What You Should Know About The Security And Exchange Commission’s(SEC) New Regulations On Digital Assets -By Oyetola Muyiwa Atoyebi & Ibrahim Wali

INTRODUCTION

On 11^th May 2022, The Securities and Exchange Commission (SEC)  issued New Rules on Issuance, Offering Platforms and Custody of Digital Assets. This new piece of regulation is a follow-up to the Commission’s Proposed Rules on the Registration of Virtual Asset Service Providers, and its Proposed Rules on the Issuance, Offering Platforms and Custody of Digital Assets issued by the Commission in April, 2022.

This article briefly explores the highlights of the New Rules.

APPLICABILITY

The new rules apply to any Issuer seeking to raise capital through digital asset offerings.

IMPORTANT DEFINITIONS[1]

The New Rules define Digital Assets as a token that represents assets such as a debt or equity claim on the Issuer. The implication of this is that these digital assets can be seen as securities.

The New Rules also define Digital Asset Offerings to include initial coin offerings, and other Distributed Ledger Technology (DLT) offers of digital assets.

A Securities Token Offering means any offering and sale of digital tokens that are considered securities. This should be differentiated from an Initial Coin Offering, which means a distributed ledger technology capital-raising, involving the issuance of tokens to the general public in return for cash, cryptocurrencies or other assets.

Finally, a White Paper is a document that states the technology behind a project.

THE SECURITIZATION OF DIGITAL ASSETS.

According to the New Rules, Issuers are allowed to raise capital for a project by offering digital assets as securities, provided they pass an Initial Assessment Filing.

This Initial Assessment Filing is done by submitting an assessment form and a draft White Paper. The draft White Paper shall contain relevant, complete and current information regarding the initial digital asset offering projects, business plan and feasibility study. [2]

Once this is received by the Commission, the commission shall within 30 days, determine whether the asset can be seen as a security under the Investment and Securities Acta, 2007. The Commission’s decision will then be communicated to the Issuer within 5 days from the end of the review.[3]

REGISTRATION REQUIREMENTS

These include:

1. A registration statement of the digital assets which shall include; the name and ticker of the tokens.
2. KYC procedures, disaster recovery plans and risk management protocol.
3. Security protocols including platform architecture and technology.
4. Solicitor’s opinion confirming that all applicable permits and licenses for the issuance and transfer of the securities, after the offer has been obtained.
5. Copy of the escrow agreement with an independent Custodian/Trustee registered with the Commission.
6. Corporate governance disclosures.
7. Evidence of payment of the applicable fees.
8. Any other information to be determined by the Commission from time to time.[4]

MAXIMUM AMOUNT THAT AN ISSUER CAN RAISE

The SEC placed a ceiling of Ten Billion Naira (N10,000,000,000) on the amount to be raised by an Issuer in a continuous 12-month period OR twenty times (20x) the Issuer’s shareholder’s funds.[5]

APPLICATION FEES FOR DIGITAL ASSET OFFERING PLATFORMS (DAOPs)

Any platform applying to be registered as a Digital Asset Offering Platform shall pay the following prescribed:

1. Filing/Application Fee – N100,000 (One Hundred Thousand Naira only).
   1. Processing Fee – N300,000 (Three Hundred Thousand Naira only).
   1. Registration fee – N30,000,000 (Thirty Million Naira only).
   1. Sponsored Individuals Fee – N100,000 (One Hundred Thousand Naira only)[6].

CONCLUSION

The New Rules are a step in the right direction for regulatory control of digital asset investments, and they will pave the way for more mainstream acceptance of digital assets.

AUTHOR: Oyetola Muyiwa Atoyebi, SAN, FCIArb. (UK).

Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm) where he also doubles as the Team Lead of the Firm’s Emerging Areas of Law Practice.

Mr. Atoyebi has expertise in and a vast knowledge of Technology, Media and Telecommunications Law and this has seen him advise and represent his vast clientele in a myriad of high level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of a Senior Advocate of Nigeria.

He can be reached at atoyebi@omaplex.com.ng

CONTRIBUTOR: Ibrahim Wali.

Ibrahim is a Team Lead in the Dispute Resolution Team at OMAPLEX Law Firm. He also holds commendable legal expertise in Regulatory Compliance and Technology Law.

He can be reached at ibrahim.wali@omaplex.com.ng.

[1] Rule 2

[2] Rule 4.

[3] Rule 4.01

[4] Rule 5

[5] Rule 7

[6] Rule 11.2