Nigeria to allow cryptocurrencies in new law while targeting risk

After swinging back and forth between acceptance and rejection, Nigeria is finally set to recognise crypto assets via a new bill recently passed by lawmakers, and now awaiting President Bola Tinubu’s signature.

The 2025 Nigerian Investment and Securities Bill will replace the law passed in 2007, now considered obsolete in the light of global developments. Under the new law, a crypto asset is defined as “a digital representation of value that can be transferred, digitally traded and used for payment or investment purposes.”

This definition does not recognise digital versions of fiat money as crypto assets. It also gives legal backing to platforms and exchanges used for trades, management and safe storage of virtual and digital assets.

Turning the page

The attitude of state establishments to the emergence of cryptocurrencies in Nigeria was initially shaped by panic when there was a surge in adoption starting from around 2015. The trigger was the collapse in the price of crude oil, Nigeria’s main source of foreign income, followed by the sharp fall in the value of the naira and the country’s first recession in a quarter century.

As Nigerians saw the value they stored in naira evaporate, Bitcoin and other cryptocurrencies became a safe haven to which many fled. But the demand for cryptocurrencies further fuelled the demand for foreign exchange, putting even more pressure on the naira exchange rate. Nigeria soon became the second country after the US with the largest cryptocurrency holdings.

That was when the Central Bank of Nigeria stepped in with a directive to banks to close all bank accounts associated with trading cryptocurrencies. While it wasn’t an outright ban, it was a hostile act meant to choke off the trade. Cryptocurrency traders simply went underground and resorted to peer-to-peer trading to remain in business. The Canadian company, Binance, one of the world’s biggest crypto exchanges, became a major player in Nigeria by offering such transactions.

When Tinubu took office in mid-2023 and replaced Emefiele with Olayemi Cardoso as governor of the Central Bank, the monetary authorities initially soft-pedalled on cryptocurrencies. That changed not long after as the government subsequently cracked down on Binance, detained and charged two of its executives for currency manipulation and money laundering. It was a long-drawn-out dispute that only ended after the diplomatic intervention of then-US President Joe Biden secured the release of the one Binance official held after his colleague escaped from custody.

While the Central Bank was grappling with the unfolding cryptocurrency era, Nigeria’s Securities and Exchange Commission (SEC) was also seeking a regulatory solution. Part of the outcome was the redefinition of terms and the revamp that has resulted in a new Investment and Securities Act.

“This legislation will undoubtedly provide significant opportunities to drive the growth and diversification of the capital market, thereby creating a conducive atmosphere for investors in the Nigerian capital market,” Osita Izunaso, chairman of the Senate Committee on Capital Markets told reporters while announcing the bill was sent for signing by Tinubu. He touted the modernisation of capital market practices and investment protection among its major objectives.

New companies emerge

Some of the regulatory changes have been necessitated by the emergence of fintech companies offering new services that stretched regulatory definitions. Apart from those offering crypto trades, others are offering opportunities for retail investors to buy stocks, bonds and currencies. Key disruptors in this category include PiggyVest and Cowrywise, which offer subscribers higher returns on money placements than banks by investing in high-interest government and company debt instruments, and Bamboo, which enables retail investments in offshore securities with as little as $10.

The changes envisaged in reforming the investment and securities law include the creation of a market for the trading of commodities by establishing a framework trading with warehouse receipts and commodities contracts. This is expected to facilitate a seamless supply chain between producers of primary agricultural commodities and the industries that need them at home and abroad.

The new legislation also extends the scope for a futures market in currencies and other assets while providing guidelines for Nigerians who wish to invest in international financial markets. Federal, regional or municipal authorities that wish to raise funds through issuing bonds and promissory notes must now comply with some extra regulations. For instance, they are not allowed to borrow beyond 50% of expected revenue to ensure that the debt is sustainable.

Fraud targeted

The regulatory agency has been aggressive in identifying and exposing investment fraud in recent years, setting up what it calls an “irregular operator alert,” to inform the public about dodgy investment propositions and operators. Among those so far called out this year include an unregistered real estate investment company being passed off as a fund manager in the capital market, an unlicensed cryptocurrency exchange canvassing for clients from the public and an online brokerage offering investors access to invest in US stocks.

SEC will get even more biting teeth in the new legislation to go after Ponzi schemes and similar fraud, with convicts liable to prison terms of up to 10 years. The law also enlarges the mandate of the Investor Protection Fund to cover investor losses resulting from a brokerage losing its licence or going out of business.

“A vital provision in the Bill is the new stipulation that the Investor Protection Fund (IPF) set up by the securities exchanges would compensate investors who suffer pecuniary losses arising from the revocation or cancellation of the registration of a dealing member firm,” said Emomotimi Agama, the SEC director general.

“In the extant law, compensation is limited to instances of bankruptcy, insolvency or other acts of negligence by a dealing member firm.”

Overall, the thrust of the legislation is to mitigate the risk faced by investors. The SEC now has sole powers to oversee corporate mergers and acquisitions as well as regulate companies listed on the stock exchange.

At the public hearing on the bill ahead of passage, the Central Bank of Nigeria raised concerns about the SEC’s powers to regulate companies as it concerns banks and other financial institutions usually under the purview of monetary authorities. These objections were among the issues the lawmakers were expected to review before sending the bill to President Tinubu for his signature.

Nigeria currently has three trading exchanges operating in its capital market. The Nigerian Exchange is the main trading platform for the stocks of the country’s leading companies as well as bonds and exchange-traded funds. The FMDQ trading exchanges operating, owned by the Financial Market Dealers Association (comprising the country’s banks), is focused on fixed-income securities, foreign exchange and derivatives. The smaller NASD exchange trades in unlisted companies.

“Nigeria needs and deserves a world-class capital market to facilitate the ongoing economic diversification,” said Agama. “The passage and enactment of the Investments and Securities Bill is a pivotal step in this direction.”