This legal update highlights some of the key legal requirements for establishing a cryptocurrency exchange business in Nigeria, succinctly as follows:
1. Registration as a Digital Asset Exchange (DAX)
The SEC requires that any entity intending to operate a digital asset exchange must register as a DAX and obtain approval under the rules. The application must demonstrate capability in terms of legal structure, compliance, technology, governance, and capital.
2. Minimum Capital Requirements
Promoters of a cryptocurrency exchange will require up to ₦500 million in minimum paid-up capital as well as fidelity bond covering at least 25% of the paid-up capital (i.e., ₦125 million). The minimum capital can be in the form of bank balances, fixed assets or investment in quoted securities and subject to verification of the sources of the funds by the SEC.
3. Corporate and Regulatory Documentation
Promoters of a cryptocurrency exchange in Nigeria are require to submit (a) Certificate of Incorporation from the Corporate Affairs Commission (CAC); (b) Memorandum and Articles of Association (MEMART) including crypto exchange objectives. (c) CAC Forms (CAC 1.1, Form 7, etc.) (d) Audited financial statements or statement of affairs if newly incorporated.
4 Listing or Withdrawal Fees
There are no express provisions in the cryptocurrency regulations which mandate a minimum amount which cryptocurrency exchanges can charge as listing, trading or withdrawal fees.
5. Governance and Management
Amongst others, promoters of a cryptocurrency exchange are required to (a) establish an independent board with clearly defined roles (b) have standard internal policies on (i) Anti-Money Laundering / Counter-Terrorism Financing (ii) Risk management (iii) Cybersecurity (iv) Conflicts of Interest and (v) Customer complaints resolution.
6. Operational Requirements
Amongst others, promoters of cryptocurrency exchange in Nigeria are required to (a) submit a detailed business model and operational plan (b) implement real-time market surveillance including anti-fraud systems, including investor protection measures (c) provide continuous disclosures to users about the nature of digital assets traded and must operate secure, scalable trading systems capable of supporting real-time trading, clearing, and settlement (d) establish an internal audit function to develop, implement and maintain an appropriate internal audit framework commensurate with its business and operations.
7. Custody of Assets
A cryptocurrency exchange doing business in Nigeria is required engage a registered Digital Asset Custodian (DAC) for holding client assets unless applying for dual registration. It is useful to note that segregation of company funds and customer funds is a mandatory requirement.
8. Financial Assistance Rules
A cryptocurrency exchange operator is prohibited from providing direct or indirect financial assistance to investors, including its officers and employees, to invest or trade in virtual assets/digital tokens on its platform.
9. No Objection Rules
A cryptocurrency exchange is prohibited from trading any virtual or digital assets, without a prior No-Objection approval from the SEC.
For clarifications or questions, please speak to your usual Balogun Harold contact or reach out via bhlgealsupport@balogunharold.com
