Nigeria Set to Embrace Cryptocurrency with New Regulatory Framework

Nigeria’s new Investment and Securities Bill of 2025 aims to officially recognize cryptocurrencies, offering legal support for trading platforms and enhancing investor protection. The legislation comes after a complex history of fluctuating government responses to crypto adoption driven by economic instability. With stricter regulations and provisions against fraud, it seeks to modernize capital market practices significantly.

Nigeria is poised to officially recognize cryptocurrencies through a recently passed bill, the Nigerian Investment and Securities Bill of 2025, which awaits President Bola Tinubu’s approval. This legislation will replace the outdated law from 2007 and defines crypto assets as a digital representation of value for trading and payment, not including digital fiat currencies. It also provides legal support for trading platforms and exchanges that manage virtual assets.

The approach towards cryptocurrencies in Nigeria has fluctuated since 2015 due to economic instability following a significant oil price crash and the naira’s depreciation. Consequently, cryptocurrencies emerged as a refuge for many Nigerians. However, this increased demand for cryptocurrencies led to currency pressures, prompting the Central Bank of Nigeria to instruct banks to terminate accounts associated with crypto trading. This semi-ban spurred underground trading practices, particularly through peer-to-peer transactions facilitated by companies such as Binance, a prominent cryptocurrency exchange.

With the commencement of Tinubu’s administration in 2023, the Central Bank’s initial leniency on cryptocurrency regulation was short-lived, culminating in a crackdown on Binance due to allegations of currency manipulation. Following a complex series of legal proceedings, intervention by then-US President Joe Biden resulted in the release of detained Binance officials. Meanwhile, Nigeria’s SEC has also sought to regulate the crypto landscape through the enactment of the new Investment and Securities Act.

Osita Izunaso, the Senate Committee Chairman on Capital Markets, noted that this new legislation will create substantial opportunities for market growth and investment diversification. It aims at modernizing capital market practices and enhancing investment protection to make Nigeria’s capital market more appealing.

Moreover, the regulatory changes introduced in response to the rise of fintechs include provisions for commodities trading and futures market regulation, alongside guidelines for Nigerians wishing to invest internationally. The new legislation also mandates stricter rules for public debt issuance to maintain fiscal responsibility.

The SEC has intensified efforts to combat investment fraud by launching an alert system for dubious operators. Notably, the legislation proposes enhanced penalties for investment fraud, including potential prison sentences for perpetrators. The Investor Protection Fund’s broadened mandate will ensure compensation to investors facing losses from licensed brokers withdrawing from business.

The overall goal of the legislation is to reduce investor risks, with the SEC acquiring the authority to oversee corporate mergers and acquisitions alongside its existing regulatory powers. Concerns voiced by the Central Bank regarding the SEC’s regulatory scope signify the complexities ahead as the bill advances to the President.

In summary, Nigeria’s acknowledgment of cryptocurrencies through the new Investment and Securities Bill marks a significant turning point in its financial landscape. The bill aims to modernize investment regulations, enhance protection for investors, and inject dynamism into the capital market amidst careful oversight. As the Nigerian financial sector progresses towards embracing innovative assets like cryptocurrencies, potential challenges surrounding regulation and investor protection will remain paramount for the authorities.

Original Source: african.business