By Charles Ike-Okoh
MON 08 FEB, 2021-theGBJournal- This is a clear case of two government regulatory agencies working at cross purpose.
While The Central Bank of Nigeria (CBN) put a ban on cryptocurrencies, the Securities and Exchange Commission (SEC) described it as alternative investment opportunities for the investing public, in other words, endorsing the hugely popular digital assets.
It is estimated that about $200 million worth of bitcoin (digital or virtual currency) is traded every week in Nigeria. Enough reason for the CBN to rethink their cyrptocurrency ‘’ban’’ policy.
SEC is clearly responding to the 21st thinking on Fiat Money when they put out a circular in September 14, 2020, which laid out plans to begin regulating the highly sophisticated digital assets, emphasising that it will ‘’regulate crypto-token or crypto-coin investments when the character of the investments qualifies as securities transactions.’’
Again, SEC recognises that Cryptocurrencies directly responds to the classic issues of what is money?
And why is Fiat Money, Money? Any medium of exchange acceptable by any society for goods and services becomes money.
The reason Central Banks were looked up to for issuance of Fiat Money was that they were entrusted to back it up with either gold reserve or foreign reserve and manage inflation bearing in mind the impact of total Fiat Money issued in the economy.
That was twentieth century economics. In this twenty-first century, Cryptocurrency challenges the thinking.
What SEC did by issuing the circular formalising cryptocurrencies as ‘’securities, unless proven otherwise,’’ is simply to put a stamp of recognition on a broadly accepted transaction system, protected from exchange depreciation or inflation.
In doing so, SEC referenced Section 13 of the Investment and Securities Act, 2007 which conferred powers on the Commission as the apex regulator of the Nigerian capital market to regulate investments and securities business in Nigeria.
The Commission also set out what it called a three-pronged objective to regulate innovation, to guide strategy, its regulations and its interaction with innovators seeking legitimacy and relevance. The strategy is hinged on safety, market deepening and providing solution to problems.
In the circular, SEC itemised out what will be regulated. It said;
All Digital Assets Token Offering (DATOs), Initial Coin Offerings (ICOs), Security Token ICOs and other Blockchain-based offers of digital assets within Nigeria or by Nigerian issuers or sponsors or foreign issuers targeting Nigerian investors, shall be subject to the regulation of the Commission.
Existing digital assets offerings prior to the implementation of the Regulatory Guidelines will have three (3) months to either submit the initial assessment filing or documents for registration proper, as the case may be.
Again, SEC specified WHO will be regulated. It said;
-Any person, (individual or corporate) whose activities involve any aspect of Blockchain-related and virtual digital asset services, must be registered by the Commission and as such, will be subject to the regulatory guidelines. Such services include, but are not limited to reception, transmission and execution of orders on behalf of other persons, dealers on own account, portfolio management, investment advice, custodian or nominee services.
-Issuers or sponsors (start-ups or existing corporations) of virtual digital assets shall be guided by the Commission’s regulation. The Commission may require Foreign or non-residential issuers or sponsors to establish a branch office within Nigeria. However foreign issuers or sponsors will be recognized by the Commission where a reciprocal agreement exists between Nigeria and the country of the foreign issuer or sponsor.
-A recognition status will also be accorded, where the country of the foreign issuer or sponsor is a member of the International Organization of Securities Commissions (IOSCO).
For these purposes, the Commission adopted the following with respect to virtual crypto assets: “Crypto Asset” means a digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status in any jurisdiction. A Crypto Asset is – neither issued nor guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the Crypto Asset; and Distinguished from Fiat Currency and E-money.”
Here is how SEC categorized the virtual assets/instruments
Crypto Asset- e.g non fiat virtual currency: Treated as commodities if traded on a Recognized Investment Exchange and/or issued as an investment, and is subject to Part E of SEC Rules and Regulations and any other relevant sections and subsequent Rules which will be enacted in future.
Utility Tokens or “Non-Security Tokens” (virtual tokens.) These tokens simply provide users with a product and/or service.: Treated as commodities. However, spot trading and transactions in Utility Tokens do not fall under SEC purview unless conducted on a Recognized Investment Exchange and therefore subject to Part E of SEC Rules and Regulations and any other relevant sections and subsequent Rules which will be enacted in future.
Security Tokens” (e.g., virtual tokens that have the features and characteristics of a security.) Represent assets such as participations in real physical underlyings, companies, or earnings streams, or an entitlement to dividends or interest payments. In terms of their economic function, the tokens are analogous to equities, bonds, etc.: Deemed to be Securities pursuant to PART XVIII (315) of ISA, “definition of Securities’’. All financial services activities in relation to Security Tokens, such as operating primary / secondary markets, dealing / trading / managing investments in or advising on Security Tokens, will be subject to the relevant regulatory requirements. Market intermediaries and market operators dealing or managing investments in Security Tokens need to be registered / approved by SEC as CMOs, Recognized Investment Exchanges or Recognized Clearing Houses, as applicable.
Derivatives and Collective Investment Funds of Crypto Assets, Security Tokens and Utility Tokens: Regulated as Specified Investments under the ISA & SEC Rules and Regulations. Market intermediaries and market operators dealing in such Derivatives and Collective Investment Funds will need to be registered / approved by SEC.
The SEC has it already covered. They had investors and start-ups in mind. They had a policy in place that has the potential to expand the economy beyond its current width.