The Securities and Exchange Commission (SEC) of Nigeria has recently unveiled new regulatory incubation guidelines for Virtual Asset Service Providers (VASPs). These guidelines aim to ensure closer regulatory oversight and support for local market development in response to the challenges faced by the country’s fiat currency due to the increasing adoption of cryptocurrencies.
One of the key requirements of the new guidelines is that all fintech entrepreneurs, particularly those involved in virtual assets, must establish a physical presence in Nigeria. This includes having an office in the country for regulatory oversight and customer interaction. Additionally, applicants must leverage innovative technology to offer new financial services/products and address specific consumer needs. The products/services must also be safe for investors and align with SEC regulations.
Under the new guidelines, VASPs must demonstrate fitness and relevant skills in financial services and technology. They are required to provide full information to clients, regularly update the SEC on their activities, and comply with all applicable laws and regulations, including Anti-Money Laundering and Counter-Terrorism Financing requirements. VASPs must also define clear procedures for holding and controlling client assets and submit monthly reports to the SEC.
VASPs that qualify for regulatory incubation are subject to specific restrictions, such as not guaranteeing returns in financial promotions and limiting the number of clients they can onboard. The incubation period is limited to one year, during 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 incubation process if they do not comply with the guidelines.
Applicants must submit a detailed implementation plan outlining their 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. Firms that fail to adhere to the guidelines risk losing their eligibility for regulatory incubation and facing potential termination of their operations.
The SEC’s new regulatory incubation guidelines for VASPs are aimed at fostering a more regulated and supportive environment for the development of virtual asset services in Nigeria. By enforcing stringent requirements and restrictions, the SEC is working towards ensuring the safety of investors and the stability of the local financial market. It is crucial for fintech entrepreneurs to carefully adhere to these guidelines to avoid legal issues and maintain the integrity of their operations.
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