Introduction and Scope
Nigeria’s Securities and Exchange Commission (SEC) has published the proposed Rules on Digital and Virtual Assets Operations, Custody and Markets 2026 (the “proposed digital asset rules” or the “proposed rules”). Upon adoption, the proposed rules will replace all existing SEC rules, guidelines and circulars governing digital and virtual assets in Nigeria’s capital market. They aim to establish a comprehensive regulatory framework for digital and virtual asset-related activities, covering issuance, offering, trading, custody, transfer and settlement.
The proposed rules outline the scope of activities subject to regulation, specify the requirements for entities conducting business involving digital and virtual assets, and prescribe regulatory standards governing the issuance and trading of digital assets. The principal objective is to strengthen investor protection, promote market integrity, mitigate financial and operational risks, and ensure that entities conducting regulated digital-asset activities operate within an appropriate supervisory framework. This update considers the principal provisions of the proposal and their implications for digital-asset service providers, issuers, custodians, exchanges and investors.
Regulatory Scope and Registration Requirements
The proposed rules contemplate the regulation of entities undertaking specified digital-asset activities in or connected with the Nigerian market. Such activities include operating digital-asset exchanges, providing custody services, facilitating token offerings, operating digital-asset platforms and tokenising real-world assets.
The framework establishes distinct regulatory categories, including Digital Asset Exchanges (DAX), Digital Asset Custodians (DAC), Digital Asset Platform Operators (DAPO), Digital Asset Offering Platforms (DAOP), Real-World Asset Tokenisation Platforms (RATOP) and Virtual Asset Service Providers (VASP).
The legal implication is that a business must assess the substance of its activities to determine the applicable registration obligations. Authorisation for one activity should not be presumed to extend to other regulated services. Accordingly, businesses offering multiple products may require separate registrations or additional SEC approval.
The proposed framework also contemplates regulatory scrutiny of ownership structures, management competence, financial resources, operational systems and compliance arrangements. Businesses operating from outside Nigeria should assess whether their activities, customer base or solicitation of Nigerian investors bring them within the proposed regulatory perimeter.
An entity seeking registration under the proposed rules is required to first apply for admission into the SEC’s Accelerated Regulatory Incubation Programme (ARIP). Upon consideration of the application, the SEC may issue an Approval-in-Principle authorising the applicant to commence operations, subject to any conditions imposed by the SEC. The Approval-in-Principle will remain valid for two years, following which the SEC may require the entity to apply for full registration.
To be eligible for registration under the proposed rules, an applicant must, among other requirements, be incorporated in Nigeria in accordance with the Companies and Allied Matters Act (CAMA), 2020. The applicant must also comply with any additional registration and regulatory requirements prescribed by the SEC.
Capital Adequacy and Financial Obligations
Schedule I of the proposal stipulates minimum capital requirements for different categories of regulated entities. The proposed minimums include ₦2 billion for Digital Asset Exchanges and Custodians, ₦500 million for Digital Asset Platform Operators, Offering Platforms and Real-World Asset Tokenisation Platforms, and ₦200 million for Virtual Asset Service Providers. The proposal also specifies registration, processing, application and supervisory fees, together with certain insurance requirements.
These provisions may impose substantial financial and operational burdens, particularly on smaller enterprises and emerging technology businesses. Applicants should therefore undertake a detailed assessment of their regulatory classification, capital position, insurance arrangements and projected compliance expenditure before commencing regulated operations.
The applicable capital treatment for businesses undertaking multiple regulated activities should be confirmed with the SEC rather than assuming that one capital allocation automatically satisfies every applicable requirement.
Custody and Protection of Client Assets
The custody provisions constitute a significant component of the proposed framework. They seek to ensure that digital assets held for clients are adequately safeguarded and distinguishable from the custodian’s proprietary assets.
The proposal addresses asset segregation, wallet management, reconciliation, private-key security, recovery arrangements and restrictions on the unauthorised use of client assets. It also contemplates controls over lending, pledging and rehypothecation, subject to the applicable permissions and consent requirements.
A notable requirement is the proposed minimum of 80 per cent cold storage for client digital assets, subject to the SEC’s power to prescribe another percentage. The framework further addresses independent audits, security controls and proof-of-reserves or equivalent assurance arrangements where applicable.
Legally, these measures are intended to reduce the risk of misappropriation, cyber theft, operational failure and disputes concerning ownership following insolvency. Custodians and exchanges should ensure that their contractual arrangements, accounting systems and operational controls adequately protect client entitlements.
Digital-Asset Issuance and Tokenisation
The proposal establishes regulatory requirements for digital-asset issuance and public offerings. Issuers may be required to obtain the relevant SEC approval or no-objection before issuing, offering or distributing digital assets to the public.
Disclosure obligations are central to this framework. Issuers are expected to provide a whitepaper addressing the project’s structure, the characteristics and rights attached to the token, the issuer’s identity, underlying assets where applicable, technological arrangements, governance, risks and redemption mechanisms.
Asset-backed and asset-referenced tokens require particular attention to the existence, valuation, custody and verification of underlying assets, together with the legal rights of token holders. Tokenisation does not, by itself, guarantee that a token holder possesses enforceable legal title to the underlying asset.
The proposal also identifies certain asset categories and structures that may be prohibited, including anonymity-enhanced assets and algorithmic or unbacked stablecoins. The precise application of these restrictions should be assessed against the final applicable rules and the characteristics of the relevant asset.
Exchange Operations and Market Integrity
Digital Asset Exchanges are expected to maintain transparent trading rules, appropriate listing and delisting procedures, transaction records and effective market-surveillance arrangements.
The proposal addresses market-abuse practices such as wash trading, spoofing, insider trading, front-running and price manipulation. Exchanges are expected to monitor suspicious activity and comply with applicable incident-notification and reporting obligations.
The framework also contemplates restrictions on activities such as derivatives, leveraged products, automated market makers and certain peer-to-peer or over-the-counter services unless the relevant approval is obtained.
These provisions are intended to promote fair dealing, transparency and orderly markets. Operators should implement documented compliance procedures, surveillance systems and controls governing asset admission, trading suspensions and the handling of erroneous or failed transactions.
Compliance, Governance and Enforcement
The proposal places continuing obligations on regulated entities to maintain appropriate governance, internal controls, cybersecurity arrangements, financial records and regulatory reporting systems.
Relevant obligations include transaction monitoring, incident management, complaint handling, reconciliation, record retention and cooperation with regulatory examinations. Businesses should also establish procedures for responding to lawful asset-freezing orders and managing compromised or high-risk assets.
The proposed framework addresses the suspension or cessation of regulated operations, including notification to the SEC and arrangements for protecting and transferring client assets. These provisions underscore the importance of operational resilience and orderly wind-down planning.
Legal Assessment and Conclusion
The proposed rules represent a significant effort to formalise the regulation of digital-asset activities in Nigeria. Their principal legal effect, if adopted and implemented in the relevant form, would be to strengthen regulatory oversight, clarify registration obligations, improve client-asset protection and impose more structured requirements on issuers and market operators.
However, the proposal may also increase compliance costs, create classification challenges for multi-service businesses and require substantial investment in governance, technology, capital and reporting systems.
Importantly, the document is a proposal and should not, without further verification, be treated as a final or binding statement of the law currently in force. Before relying on any provision, it is necessary to confirm its adoption status, commencement date, transitional arrangements and relationship with other applicable Nigerian legislation and regulatory requirements.
Accordingly, digital-asset businesses intending to operate in Nigeria should conduct a detailed regulatory-perimeter assessment, review their capital and custody arrangements, and obtain appropriate legal advice concerning registration and ongoing compliance. This opinion is limited to a general analysis of the linked proposed rules and should be supplemented by a review of the final instruments and the specific facts of the relevant business.
Please note that this material is not legal advice. For professional support, please reach out to info@coventlegal.com