N500m license requirement: Nigerian crypto leaders say SEC is out to stifle local companies

Towards the end of 2023, the Central Bank of Nigeria (CBN) lifted the almost three-year-old ban on transactions between banks and crypto exchanges.

Not long after the announcement was made, the CBN approved the Africa Stablecoin Consortium (ASC) to pilot a cNGN token. Per the announcement, this token, which is expected to be launched by February 24, will be pegged 1:1 to the Nigerian naira and will be backed by Naira reserves held in designated commercial banks. 

Also, reports emerged that following the lift of the CBN restrictions, crypto companies that intend to play in the Nigerian crypto industry would have to cough out a minimum upfront capital requirement of 500 million naira ($556,620) to be licensed. As expected, stakeholders, players and enthusiasts have taken different approaches to this issue.

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Now in a conversation with Technext, prominent experts and thought leaders in the burgeoning Nigerian blockchain industry, Obinna Iwuno (President of Stakeholders in Blockchain Association of Nigeria), Nathaniel Luz (CMO of Flincap) and Chris Ani (CEO of DABA), have reacted to these concerns.

Lift of restrictions, a welcome development 

According to Obinna Iwuno, president of SiBAN, this is the beginning of victory but it’s not yet “Uhuru.”

“You cannot build an industry in a day, it’s step by step. What CBN has done is a good step in the right direction. It sends a positive message to the global community about Nigeria, especially in the blockchain industry.”

Chris Ani, one of the loudest voices in the Nigerian crypto industry shares a similar sentiment. 

“I wouldn’t say it is freedom yet because we’re still not clear on all the regulations. I think there are some strict guidelines there. But it’s a welcome development despite the fact it’s still not so clear. So let’s just give them an average pass mark on that.”

Now that the embargo has been lifted, Obinna Iwuno expects CBN to roll out infrastructures and guidelines to that effect. Obinna is of the opinion that if the eNaira is made open-source and made available as a payment gateway on Nigerian crypto exchanges, it would foster more adoption and acceptance.

The 500 million naira license requirement 

In May 2022, the Nigerian SEC published a 54-page document titled “New Rules on Issuance, Offering Platforms and Custody of Digital Assets.” 

Per the document, crypto exchanges must obtain a virtual asset service provider (VASP) license from the SEC by complying with the requirements of application processing, a registration fee and other applicable fees.

Now that CBN has lifted the restrictions, with emphasis on obtaining licenses, crypto companies now have to comply with the minimum upfront capital requirement of 500 million naira ($556,620).

Read also:

CBN lifting the crypto ban and what it means for Nigerian crypto users

Although many commentators think local exchanges cannot afford to pay that amount, Nathaniel Luz, CMO of Flincap says it is a plus to the Nigerian industry in the sense that it moves the conversation away from the banning of crypto to legalising it around some parameters. 

“However, these parameters will need to be constantly reviewed and evaluated so that they remain flexible and support the growth of startups in the industry.” Nathaniel Luz said.

Chris Ani, who is vocal about his dissatisfaction with the Nigeria SEC sees it differently. Chris believes the SEC is not a strong entity when it comes to the role the entity should play in the digital sector. 

By his assessment, the Nigeria SEC has not been as vehement in the stock market which has always been riddled with insider trading and other financial malpractices. 

“There are technologies that would bring onboard to facilitate better transaction and user experience, but they’re not doing it. The same SEC that can’t fix an existing stock market for years is now coming to talk about digital currency,” he said.

Chris Ani stated that the 500 million naira requirement by the SEC is absurd and only foreign companies will benefit. In his opinion, regulation or no regulation would never stop certain occurrences in the financial markets.

“At the end of the day, humans will still be human. It is the best practice we should try to encourage. But trying to stifle a little guy who built a p2p platform from WhatsApp, to build a website, and telling him to bring 500 million, makes no sense.”

Chris Ani has a grouse with the regulation SEC is bringing, and believes that self-regulation is the way to go. 

Obinna Iwuno, on the other hand, thinks the first focus of the authorities should be to protect and enable the local industry and anything apart from that approach is hurting the local economy.

“What sort of fee is affordable for our local industry? In other countries, we have frameworks like that to differentiate between indigenous players and foreign players.”

Setting outrageous amounts as a requirement is making operations difficult for local companies, empowering foreign companies to penetrate. 

“We will be hurting our local sector in the long run and we will be shortchanging ourselves. It’s important to look at it critically in the interest of the local economy. What is available is not yet clear, but what should be brought out should be favourable to the local economy.” – Obinna Iwuno, president of SiBAN.

cNGN development 

According to reports, the cNGN serves as a complement, not a substitute, for the eNaira. Also, the stablecoin is currently interoperable with strategic blockchains like Bantu and BNB Smart Chain, with plans to extend compatibility to all major blockchain networks soon.

Chris Ani thinks cNGN is a welcome innovation. 

“When it launches, let’s see how it operates. According to the way some people have described it, it’s going to be like another Moniepoint, addressing the problem of NIPPS.”

Obinna Iwuno doesn’t think the restrictions were lifted because of the introduction of cNGN as it is being echoed in some quarters.

“The moves were not about cNGN. And if cNGN accelerated the lift of restriction, that would be beautiful and fantastic. But we cannot attribute that the lift was solely because of it.”

When will Nigerian crypto companies bounce back?

Since CBN placed the ban in February 2021, a handful of unpalatable occurrences have come up in the global and Nigerian crypto space.

The industry has witnessed a severe bear market, Terra and FTX crashes, hacks, losses and other unfavourable conditions. However,  it is believed that 2024 will bring better tidings for the nascent industry.

Chris Ani believes that the positives ahead are still huge.

“The ones who have survived the last two years, I believe the future holds big for them. I expect a better revenue base, more increased transactions and profitability at the end of the day.”

In his opinion, the best way to regain trust is to start having more transparent companies. 

“Start having more solid practices. Have cybersecurity upgraded and have policies in place for security checkboxes and all that.  More education and transparency.”

Nathaniel Luz, CMO of Flincap warns regulators ahead. According to him:

“2024 is a new day for startups in the industry. We’re going to witness the birth of new startups solving global problems with crypto. The regulators would need to be proactive so as not to stifle these innovations as had happened in the past.”