The Securities and Exchange Commission has released a Framework on Accelerated Regulatory Incubation Programme (ARIP) for the Onboarding of Virtual Assets Service Providers (VASPs) and other Digital Investment Service Providers (DISPs). The Framework was issued further to the SEC’s extant Rules on Digital Assets Issuance, Offering Platforms, Exchange and Custody 2022 and the Proposed Major Amendments to the Rules on Issuance, Offering Platforms and Custody of Digital Assets in Nigeria 2024. The Framework sets out the requirements that VASPs and DISPs seeking to participate in the ARIP should satisfy before being eligible for such participation.
Purpose of the ARIP
Under the Framework, the SEC has provided a special window for the onboarding of entities that propose to carry on virtual asset activities whose applications have been filed with the SEC, as well as other potential applicants that engage in such activities. This is to enable qualified entities to obtain an approval-in-principle from the SEC (“AIP”), pending when the Proposed Rules are issued and the Rules become operational. The primary purpose of establishing the ARIP is to provide guidance to its participants on the SEC’s regulatory requirements before they become fully operational in the Nigerian capital market. The ARIP is also aimed at giving the SEC an opportunity to better understand the digital asset business models of entities seeking to operate in the Nigerian capital market. Ultimately, this will enable the SEC to enhance its regulations to ensure they adequately address issues surrounding market integrity, investor protection and money laundering and boost its ability to effectively supervise the operations of the operators in the market.
Extent of the Applicability of the Framework
The Framework applies to a wide range of entities. Apart from VASPs and DISPs seeking registration with the SEC, the Framework is also applicable to, among other entities: (a) token issuers that carry on business activities in Nigeria or offer services to Nigerian consumers; (b) platforms that facilitate the offering, trading, exchange, custody and transfer of virtual/digital assets; and (c) promoters/organisers, issuers, founders, purchasers or investors who participate in the formation, promotion, maintenance, organisation, sale or redemption of an initial token offering.
In addition, only entities
(a) incorporated at the Corporate Affairs Commission with an office in Nigeria;
(b) having the Chief Executive Officer/Managing Director (or its equivalent) resident in Nigeria;
(c)engaged in the business of investment and securities; and
(d) seeking registration or have pending virtual asset-related applications with the SEC, can apply to the SEC for participation in the ARIP. All applications for participation in the ARIP must be filled by the applicant through a registered solicitor or adviser in Nigeria.
The Application Process and Requirements
The application process for the ARIP under the Framework is divided into two categories comprising the:
(1) Initial Assessment Phase; and
(2) Application Phase.
The Initial Assessment Phase is the stage at which the SEC considers the eligibility of an applicant to be a participant in the ARIP. An applicant commences the initial assessment by filling and submitting a form through the designated SEC portal – SEC ePortal. After this stage, if the SEC deems an applicant eligible to apply as a participant in the ARIP, such an applicant can then commence the application phase. An applicant who scales the initial assessment phase is referred to as an Eligible Applicant under the Framework.
An Eligible Applicant must apply by filling out the appropriate form on the SEC portal. The Framework requires that a registered solicitor or adviser in Nigeria steers the application process on behalf of the Eligible Applicant. The requirements that the applicant is mandated to provide include:
(i) a sworn declaration with the required depositions;
(ii) an operational plan and a business model that clearly states the unique value proposition of the entity and how the entity will contribute to the overall development of the Nigerian capital market;
(iii) the operational rules of the entity with satisfactory provisions that protect investors and the public, and also ensure proper regulation and oversight of its users and others; and
(iv) a no-objection or approval letter from the relevant sectoral regulator of the entity, where applicable.
The SEC has the discretion to require any additional document from the applicant. On costs, the applicant is required to pay the SEC a non-refundable processing fee of N2 million. The applicant is required to have the required shareholders’ funds. It is, however, unclear whether the “shareholders fund” refers to the minimum paid-up capital requirement in the Rules. The SEC will need to provide further clarification on what it means by shareholders' funds and whether it is dependent on the categories of applicants under the Rules, such as digital assets custodians and VASPs. This requirement for shareholders' funds forms the basis on which the applicant is required to provide evidence of a fidelity bond issued by a licensed insurance company covering a minimum of 25% of the required shareholders’ fund.
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