INTRODUCTION:

The rise of virtual assets and digital exchanges has introduced innovative ways of conducting financial transactions. The Securities and Exchange Commission (“SEC” or the “Commission”) is responsible for overseeing the registration and licensing of Virtual Asset Service Providers (“VASPs”), Fintech Innovators, and other Digital Investments Service Providers (“DISPs”). To protect investors, maintain market integrity, and prevent financial crimes, the Commission has established regulatory frameworks that outline the specific requirements these service providers must fulfill in order to operate legally in Nigeria.

In this article, we provide an overview of the registration requirements and procedures for fintech operators, VASPs and DISPs to obtain the necessary approvals from SEC to operate legally in Nigeria

DEFINITION OF VASPS, DISPS:

To fully grasp the content of this article, it is important to first define what a Virtual Asset Service Provider (“VASP”) is. A VASP refers to any entity that performs one or more of the following activities or operations on behalf of another individual:

• Exchange between virtual assets and fiat currencies;
• Exchange between one or more forms of virtual assets;
• Transfer of virtual assets;
• Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets;
• Participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.[1]

While a Digital Investment Service Provider (“DISP”) is not expressly defined, a digital investment service. is defined to mean to any investment service that is accessed and delivered through a digital channel.[2] Therefore, a DISP can be interpreted as an entity or business that provides investment services via digital platforms.

SEC’S REGULATORY INCUBATION PROGRAM (RI PROGRAM):

The RI Program is designed to support unregistered fintech innovators and existing capital market operators exploring new tech-driven models. Its goal is to foster a strong regulatory environment while ensuring the protection of investor interests.

WHO CAN APPLY?

The RI Program is open to a diverse range of applicants, including:

• Duly registered Capital Market Operators;
• Unregistered Fintech Innovators who require regulatory oversight;
• Organizations of any, from startups to established entities; and
• Companies Seeking to Enhance Investor Engagement within the Capital Market.

ELIGIBILITY CRITERIA FOR RI APPLICATION

To be eligible for the RI Program, applicants must fulfil certain criteria to demonstrate that their innovation meets the following requirements:

• Serves the Capital Market and targets investor needs;
• Ensures Investor Safety by addressing regulatory compliance and safety concerns;
• Introduces a Genuine Innovation, offering new products or processes that meet specific needs;
• Addresses Supervisory or Compliance matters;
• Is ready for testing and demonstrating operational readiness.

APPLICATION PROCESS: TWO PHASES.

The application procedure for the RI Program is divided into two main phases: The Initial Assessment Phase and the Regulatory Incubation Phase.

PHASE 1: INITIAL ASSESSMENT

The initial assessment phase helps determine the regulatory viability of an innovation. Key steps include:

1. Complete the RI Initial Assessment (RIA) Form: Applicants must access and fill out the RIA form detailing the scope and nature of their innovation.
   
   
2. Feedback from SEC: Depending on the innovation’s regulatory needs, applicants will be advised on the subsequent steps. If a regulatory framework exists, directions will be offered. If no framework exists, eligible applicants will be invited to complete the RI Application Form.
   
   
3. Submission of completed RIA Form: If directed, applicants complete the RI Application Form to seek admission into the program.
   
   
4. Application Review and Decision: The SEC will review the application and communicate its decision, which may include:
   
   
   • • Admission to the RI Program along with terms and conditions.
     • A notification of future admission.
     • A rejection, along with reasons and next steps for the applicant.

PHASE 2: REGULATORY INCUBATION PROGRAM:

For applicants admitted to the RI Program, this phase allows hands-on testing and regulatory guidance. Key steps in this phase include the following:

1. File Undertaking: Applicants shall be required to commit to the Program’s conditions and guidelines.
   
   
2. Begin Regulatory Incubation Process: The applicant can now initiate operations under SEC oversight.
   
   
3. Submit Quarterly Reports: Applicants must submit quarterly reports to the Commission and receive feedback on progress.
   
   
4. Receive Regulatory Guidance: At 10 months, applicants receive guidance on relevant regulatory frameworks, ensuring a smooth transition to full compliance.
   
   
5. Program Exit: At the 12-month mark, the applicant exits the RI Program, with precise instructions on either pursuing registration or ceasing activity if unsuccessful.

ACCELERATED REGULATORY INCUBATION PROGRAM (“ARIP PROGRAM”)

The ARIP, introduced by SEC seeks to simplify the onboarding process for entities involved in virtual asset activities in Nigeria. The program enables participants to obtain preliminary approval in principle which allows them to operate in compliance with regulatory standards before commencing full operations in the capital market.[3]

REGISTRATION WITH SEC UNDER THE ARIP PROGRAM

To register with SEC as a VASP or DISP under this framework, the following requirements must be met:

• Must be legally incorporated, with a clear corporate structure and defined operational processes. Such entity must have a Nigerian office with its CEO/MD resident in Nigeria;
• Must be engaged in securities and investments business; and
• Must be seeking registration or have pending virtual asset related applications with SEC.

REGISTRATION PROCESS

The registration process typically involves two phases which encompasses the Initial Assessment Phase and an Application Phase.

• ARIP Initial Assessment Phase: The Initial Assessment phase is the stage where SEC evaluates an entity’s eligibility to operate as a VASP. An applicant is required to first submit an initial assessment to SEC, which will review the submission and notify the applicant of their eligibility status.
  
  If eligible, the applicant will be instructed to advance to the application phase.[4] If deemed ineligible, SEC will provide reasons for rejection and suggest next steps for the applicant.
  
  
• ARIP Application Phase: The application into ARIP is to be made by the entity via an accredited solicitor or adviser[5], subject to the payment of a non-refundable processing fee. Once an application is cleared, the Commission will issue an Approval-in-Principle (“AIP”) allowing the eligible company to proceed with the full registration process (Post Incubation Process).

FILING AND REPORTING REQUIREMENTS.

ARIP participants are required to submit weekly, monthly, and quarterly reports, including financials, trading statistics, compliance reports, and any issues related to misconduct, fraud, or operational incidents. The SEC conducts on-site and off-site monitoring, and participants must provide access to their premises, systems, and records for inspection.

POST-INCUBATION REGISTRATION PROCESS.

Upon expiration of the ARIP period and successful completion of the incubation program, the VASP may proceed to apply for full registration with the SEC to secure an operational license.

CONCLUSION.

The SEC’s Regulatory Incubation (RI) and Accelerated Regulatory Incubation (ARIP) Programs provides a structured pathway for fintech innovators, VASPs and DISPs to enter into Nigeria’s capital market. By adhering to the outlined registration processes, these service providers can ensure they meet regulatory requirements, and position themselves as compliant operators in the growing digital asset industry.

This article is intended solely for informational use and does not serve as legal advice. For further information and guidance on SEC’s registration requirements and  procedures for  VASPs, DASPs, or Fintech Innovators, please contact us at info@alliancelawfirm.ng.