SEC’s Approval of Quidax, Busha: Advancing Nigeria’s Cryptocurrency Legal Framework

By Tochukwu Onyiuke (SAN) and Oge Anene

Nigeria has witnessed explosive growth in cryptocurrency adoption in recent years, driven by factors such as economic instability and the desire for financial independence.

Reports indicate that Nigeria’s crypto transaction volume reached a staggering $56.7 billion between July 2022 and June 2023, representing a nine per cent year-over-year growth.

This surge has solidified Nigeria’s position as one of the largest cryptocurrency markets in Africa, with an estimated market value of over $400 million.

However, this rapid growth has also underscored the need for a robust regulatory framework to protect investors and ensure market integrity.

The recent approval of Quidax and Busha as legally sanctioned cryptocurrency exchanges by the Securities and Exchange Commission (SEC) marks a significant turning point in Nigeria’s cryptocurrency landscape.

This approval represents a crucial step toward establishing much-needed security and protection for investors in the market. 

Despite this progress, Nigeria’s cryptocurrency market still lags behind international best practices in terms of legal robustness.

To ensure a sound business environment that fosters long-term stability, growth, and investor confidence, several innovations could be adopted to strengthen market integrity.

Comprehensive regulatory framework

One of the most critical steps toward ensuring investor protection in Nigeria’s cryptocurrency market is the development of a comprehensive regulatory framework.

While the SEC’s approval of Quidax and Busha is a positive move, the current landscape remains fragmented. A cohesive regulatory structure that aligns with international best practices is essential.

This would include clear guidelines on licensing, operations, anti-money laundering (AML) and counter-terrorism financing (CTF) compliance, and consumer protection.

Such regulations would not only enhance market transparency but also build investor confidence by providing clear legal recourse for grievances. 

Countries like Singapore and Switzerland have developed frameworks that encompass a wide range of cryptocurrency-related activities, offering a holistic approach that ensures all industry aspects are subject to oversight.

Streamlined and effective dispute resolution

To ensure investor market integrity, it is crucial to establish robust dispute resolution mechanisms for cryptocurrency transactions.

This includes both internal processes within exchanges and external options like mediation and arbitration and the possibility of appeals.

The exchanges should implement efficient internal dispute resolution teams to handle grievances promptly and fairly.

Because cryptocurrency disputes may bother on issues relating to transboundary transactions, a framework that can address multi-boundary issues becomes imperative, making it essential to develop universally accepted rules and regulations that can be adopted by exchanges.

Given the borderless nature of cryptocurrency transactions, arbitration or mediation is often appropriate, supported by international treaties to which Nigeria is a signatory.

As part of security measures, the dispute resolution mechanism should have the power to issue interim orders freezing accounts suspected of being used for fraudulent activities. This would not only protect investors but also ensure market integrity.

The SEC could collaborate with arbitration centers to develop specialised rules for cryptocurrency-related disputes, offering investors a streamlined means of seeking redress.

By implementing a comprehensive dispute resolution framework, Nigeria can create a safer and more trustworthy environment for crypto investors.

Mandatory reporting of these disputes and their resolutions will further ensure accountability and the continuous improvement of dispute resolution practices.

Investor education and awareness

Investor education is a critical component of investor protection, as it ensures individuals understand the risks and benefits of cryptocurrency investing.

Many jurisdictions, such as Australia, the United Kingdom, and the United States, have implemented comprehensive investor education programs in partnership with industry associations and financial regulators.

Similarly, the SEC, in collaboration with approved exchanges like Quidax and Busha, should initiate wide-reaching education and awareness campaigns.

These programmes should focus on the risks associated with cryptocurrency trading, the importance of due diligence, and the legal protections available to investors. 

By fostering a well-informed investor base, the likelihood of falling victim to scams is reduced, and participants are more likely to engage in responsible trading practices. This, in turn, contributes to the overall stability and integrity of the market.

Enhanced cybersecurity measures

Given the increasing prevalence of cyberattacks, robust cybersecurity is paramount for safeguarding investors in the cryptocurrency market.

Globally, leading markets like the United States, Japan, and South Korea have set high standards, requiring exchanges to implement advanced protective measures.

Nigeria can draw from these practices by having the SEC enforce stringent cybersecurity standards across all approved exchanges. This should include mandatory regular audits, encryption protocols, and multi-factor authentication (MFA).

There should also be a binding obligation to report security breaches promptly and compensate affected users, ensuring that the adjudication process is not overly cumbersome.

By prioritising cybersecurity, Nigeria can align with global best practices and create a safer environment for cryptocurrency transactions.

Collaboration with international regulatory bodies

Given the inherently global nature of cryptocurrency, Nigeria’s regulatory framework must not operate in isolation.

To effectively regulate the market and protect investors, the SEC should actively collaborate with international regulatory bodies.

This collaboration can take several forms, including harmonising standards, sharing best practices, and coordinating cross-border enforcement actions.

Many countries have already established frameworks for international cooperation in regulating digital assets.

For example, the Financial Action Task Force (FATF) sets global standards for anti-money laundering (AML) and counter-terrorism financing (CTF), which are adopted by member countries to ensure consistency in enforcement.

Additionally, the International Organization of Securities Commissions (IOSCO) plays a crucial role in facilitating cooperation among securities regulators worldwide, helping to develop unified standards that protect investors and maintain market integrity.

By aligning with these global efforts, Nigeria can enhance the effectiveness of its regulatory framework.

The SEC could participate in international working groups, collaborate on joint investigations, and share intelligence on illicit activities within the cryptocurrency space.

This would not only strengthen Nigeria’s regulatory credibility but also ensure that Nigerian investors benefit from the same level of protection as their counterparts in more established markets.

Moreover, international collaboration can help Nigeria address challenges related to cross-border transactions, which are common in the cryptocurrency market.

By working with other countries, Nigeria can develop mechanisms for enforcing regulations on foreign entities that operate within its jurisdiction, thereby closing regulatory gaps that could be exploited by bad actors.

Such collaboration would elevate Nigeria’s standing in the global cryptocurrency landscape, ensuring that its regulatory framework is both comprehensive and in line with international best practices.

As Nigeria’s cryptocurrency market continues to grow, the establishment of a robust regulatory framework is crucial to ensure the protection of investors and the integrity of the market.

The SEC’s approval of Quidax and Busha is a significant step forward, but it must be accompanied by comprehensive regulations that align with international best practices.

This will enhance regulatory credibility and ensure that Nigerian investors enjoy the same protections as those in more established markets.

Incorporating these innovations will position Nigeria as a leading hub for cryptocurrency in Africa, fostering a secure and transparent market that attracts both local and international participants.

By prioritising investor protection, Nigeria can ensure that its cryptocurrency market remains resilient, trustworthy, and aligned with global standards, ultimately contributing to the broader economic development of the country.

* Onyiuke is a Senior Advocate of Nigeria (SAN) and heads the dispute resolution team of Accendolaw LP, a commercial law firm in Lagos. Anene, a blockchain expert, is a Supervisory Associate Counsel in the firm.