Operation Rescue Naira: FG plans strict rules for $57bn crypto business

The Federal Government may consider the suspension of the $56.7bn peer-to-peer cryptocurrency market after a crucial meeting between the Securities and Exchange Commission, and digital asset operators scheduled for Monday.

Nigeria’s volume of crypto transactions grew by nine per cent year-over-year to $56.7bn between July 2022 and June 2023, according to the 2023 Geography of Cryptocurrency Report by Chainalysis, a United States of America-based international blockchain analysis firm.

The latest move by the SEC signals a broader effort by the Federal Government to tighten regulatory oversight within the cryptocurrency space amidst growing concerns over illicit activities and the manipulation of the naira exchange rate.

Earlier this week, the Central Bank of Nigeria had stopped major fintech firms from onboarding new customers in an ongoing audit of their Know-Your-Customer process. Following the regulatory action, major fintech firms, including Opay and PalmPay, sent emails to their customers on Friday, warning them against trading in cryptocurrency or any virtual currency on their apps, and threatened to block any accounts found engaging in such activities.

The threat to block accounts has faced heavy criticism, particularly from the 33.4 million individuals actively trading cryptocurrencies; many of whom rely on cryptocurrency trading as their primary source of income.

However, Sunday PUNCH learnt that during the proposed Monday meeting, the government may choose to announce a temporary halt in the P2P crypto trading to enable it come up with a comprehensive set of rules for effective regulation of the space.

Other sources privy to the meeting said the government might choose to engage the crypto stakeholders on a new set of rules that could be deployed to better regulate the space.

They ruled out the possibility of imposing a temporary halt on P2P crypto trading. As of Sunday, details of the exact decision the government might take during or after the meeting with the crypto operators remained sketchy.

However, operators in the crypto market confirmed the meeting, saying the meeting would bother on the current development in the space. The Blockchain Industry Coordinating Committee of Nigeria, in a notice posted on its X handle on Saturday, noted that the meeting had been at the instance of the new Director General of the SEC, Dr Emotimi Agama.

BICCoN said, “The newly appointed Director General of the Nigeria Securities and Exchange Commission has proposed an industry-wide meeting with the Nigeria blockchain community. The meeting will be facilitated by the Blockchain Industry Coordinating Committee of Nigeria.”

Officially, the SEC has yet to confirm the Monday meeting, but sources close to the commission confirmed the meeting on Saturday. They, however, said that ‘nothing was cast in stone yet’.

In 2021, the CBN had restricted banks and other financial institutions from operating accounts for cryptocurrency service providers. However, in December 2023, the financial regulator lifted the ban and announced a reversal of the policy.

Fresh concerns emerged in February over the activities of the largest cryptocurrency exchange in the world, Binance, on its peer-to-peer platform, such as implementing a price cap on USDT trading.

Authorities said those activities contributed to the devaluation of the naira and destabilised Nigeria’s economy.

“Most peer-to-peer (transactions) don’t happen on Binance P2P, NoOnes, or any of those other platforms. They happen on WhatsApp, Telegram, coffee shops, and everywhere on the streets. That is where most peer-to-peer is happening. I think most of that is peer-to-peer volume. They are trying to cover up too, because Nigerians are very crafty and have ways of using things for reasons other than what they were created for,” he maintained.

In March, the SEC, under the former DG, Lamido Yuguda, revealed plans to issue updated guidelines for the operations of digital assets and virtual asset service providers in the country, saying the new guidelines would ensure criminals did not gain entry into the country’s capital market.

The SEC notice, dated March 4, 2024, partly read, “The SEC has also developed a new AML/CFT/CPF onboarding manual for licensing, registration, and ongoing screening of digital and VASP beneficial owners to ensure that criminals are not registered as operators in the capital market. The SEC is ready to interface with genuine VASPs based on these clear rules and regulations.”

The SEC also proposed that for virtual (crypto) asset service providers, ‘no person or entity shall provide any virtual asset service unless registered with the Commission; a company seeking to operate as a VASP shall be incorporated and have an office in Nigeria. Its Chief Executive Officer/Managing Director or its equivalent shall be resident in Nigeria.”

When questioned about the SEC’s proposed guidelines in the crypto sector at the last Capital Market Committee meeting that he chaired, the former SEC DG said investor protection was a driving motive.

“We want to ensure that investors who decide to get involved in digital asset products are well protected. We want a platform where certain capital market functions are duly segregated. If you are an exchange, we don’t want you to also be a custodian, and such.

“Also, we are very mindful that AML/CFT considerations are very important when one is dealing with crypto assets. We want to make sure it is not money laundering or funds used to promote terrorist financing,” the former SEC DG said.

The Chief Operating Officer of Fintech Association of Nigeria, Babatunde Obrimah, told Sunday PUNCH, “I am not privy to the circulars sent to the Fintechs, and I am not aware that crypto is illegal. The meeting will put things into perspective.”

“I think the issue is that to trade, one must be licensed by the SEC. So, if one is trading without a license, then one is technically illegal. But, we should talk after the Monday meeting, instead of speculating,” he added.

In March, the SEC proposed a 400 per cent increase in crypto firm registration fees. However, checks by Sunday PUNCH, on Saturday, showed that the proposed guidelines had been deleted from the SEC’s website. It is unclear when the PDF was removed from the regulator’s website.

The proposed amendments to the rules for crypto issuers, exchanges, and custody platforms include hikes to all supervision fees. Instead of a N100,000 application fee and a N30m registration fee, the SEC proposed N300,000 with every application, N1m as a processing fee, and N150m as registration fee, with the sponsored individual fees raised to N300,000 from N100,000.

An economist, Aliyu Ilias, emphasised the need for urgency in addressing the deficiencies within the fintech ecosystem, citing the ongoing struggle of the apex bank to effectively regulate them, as illustrated by the recent case involving Binance.

Ilias argued that in the dynamic tech industry, regulatory clampdowns often led companies to exploit loopholes, stating, “Even the Know Your Customer requirement proves insufficient.”

Another industry stakeholder, who is also the founder and coordinator of Blockchain Nigeria User Group, Chuta Chimezie, expressed hope that the Monday meeting would ‘help the industry significantly, and improve the relationship between regulators and policymakers’.