Cryptocurrency ban: Is CBN on collision course with SEC?

The prohibition of cryptocurrency transactions in Nigeria has raised questions about whether the Central Bank of Nigeria and the Securities and Exchange Commission are working at cross purposes.

The CBN had in a circular on Friday ordered deposit money banks and other financial institutions in the country to close all cryptocurrency accounts within their systems with immediate effect.

“CBN prohibits regulated institutions from dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges,” it said on its Twitter handle.

The ban on cryptocurrency transactions comes about five months after SEC, the apex regulator of the country’s capital market, announced that it would regulate crypto assets, which it described as securities.

Crypto asset, according to the commission, means a digital representation of value that can be digitally traded and functions as a medium of exchange; and/or a unit of account; and/or a store of value, but does not have legal tender status in any jurisdiction.

In a statement on Sept. 14, 2020, SEC said, “Since digital assets offerings provide alternative investment opportunities for the investing public, it is essential to ensure that these offerings operate in a manner that is consistent with investor protection, the interest of the public, market integrity and transparency.

“The general objective of regulation is not to hinder technology or stifle innovation, but to create standards that encourage ethical practices that ultimately make for a fair and efficient market.”

SEC said it had adopted a three-pronged objective to regulate innovation, hinged on safety, market deepening and providing solution to problems.

“Consequently, the SEC will regulate crypto-token or crypto-coin investments when the character of the investments qualifies as securities transactions,” it added.

According to the commission, virtual crypto assets are securities, unless proven otherwise, and the issuer or sponsor must register the digital assets.

“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,” it said.

It said all digital assets token offering, initial coin offerings, 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 would be subject to regulation.

SEC said, “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 recognised by the commission where a reciprocal agreement exists between Nigeria and the country of the foreign issuer or sponsor.”

Prior to the directive from the CBN, Nigeria has seen a growing demand for cryptocurrencies in recent months, making the country one of the fastest-growing markets in the world.

The apex bank’s action has sent shockwaves through the growing digital currency market in the country, and has been met with widespread outcry.

The CBN noted that it had in January cautioned banks, other financial institutions and the general public on the risk associated with transactions in cryptocurrency.

It said, “Further to earlier regulatory directives on the subject, the bank hereby wishes to remind regulated institutions that dealing with cryptocurrencies or facilitating payments for cryptocurrency exchanges is prohibited.

“Accordingly, all DMBs, NBFIs, and OFIs are directed to identify persons and/or entities transacting in or operating cryptocurrency exchanges within their systems and ensure that such accounts are closed immediately.”

While it is still unclear if SEC’s position on digital assets has changed, it goes without saying that the CBN’s ban on cryptocurrencies runs counter to the stance espoused by the apex capital market regulator a few months ago.