The Nigerian Securities and Exchange Commission (“SEC”) released its Rules on Crowdfunding (“the Rules”) on 12 January 2021, pursuant to section 13(a) of the Investment and Securities Act 2007 to regulate investment-based crowdfunding in Nigeria.
It is now a mandatory requirement from SEC that all crowdfunding intermediaries must comply with the requirements of the Rules and register with the SEC or cease their operations. Even existing crowdfunding intermediaries were mandated to register by the 30th of June 2021. Failure to comply with the foregoing would render any operation by an unregistered entity illegal and they will be subject to regulatory sanctions as provided by the Rules.
This article expatiates the requirements for registration of Crowdfunding Intermediaries in Nigeria.
It is pertinent to understand the meaning of certain concepts discussed in this article viz- Crowdfunding and Crowdfunding Intermediary.
Crowdfunding: This is basically the process of raising funds to finance a project or business from the public through an online platform called crowdfunding portal.
Crowdfunding Intermediary: A Crowdfunding Intermediary is one of the key Players in a Crowdfunding process. The crowdfunding rules defines a Crowdfunding Intermediary as an entity organized and registered as a corporation to facilitate transactions involving the offer of securities or investment instruments through a Crowdfunding Portal. Being a Crowdfunding Intermediary is a requisite to run a crowdfunding portal. In other words, only a Crowdfunding Intermediary is regarded as an operator of the portal.
Rule 5 provides that:
“Every portal that facilitates, operates, provides or maintains interactions between fundraisers and the investing public (crowd) in Nigeria for the purpose of any investment-based crowdfunding shall be operated only by an entity registered as a Crowdfunding Intermediary”.
REQUIREMENTS FOR REGISTRATION AS CROWDFUNDING INTERMEDIARY
Nigeria’s Security and Exchange Commission (SEC) requires crowdfunding portals operating in Nigeria to register as a Crowdfunding Intermediary and as such entities are expected to meet certain requirements.
An entity seeking to register as a Crowdfunding Intermediary must make an application to the Securities and Exchange Commission (SEC) in the prescribed form accompanied with Certified True Copies (CTC) of the following:
- The certificate of incorporation certified by the Corporate Affairs Commission (CAC);
- Memorandum and Articles of Association and amendments (if any) certified by the CAC;
- CAC form(s) showing Statement of Share Capital, Return of Allotment, and Particulars of Directors;
- Latest copy of the audited accounts or a copy of the statement of affairs signed by its auditors and management accounts that are not more than 9 months old or a copy of the statement of affairs signed by its auditor as at time of filing with the Commission;
- Management accounts that are not more than 1 month old as at the time of filing with the Commission;
- Company profile that includes a brief history of the company, organizational and shareholding structure, principal officers, details of past and current activities;
- The name(s) and address(es) of the company’s subsidiaries/associated companies/ related entities, type of business and percentage holding;
- Evidence of payment of shares allotted to the shareholders;
- Operational manual of the company;
- Business plan;
- Existing or proposed by-laws or rules, and such other document governing the conduct of fundraisers and investors on the portal;
- Sworn undertaking to promptly furnish the SEC with copies of any amendments to its by-laws, rules, or codes;
- Information on Crowdfunding IT System to be adopted;
- Detailed information about the crowdfunding system to be adopted including technical details associated with the portal’s online presence;
- Proposed brand name of the Crowdfunding Portal including evidence of trademark registration of the brand name (where applicable);
- Detailed information of all domain names of any website through which the Crowdfunding Portal will be operated, social media handles and any other online identifiers including evidence of registration (where applicable);
- Detailed information about the promoters and principal officers of the Crowdfunding Intermediary;
- Sworn undertaking to keep such records and render such returns as may be specified by the Commission from time to time;
- An application for registration of at least three (3) principal officers of the Crowdfunding Intermediary as sponsored individuals on the prescribed Form. A person to be so appointed shall include the Chief Executive of the Crowdfunding Intermediary, any person who is primarily responsible for the operations and financial management of the Crowdfunding Intermediary.
- Minimum paid-up capital requirement of ₦100 million;
- Current Fidelity Insurance Bond valued at a minimum of 20% of the paid-up capital as stipulated by the Commission’s Rules and Regulations;
- A written declaration by the Chief Executive of the Crowdfunding Intermediary, and which shall be filed annually, confirming that the Crowdfunding Intermediary has, in relation to the Crowdfunding Portal:
- Sufficient and capable personnel to carry out operations
- Adequate security measures, systems capacity, business continuity plan and procedures, risk management, data integrity and confidentiality, record keeping and audit trail, for daily operations and to meet emergencies; and
- Sufficient IT and technical support arrangements.
The above notwithstanding, the SEC has the power to require that more information be provided from time to time in order to protect investors.
Apart from the aforementioned registration requirements, a crowdfunding portal must prove to be satisfactory before being registered by SEC. These satisfactory requirements are highlighted below:
a. Fairness and Transparency
The Crowdfunding Rules stipulates that a crowdfunding portal must establish its ability to operate an orderly, fair and transparent market in relation to the securities or investment instruments that are traded through its electronic platform.
b. Administration and Management
It is required that the Board of Directors, Chief Executive or any person responsible for the operations and financial management of the Crowdfunding Portal, are fit and proper persons who have not:
- a. Been convicted, whether within or outside Nigeria, of an offence involving fraud or other dishonesty or violence or the conviction of which involved a finding that he acted fraudulently or dishonestly.
- b. Been convicted of an offence under the Act or any other law relating to the capital market.
- c. Been blacklisted by a professional body which he belongs to.
- Been subjected to any disciplinary process or action by the Commission or other Self-Regulatory Organization in the Nigerian capital market.
- e. Contravened any provision made by or under any written law, whether within or outside Nigeria appearing to the Commission to be enacted for protecting members of the public against financial loss due to dishonesty, incompetence or malpractice by persons concerned in the provision of financial services or the management of companies or against financial loss due to the conduct of discharged or un-discharged bankrupts.
- f. Engaged in any unlawful business practice.
- g. Engaged in or has been associated with any other business practices or otherwise conducted himself in such a way as to cast doubt on his competence and soundness of judgmen
- h. Engaged in or has been associated with any conduct that cast doubt on his ability to act in the best interest of investors, having regard to his reputation, character, financial integrity and reliability.
c. Risk Management
The Crowdfunding Intermediary must be able to manage risks associated with the business.
d. Other satisfactory provisions
The rules of the Crowdfunding Portal must make satisfactory provisions for the following:
- The protection of investors and public interest.
- Ensuring proper functioning of the market.
- Promoting fairness and transparency.
- Managing any conflict of interest that may arise.
- Promoting fair treatment of all users.
- Ensuring proper regulation and supervision of its users, or any person utilizing or accessing its platform, including suspension and expulsion of such persons after consultation with the Commission.
- Providing an avenue of appeal against the decision of the operator.
There must be sufficient financial, human and other resources for the operation of the crowdfunding portal.
The SEC may revoke the registration of a Crowdfunding Intermediary where the Crowdfunding Intermediary fails to meet the requirements or fails to pay the fees as prescribed by the commission.
PENALTY FOR ERRING CROWDFUNDING INTERMEDIARIES
The law stipulates that any Crowdfunding Intermediary that fails to comply with the rules shall be liable to the following:
- a) A fine of not less than ₦100,000.00 (One Hundred Thousand Naira Only)
- b) The sum of ₦5,000.00 (Five Thousand Naira Only) for every day the violation continues.
- c) Any loss of investor funds arising due to the Crowdfunding Intermediary’s failure to comply with its obligations under the rules. 
OTHER STATUTORY RESTRICTIONS
By virtue of Rule 37 of the Crowdfunding Rules, the Crowdfunding Intermediary is prohibited from the following:
- Providing any financial assistance to investors for the purpose of investing in an offer hosted on its platform or for which it has provided a service;
- Compensating any finder or introducer for providing the Crowdfunding Intermediary with information about potential investors.
- Soliciting investments or making recommendations;
- Acting as intermediary or facilitator of secondary trades between buyers and sellers for securities or investment instruments issued pursuant to these rules.
- Utilizing any, website, social media portals, or third-party portals other than the registered website of the Crowdfunding Portal for the purpose of facilitating a crowdfunding offering.
It is silhouetted against the foregoing that any entity seeking to operate on a crowdfunding portal must meet the requirements as provided by the provisions. Failure to meet these requirements will lead to sanction/penalty by the commission. Therefore, it is important that all entities seeking to register as a Crowdfunding Intermediary must do so in compliance with the provisions of the rules.
 Crowdfunding Rules 2021
 Rule 6 Crowdfunding Rules 2021
 Rule 7 (a) (i) Crowdfunding Rules 2021
 Rule 7 (a) (ii) Crowdfunding Rules 2021
 Rule 7 (a) (iii) Crowdfunding Rules 2021
 Rule 7 (a) (vi) Crowdfunding Rules 2021
 Rule 7 (a) (vi) Crowdfunding Rules 2021
 Rule 8 Crowdfunding Rules 2021
 Rule 42 Crowdfunding Rules 2021