Nigeria's SEC Warms Up To Digital Exchanges, Leaves Cryptos Out In The Cold

The Nigerian Securities and Exchange Commission (SEC) is currently reviewing applications for digital exchanges on a trial basis, in an effort to expand market participation in Africa's most populous country, where the central bank has imposed restrictions on cryptocurrency trading.

Bloomberg quoted Abdulkadir Abbas, head of securities and investment services at the SEC, as saying that the commission is exploring the possibility of allowing tokenized coin offerings on licensed digital exchanges that are supported by assets such as equity, debt, and property, but not cryptocurrencies.

"We always like to start, as a regulator, with a very simple clear proposal before we go into the complex ones," he said.

This initiative could attract tech-savvy individuals in Nigeria—a country with over 200 million people and 43% of the population under 14 years old—to local assets like equities, which have been neglected for years.

Nigeria has the highest volume of cryptocurrency transactions on peer-to-peer trading platforms outside the U.S., as per data from Paxful, an exchange that ceased operations in April.

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Other countries, including Singapore, are experimenting with similar tokens. Last year, Singapore initiated "Project Guardian," a pilot program led by DBS Bank Ltd. DBSDY, JPMorgan Chase & Co. JPM, and Marketnode Pte, which investigates potential applications of asset tokenization and involves the creation of a permissioned liquidity pool consisting of tokenized bonds and deposits.

While Nigeria's SEC plans to register fintech companies as digital sub-brokers, crowdfunding intermediaries, robo-advisors, fund managers, and tokenized coin issuers, it will not register cryptocurrency exchanges until an agreement on standards is reached with the central bank, which in 2021 directed commercial banks not to facilitate such transactions.

Abbas explained that prospective digital exchanges will undergo a year of "regulatory incubation," during which they will offer limited services under SEC supervision to assess their operational patterns and suitability for providing services in Nigeria.

"By the 10th month, we should be able to make a determination whether to register the firm, extend the incubation period, or even ask the firm to stop operation," he added.

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