Nigeria is not trying to stop crypto. It wants to know where the money goes.

Nigeria is taking a comprehensive approach to regulating virtual assets, rather than outright prohibition. The country's traditional crypto economy operated through various channels, including offshore exchanges, P2P networks, and informal payment systems. Now, regulators aim to integrate this activity into the formal financial system, focusing on taxation and transaction monitoring.

This strategy aligns with the global Crypto-Asset Reporting Framework (CARF), which Nigeria plans to implement by 2028. Such measures could enable the government to better monitor crypto-related transactions, mitigate risks linked to illicit financial flows, and address issues of tax non-compliance. However, the breadth of this regulatory architecture could potentially lead to overlapping oversight if the roles of different agencies are not clearly delineated.

In a recent Payments System Vision 2028 (PSV 2028) proposal, the Central Bank of Nigeria (CBN) suggested allowing itself to operate observer nodes in blockchain infrastructure supporting approved stablecoins. This proposal is part of Nigeria's broader strategy to increase visibility over crypto activity and incorporate significant virtual-asset transactions into a reporting, supervision, and taxation framework.

Regulating virtual assets, however, necessitates collaboration among various regulatory bodies, as digital assets can intersect with multiple aspects of the financial system. For instance, traditional fintechs can operate under CBN oversight when providing technology and working with licensed financial institutions, but may venture into securities territory when engaging in investment activities with customers' funds.

Partnerships, acquisitions, and ownership structures can become integral to the regulatory framework.

For example, PiggyVest, a Nigerian savings and investment platform, manages user funds via PV Capital Limited, a subsidiary registered with the Securities and Exchange Commission (SEC) as a fund/portfolio manager. In March, the SEC revised capital market guidelines, raising the minimum capital requirement for fund/portfolio managers from ₦500 million ($368,000) to ₦2 billion ($1.5 million).

The SEC's revised capital criteria, however, do not clearly distinguish between traditional fund/portfolio manager activities and those performed by virtual asset service providers (VASPs). Accordingly, exchanges and custodians handling digital assets now face higher capital requirements under the SEC's revised guidelines. AVASPs, meanwhile, must meet a lower capital reserve.

Centralized exchanges and custodians play a crucial role in securing assets and facilitating token-to-fiat, fiat-to-token, and token transfers in Nigeria's virtual asset market, which has implications for foreign exchange stability. This makes them significant beyond the mere trading of digital assets. The SEC's regulatory incubation programs, such as the Accelerated Regulatory Incubation Programme (ARIP), provide insights into how the regulator is approaching the market.

However, admission to ARIP does not automatically result in a final operating licence; it requires continued compliance. Several companies, including Quidax, Busha, KuCoin, a fintech named GIGX Technologies, the stablecoin issuer Wrapped CBDC, and the over-the-counter (OTC) infrastructure company KoinKoin, are currently being supervised under a securities-and-investment lens.

Meanwhile, the CBN is examining parts of the market from a payments and foreign exchange stability perspective, which explains the increasing interest in stablecoins. Lasbery Oludimu, Vice President of Operations at Yellow Card, an emerging-market-focused stablecoin company, commented on the overlap between virtual assets and traditional finance during a media briefing in Lagos on August 12.

According to Oludimu, since digital assets are used for payments, it is natural that both the CBN and SEC should be involved. The CBN recently expanded its regulatory sandbox to include virtual asset companies for the first time, emphasizing the pivotal role some service providers play in Nigeria's fintech sector. Despite these advancements, Nigeria's approach to regulating digital and virtual assets represents a significant shift from the regulator's initial stance in September 2020.