The regulation of the digital space has continually been a subject to form any legal discussions as the subject area has been without any definite regulation, or better put, has appeared as one that provides a tough nut to crack in the provision of its working legal framework to regulate the trade-in, buying and selling of tokens, and most importantly the operation of the digital space.
The Securities and Exchange Commission rules on the Operation of Digital Assets Offering Platforms and registration of business comes up at a time when the Central Bank of Nigeria’s Ban on crypto trading is still being followed by commercial banks.
THE LEGAL FRAMEWORK FOR THE REGULATION OF DIGITAL ASSETS IN NIGERIA
Cryptocurrencies and digital assets are gradually becoming like the new gold. Unlike every other traditional business and commerce, regulating this new technology has posed a serious challenge for the Nigerian Regulatory agencies and this has led to the Central Bank of Nigeria’s ban on Digital Assets and the order to banks to freeze all accounts trading and operating in cryptocurrencies.
In the year 2021, the Central Bank issued the directive prohibiting all regulated financial institutions from carrying out crypto transactions. These directives came at the time the Securities and Exchange Commission was working on its Capital Markets Financial Technology Strategy in a bid to support the ever-increasing market.
Although, both regulatory bodies had made statements to work together to develop a legal framework for the Nigerian digital market space, the Central Bank of Nigeria was not receptive of crypto-currencies, and this was founded on its desire to protect the Naira. This led to the freezing of several accounts belonging to people who trade in digital and crypto assets.
A REVIEW OF THE RULES FOR OFFERING AND CUSTODY OF DIGITAL ASSETS PLATFORMS IN NIGERIA
The Rules for offering and custody of digital assets in Nigeria as promulgated by the Securities and Exchange Commission are outlined in five parts which covers diverse areas of the digital market. These rules are applicable to all issuers seeking to raise capital through digital asset offerings, including digital tokens and capital coin offerings (ICO).
The rules provide that all promoters proposing to conduct initial digital assets offerings within Nigeria or targeting Nigerians should submit their assessment form and draft a white paper.
The rule defines a white paper to be “A document that states the technology behind the project”. It also makes provisions for the white paper and for what the white paper would contain, which includes: (a) a brief description of the business of the issuer; (b) Comprehensive information on how the proposed initial digital asset offering will benefit the investors and deepen the market, sustainability, and scalability; (c). Brief description of the initial digital asset offering, the distributed ledger technology, value of each token, lock-up period (if any), returns, profits, bonuses, rights and/or other privileges (monetary and non-monetary) to the buyer of the token; (d) Use of proceeds from sale of the tokens, including percentage allocation to each use category; (e) Timeline for the completion of the project to be financed with the proceeds of the offering; (f) Discussion on the determination of the accounting and the valuation treatments for the digital token including all valuation methodology and reasonable presumptions adopted in such calculation; (g) A technical description of the protocol, platform or application of the digital token, as the case may be, and the associated benefits of the technology; (h) Target market; (i) Currency or other assets that will be received as payment for the tokens; (j) Proposed offer period; (k) Soft cap and hard cap for each kind of token; (l) Price per token, including amounts of discounts and/or premiums; (m) Information in relation to the distribution of the digital tokens and where applicable, the distribution policy of the issuer (n) Risks in investing in the tokens (o) For existing projects, details of the system architecture, documentation and the corresponding source codes and commands, including detailed flowcharts of the process; (p) For projects that will commence at a later date, detailed flowcharts showing how the project will operate and time frames for each process
In essence, the white paper is both a proposal for approval by the Securities and Exchange Commission. What is more, is that the Commission distances itself from any liability occurring from the subscription or purchase of the token or digital assets by subscribers and persons patronizing the digital market.
Also, the Rules provides a 30-day gap for filing, review, and assessment of the white paper received by the Commission and if successful, shall be tagged a “security” under the Investment and Securities Act, 2007, where the same is successful, the Commission shall notify the applicant in five days.
Also, a key provision of the rules is the fee payable for registration. The rules prescribes One Hundred Thousand Naira (N100,000) as the application fee, Three Hundred Thousand Naira (N300,000) as the processing fee, Thirty Million Naira (N300,000,000) as the registration fee, and One Hundred Thousand Naira (N100,000) as a sponsored individual fee, these fees are accompanied by the application seeking to register a Digital Assets Offering Platform.
Furthermore, the paid-up capital and fidelity bond of Five Hundred Million Naira (N500,000,000) and current fidelity bond covering at least 25% of the minimum paid-up capital as prescribed by the Securities and Exchange Commission (SEC) rules constitute other requirements that should be fulfilled by applicants seeking registration.
Upon registration, a Digital Assets Offering Platform (DAOP) shall Manage all risks associated with its business and operation, it shall have sufficient financial, human, technical, and other resources for its operation at all times, it shall ensure appropriate security arrangement, taking into account the scale of its business operations and risks, it shall maintain and comply with the enterprise risk management framework.
In governing its Platforms, the DAOP shall have: a) Rules that support the financial stability, safety, and efficiency of its activities; b) Policies that stipulate its entire business processes and operations and shall be duly approved by the Board; c) Processes to identify, assess and manage potential conflicts of interest of members of the Board, principal officers, employees or any person directly or indirectly linked to the Board.
A DAOP, in determining whether or not to approve a Digital Asset Offering, shall: (a) carry out due diligence and critical assessment on an Issuer including (i) understanding and verifying the business of the Issuer to ensure that the Issuer does not engage in any business practices appearing to be deceitful, oppressive or improper, whether unlawful or not; (ii) assess the fitness and propriety of the Issuer’s directors and senior management; and (iii) understand the features of the virtual asset/digital token to be issued by the Issuer and the rights attached to it; (b) exercise its own judgment and carry out a critical assessment on the Issuer’s compliance with the requirements in these Rules including as to whether the Issuer will be able to satisfy the requirement to provide an innovative solution or a meaningful digital value proposition for the Nigerian capital market, and (c) assess the Issuer’s White paper furnished to the DAOP. In approving the Issuer’s white paper, the DAOP shall ensure that the contents of the white paper include the information required under these Rules and that its contents are not false or misleading, or contains any material omission.
A DAOP shall identify and manage any risks associated with its business and operations, including any possible sources of operational risk, both internal and external, and mitigate their impact through the use of appropriate systems, policies, procedures, and controls. It shall, among others: a) ensure that its systems are designed to assure a high degree of security and operational reliability, including having adequate capacity; b) establish a robust Board-approved risk management framework with appropriate systems, policies, procedures, and controls to identify, monitor, mitigate and manage all material risks; c) have in place clearly defined roles and responsibilities for addressing material risks; d) have in place clearly defined operational reliability objectives and have policies in place that are designed to achieve those objectives; e) ensure that it has adequate capacity proportionate to stress volumes to achieve its service-level objectives; and f) have a comprehensive physical and information security policy that addresses all potential vulnerabilities and threats.
A DAOP shall: a) establish systems and controls for maintaining accurate and up-to-date records of Investors and any monies or virtual assets/digital tokens held concerning Investors; b) ensure Investors’ monies and virtual assets/digital tokens are properly safeguarded from conversion or inappropriate use by any person, including but not limited to implementing multi-signature arrangements; c) establish and maintain with a registered Receiving Bank one or more trust accounts, designated for the monies received from Investors. 
The Commission may cancel the registration of a DAOP if: (a) the Commission finds that, at any time, the DAOP has submitted to the Commission any false or misleading information or there is a material omission of information; (b) The DAOP fails to meet the requirements as provided in the ISA 2007, these Rules, any other relevant laws or guidelines issued by the Commission; (c) The DAOP fails or ceases to carry on the business or activities for which it was registered for a consecutive period of six (6) months; (d) The DAOP contravenes any obligation, condition or restriction imposed under these Rules; or (e) fails to pay any fee prescribed by the Commission. A DAOP may voluntarily by notice in writing, apply to the Commission to withdraw its registration and provide reasons for its withdrawal. The withdrawal of the DAOP’s registration shall not: a) take effect until the Commission is satisfied that adequate arrangements have been made to meet all the liabilities and obligations of the DAOP that are outstanding at the time when the notice of the withdrawal is given; and b) operate so as to i. avoid or affect any agreement, transaction or arrangement entered into by the DAOP, whether the agreement, transaction or arrangement was entered into before or after the withdrawal of the registration; or ii. affect any right, obligation, or liability arising under any such agreement, transaction, or arrangement.
https://www.businessremarks.com.ng/sec-issues-guidelines-for-digital-assets-cryptocurrency-in-nigeria/ last accessed 23rd June 2022
https://assets.kpmg/content/dam/kpmg/ng/pdf/advisory/ng-leading-through-digital.pdf last accessed 24th June 2022
 Rule 2.0 of the Rules on Issuance Offering and Custody of Digital Assets, 2022.
 Rule 4.0 (i) of the Rules on Issuance Offering and Custody of Digital Assets, 2022.
https://sec.gov.ng/wp-content/uploads/2022/05/Rules-on-Issuance-Offering-and-Custody-of-Digital-Assets.pdf last accessed 23rd June 2022
 Rule 4.01 of the Rules on Issuance Offering and Custody of Digital Assets, 2022.
https://eandelmagazine.com/2022/05/16/sec-issues-new-guidelines-on-digital-assets/ last accessed 23rd June 2022
 Rule 11.2 of the Rules on Issuance Offering and Custody of Digital Assets, 2022.
 Rule 12.2 of the Rules on Issuance Offering and Custody of Digital Assets, 2022
 Rule 15.1 of the Rules on Issuance Offering and Custody of Digital Assets, 2022.
 Rule 16.1 of the Rules on Issuance Offering and Custody of Digital Assets, 2022.
 Rule 17.1 of the Rules on Issuance Offering and Custody of Digital Assets, 2022.
 Rule 17.2 of the Rules on Issuance Offering and Custody of Digital Assets, 2022.
 Rule 20.1 of the Rules on Issuance Offering and Custody of Digital Assets, 2022.
 Rule 28.1 of the Rules on Issuance Offering and Custody of Digital Assets, 2022.
 Rule 28.2 of the Rules on Issuance Offering and Custody of Digital Assets, 2022.
 Rule 28.3 of the Rules on Issuance Offering and Custody of Digital Assets, 2022.