The Nigerian Securities and Exchange Commission has recently notified the public that the Rules on Digital Assets Issuance, Offering Platforms, Exchange, and Custody are undergoing an amendment process.The purpose of this amendment is to expand the scope of regulation in line with current realities. As part of this initiative, the Nigerian SEC has launched the Accelerated Regulatory Incubation Program (ARIP) to facilitate the onboarding of Virtual Assets Service Providers (VASPs).
Additionally, the Nigerian SEC has instructed all existing and prospective VASPs to access its electronic portal and complete the application process within 30 days. Failure to comply with this directive will lead to enforcement action by the regulatory body. This initiative by the Nigeria SEC aims to enhance regulation and oversight of virtual asset service providers in the country.
What Is an Accelerated Regulatory Incubation Program (ARIP)?
The Accelerated Regulatory Incubation Program (ARIP) is a comprehensive framework established by the Nigerian SEC. Empowered by the Investments and Securities Act (ISA) of 2007, which regulates and develops the Nigerian Capital Market, the ARIP framework is specifically designed to facilitate the onboarding of entities involved in virtual asset activities. This initiative aims to streamline the registration process for Virtual Assets Service Providers (VASPs) and other Digital Investments Service Providers (DISPs), ensuring they operate within the regulatory confines set by the Nigerian SEC.
The Nigerian SEC designed the ARIP framework to facilitate the onboarding of entities proposing to carry out virtual asset activities and have filed applications with the Commission, as well as other potential applicants engaging in such activities. This framework allows qualified entities to obtain approval in principle from the Commission until the Digital Assets Rules become operational.
What objectives and goals does the Nigerian SEC ARIP Framework aim to achieve?
The primary aim of the 13-page ARIP framework is to speed up the onboarding process for entities with pending applications at the Nigerian SEC, as well as for potential applicants.Key objectives include:
- Providing entities with approval in principle pending the operationalization of the Digital Assets Rules.
- Offering participants guidance on regulatory demands before full market entry.
- Allowing the Nigerian SEC to understand digital asset business models to enhance regulatory measures, ensuring market integrity, investor protection, and anti-money laundering compliance.
Which entities fall within the scope of the Nigerian SEC ARIP framework?
The Nigerian SEC ARIP framework applies to various entities involved in virtual asset services and digital investments, including:
- VASPs and token issuers operating in Nigeria or offering services to Nigerian consumers.
- Platforms facilitating the offering, trading, exchange, custody, and transfer of virtual/digital assets.
- Individuals or entities involved in initial token offering (ICOs,etc).
- Persons providing virtual asset services to Nigerians, regardless of their physical location.
- Entities utilizing Distributed Ledger Technology (DLT) for services such as order execution, portfolio management, and custodian services.
Who is Eligible for the Nigerian SEC ARIP Framework?
To be eligible for the Nigerian SEC ARIP Framework, entities must:
- Be incorporated in Nigeria with their CEO or equivalent residing in Nigeria.
- Be engaged in investments and securities business.
- Seek registration or have pending applications with the Nigeria SEC.
What are the next steps for an applicant found eligible for the Nigerian SEC ARIP Framework?
Once an applicant is found eligible for the Nigerian SEC ARIP Framework, the ARIP application process involves an initial assessment phase via the Nigerian SEC ARIP Framework ePortal, followed by an application phase where eligible applicants submit required documents and undertakings, and upon clearance, receive an approval-in-principle to operate, while the Commission maintains discretion to approve, defer, or reject applications to ensure market orderliness.
The Nigerian SEC ARIP Framework Requirements
Applicants must provide various documents and undertakings, including:
- Sworn undertakings on the accuracy of information and compliance with regulatory requirements.
- Operational plans and business models highlighting their unique value propositions.
- Rules and guidelines ensuring investor protection, fairness, and transparency.
- Necessary corporate documents and financial statements.
- Evidence of tax compliance and identification for principal officers.
- Evidence of registration with the Nigerian Financial Intelligence Unit (NFIU).
The Nigerian SEC ARIP Framework Requirements: Operation Fee, Records/Reporting, Controls/Restrictions, Termination/Removal, Operational Plans.
1. Operation Fee
The Operations Fee for the Nigerian SEC ARIP Framework applicants includes a non-refundable processing fee of N2,000,000, evidence of required shareholder funds, and a current Fidelity Bond covering at least 25% of those funds, with additional financial requirements possible based on business nature and risks, as determined by the Nigerian SEC.
2. Records Or Reporting Requirements
The Nigerian SEC ARIP Framework participants are required to submit regular trading and financial reports, disclose incidents of misconduct or fraud, address customer complaints and emergent risks, and allow the Nigerian SEC access to their premises and records for inspections, audits, and monitoring as needed.
3. Controls,Conditions and Restrictions
The Nigerian SEC ARIP Framework participants must implement risk management measures, adhere to integrity and compliance standards, and qualified applicants will transition to registration, with others eligible for the Regulatory Incubation program, and concurrent applications from the same applicant are not considered unless materially different.
4. Termination Or Removal
The Nigerian SEC ARIP Framework participants must implement risk management measures, adhere to integrity and compliance standards, and qualified applicants will transition to registration, with others eligible for the Regulatory Incubation program, and concurrent applications from the same applicant are not considered unless materially different.
5. ARIP Operational Plans
The Nigerian SEC ARIP Framework applicants are required to provide a comprehensive operational plan covering business details, customer information, Risk Management Framework, risk communication, customer handling protocols, and an exit plan if registration is not attained.
How does the Nigerian SEC ARIP Framework registration phase work, and what penalties or sanctions are imposed on entities who fail to comply with the requirements?
After the Nigerian SEC ARIP Framewrok period ends, participants should move easily into the registration phase. The Nigerian SEC can either approve registration, make new rules from what was learned during ARIP, or say no to continuing operations under current rules. They might also train and test sponsored people, and those who pass could go on to a registration interview.
Participants in the Nigerian SEC ARIP Framework who don’t follow the rules might have to pay a starting penalty of N5,000,000, with additional fines each day they remain non-compliant. If virtual asset service providers or digital investment platforms operate without permission or registration, they could face penalties of N20,000,000 or N10,000,000, respectively. Entities that don’t follow the Commission’s regulations might even get suspended from doing business in the capital market.
Conclusion
The Nigerian SEC ARIP framework is a strategic initiative by the Nigerian SEC to regulate and develop the growing virtual assets and digital investments sector in Nigeria. By providing a structured and fast track process for onboarding VASPs, the Nigerian SEC aims to foster innovation while ensuring market integrity, investor protection, and compliance with regulatory standards.
How can A&D Forensics Help?
A&D Forensics can assist entities within the Nigerian SEC ARIP framework by providing compliance consulting, training, due diligence, and investigation services to ensure regulatory compliance and market integrity.
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Contributor: Ibrahim Anuoluwapo Azeez
