The Accelerated Regulatory Incubation Program (ARIP), introduced by the Securities and Exchange Commission (SEC) of Nigeria, is a pivotal framework designed to streamline the onboarding process of Virtual Assets Service Providers (VASPs) and Digital Investments Service Providers (DISPs). This program aims to bridge the gap between innovation and regulation, providing a controlled environment that supports market entry while ensuring compliance with regulatory standards.
For VASPs, navigating the ARIP pathway involves a structured process that moves from initial application to final approval. This comprehensive guide outlines the process from initial application to final approval, adhering strictly to the framework released by the SEC.
Eligibility Assessment
The ARIP Framework caters to Virtual Asset Service Providers (VASPs) engaged in the facilitation of digital asset offerings, trading, exchange, and custody through distributed ledger technology (Digital system or recording the transactions relating to a digital asset whose details are recorded in multiple places at the same time.).
Additionally, Digital Investment Service Providers (DISPs) offering investment services to Nigerians through digital channels are eligible under this framework. To qualify, entities must be incorporated and maintain a physical presence in Nigeria, with their Chief Executive Officer or equivalent holding residence in the country and must not be guilty of any financial offence.
Furthermore, they must be involved in an investment or securities business and have an active or pending application related to virtual assets with the Securities and Exchange Commission (SEC)[1].
Application Process
The ARIP application process involves two main phases. Initially, applicants must complete and submit an assessment form through the SEC Portal. Successful applicants will receive an Approval-in-Principle (AIP). In the subsequent phase, they must provide constitutional documents, proof of registration with the Nigerian Financial Intelligence Unit (NFIU), and a non-refundable fee of N2,000,000.00. They must also demonstrate evidence of shareholder funds and a fidelity bond covering at least 25% of these funds[2]. Additionally, an operational plan outlining business activity and an exit strategy if registration is not achieved including how the participant will fulfill its obligations to its customers is required[3].
Approval in Principle (AIP)
The Objective is to obtain preliminary authorization to commence operations under ARIP. The SEC may grant an Approval in Principle (AIP) if the application meets initial requirements[4]. This provisional authorization allows the VASP to operate within specific parameters while working towards full registration. However, the AIP is granted with conditions, including the need for regular reporting, effective internal controls, and compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. These conditions ensure the VASP operates in accordance with regulatory standards as it progresses toward complete registration.
Restrictions on Participants
Participants in the ARIP must adhere to specific restrictions. They are limited to conducting only the securities and investment business approved by the SEC and must refrain from promotional activities that could increase their customer base by more than 10% from the point of entry into the ARIP[5].
Reporting and Compliance
During the operational phase, the SEC monitors the VASP’s adherence to ARIP guidelines to ensure regulatory compliance and operational efficiency. The VASP must submit periodic reports detailing operational performance and compliance status. Additionally, effective risk management strategies should be implemented to address operational, financial, and technological risks.
Based on SEC feedback, the VASP may need to adjust its operations or compliance measures to align fully with regulatory expectations. Transparency is crucial, requiring the submission of weekly and monthly trading statistics, quarterly financial and compliance reports, and operational incident reports addressing issues like fraud, risks, and customer complaints. The VASP must also ensure that its premises, systems, and records are available for SEC inspection[6].
Transition to Registration
At the expiration of the ARIP period, participants are expected to transition to full registration. The SEC will make one of the following decisions[7]:
- Grant Full Registration: The SEC may approve the participant for full registration to operate in the Nigerian capital market, subject to compliance with all relevant rules and regulations.
- Regulatory Updates: Based on insights from the ARIP, the SEC might adopt new regulations or guidelines to address any gaps or introduce reforms, as permitted under Section 38 (2&3) of the ISA, 2007.
- Denial of Permission: The SEC may deny permission for the participant to operate in Nigeria if it does not meet the necessary requirements.
Additionally, the SEC may organize training and examinations for sponsored individuals, with successful candidates proceeding to a registration interview[8].
Timeline and Penalties
Participants in the ARIP who fail to comply with the stipulated requirements face penalties starting at ₦5,000,000 (Five Million Naira) for the first instance, with an additional ₦200,000 (Two Hundred Thousand Naira) for each day of continued non-compliance. More severe administrative sanctions, as outlined in the Commission’s rules and regulations, may also be imposed based on the violation’s severity[9].
For commercialized Virtual Assets Service Providers (VASPs) engaged in trading, offering, or custody without proper authorization or registration, a penalty of at least ₦20,000,000 (Twenty Million Naira) applies[10]. Similarly, other digital investment platforms, including crypto brokers, dealers, and advisers operating without authorization, will incur a penalty of no less than ₦10,000,000 (Ten Million Naira)[11].
Entities failing to comply with the Commission’s rules and regulations may face additional sanctions, including suspension from capital market activities[12].
Conclusion
Navigating the ARIP pathway involves a structured process designed to ensure that VASPs are well-prepared to operate within Nigeria’s financial market. By following these steps—ranging from eligibility assessment to final registration—VASPs can successfully integrate into the market while adhering to regulatory standards that support innovation and safeguard market integrity.
The ARIP framework provides a clear roadmap for VASPs, enabling them to align their operations with regulatory requirements and contribute to the growth of Nigeria’s digital asset ecosystem. However, applicants will require the services of a skilled agent to navigate the complexities of the application process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[1] Regulation 6 of the ARIP Framework
[2] Regulation 20 of the ARIP Framework
[3] Regulation 36 of the ARIP Framework
[4] Regulation 11 of the ARIP Framework
[5] Regulation 29 of the ARIP Framework
[6] Regulation 21 of the ARIP Framework
[7] Regulation 37 of the ARIP Framework
[8] Regulation 38 of the ARIP Framework
[9] Regulation 40 of the ARIP Framework
[10] Regulation 41 of the ARIP Framework
[11] Regulation 42 of the ARIP Framework
[12] Regulation 43 of the ARIP Framework