchanges, which will result in a dominance of foreign exchanges in the Nigerian crypto market instead of a healthy balance. He said that local exchanges are more likely to understand and serve the needs of the Nigerian crypto community, which is one of the most active and aware in the world.

A Nigerian Web3 legal representative, Kue Barinor Paul, agreed with Ophi’s view and said that the SEC’s licensing framework needs to be reworked to be more friendly to local exchanges. He suggested that Nigerian virtual currency exchanges and VASPs may have to merge to afford the SEC license requirement, which could limit the diversity and innovation in the sector.

Paul also said that the Nigerian National Assembly should intervene and ensure that the SEC’s licensing rules are aligned with the country’s current economic situation, which is facing high inflation, unemployment and poverty.

Nigeria’s Crypto Potential

Nigeria is the largest economy in Africa and has a huge potential for crypto adoption and innovation. A global survey with participants from 15 nations revealed that Nigeria has the highest level of digital assets awareness worldwide, with 66% of respondents saying they are familiar with virtual currencies.

According to Chainalysis’ “2023 Cryptocurrency Geography Report,” Nigeria ranked second in crypto adoption out of 154 countries assessed, based on metrics such as peer-to-peer exchange trading volume, the on-chain value received, and web traffic on virtual currencies platforms.

Nigeria’s high crypto adoption was expected to attract more foreign investment in digital assets, especially after the Central Bank of Nigeria lifted the ban on financial institutions serving virtual assets exchanges in 2023. However, Ophi said that the investment rate has been low, partly due to the SEC’s licensing requirements, which he said are discouraging local exchanges from operating legally and transparently.

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