As a step towards regulating the rapidly growing digital asset sector, the Nigerian Securities and Exchange Commission (SEC) announced on August 29, 2024 that it has granted “approval-in-principle” to Busha Digital Limited and Quidax Technologies Limited. These approvals are the first formal authorizations of digital asset exchanges under Nigeria’s existing regulatory framework. This approval is one of the regulator’s actions to create a structured and safer environment for digital assets to operate, and to protect Investors and compliance in the digital asset space. This proactive move made by the regulatory body shows Innovation is welcomed, while also mitigating any risks associated with digital assets.
The Regulatory Incubation (RI) program continues to undergo more development as it has included four digital asset offering platforms—Trovotech Ltd, Wrapped CBDC Ltd, Housingexchange.NG Ltd, and Dream City Capital—and one digital asset custodian, Blockvault Custodian Ltd. These companies are now part of the SEC’s regulatory process, which intends to fundamentally test their business models and technologies in advance of a more nearly full-scale business. The incubation program was designed to stimulate innovation in a controlled environment (a regulatory trial), affording the commission the opportunity to measure and adapt its regulatory framework and approach for digital assets. The plan is for the digital asset market to develop in a way that balances technological sophistication and investor protection.
Investor caution amid crypto regulation emphasized.
With the maturation of the digital asset market, the SEC has renewed its cautionary message to the Nigerian public in respect of the risks associated with transacting with unregistered platforms. The regulator emphasizes the necessity for diligence, urging all investors to check the registration status of any service provider through its official channels. The SEC is being cautious in this regard to protect consumers from fraudulent schemes and unregulated operators. The regulatory body’s relentless position speaks to the critical need for a regulated digital asset market where only registered and reputable entities are allowed to operate. This will mitigate the risk of losing investor funds.
These actions suggest a forward-looking method of regulating digital assets that should stay attentive to the ever-emerging changes in the financial Technology environment. The SEC plans to use distributed ledger technology (DLT) and run some small feasibility pilot tests in order to garner findings that can assist in the development of future regulations. This structured approach will ensure that Nigeria is at the forefront of digital asset Regulation in Africa while also balancing innovation and Consumer Protection regulation. The SEC is committed to, and will dovetail its efforts with, stakeholders in the ongoing development of the regulation going forward.
Balancing market growth and risks of crypto in Nigeria.
In the future, the continual analysis of other digital asset exchange applications by the SEC suggests that additional applications will be approved in the future. This will result in a more broader and competitive digital asset sector in Nigeria that will provide consumers with greater options with their trading and investing. The SEC’s diligent approach to evaluation and emphasis on investor protection will create a safer and active market environment. As the regulatory framework becomes firm, Nigeria could become the center for digital assets in Africa as it entices both local and outside players that are looking for a stable and regulated industry to operate in.
Meanwhile, opponents of government regulation of cryptocurrencies argue that such intervention could be used to gag people, including journalists and political opposition. This is concerning because governments or authoritarian regimes might exploit digital assets for censorship and control. In Nigeria, for example, there have already been instances of crackdowns on dissenting views and media freedom. If Crypto is regulated, the Nigerian government could use the same means to police, investigate, restrict, or block transactions that fund dissent or independent journalism, given the historical abuses of power. If they regulate crypto exchanges and implement strict Know Your Customer (KYC) and Anti-money laundering (AML) regulations, they could trace or freeze people’s funds when transactions are made by those who may be critical of the government, denying them financial resources to express their views or mobilize against oppressive actions and impact free speech.
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Moreover, the decentralized and anonymity aspects of cryptocurrency, which are often considered to be positive characteristics of cryptocurrency, could be weaponized to produce a chilling effect on political speech. If the government were to obtain the ability to track crypto transactions, activist and opposition organizations may think twice before using those platforms out our fear of government retaliation. They would put themselves in a position of self-censorship as they may avoid engaging in activities or speech out of fear of government retribution. Under these circumstances, the very features that endear it to the people have the potential to be manipulated against those desiring to engage cryptocurrency.