The Securities and Exchange Commission (SEC) of Nigeria has introduced the Accelerated Regulatory Incubation Program (ARIP), a groundbreaking initiative aimed at fostering the growth of virtual asset (crypto) startups within the country’s capital market. This move marks a significant step towards formalizing and regulating the burgeoning digital asset industry in Nigeria.

The Accelerated Regulatory Incubation Program (ARIP) is a framework designed to fast-track the approval process in for businesses involved in virtual assets, like crypto-currencies and tokens, who are seeking to operate legally within the capital market in Nigeria. The program aims to help these businesses understand and meet regulatory requirements before they become fully operational.

Why was ARIP introduced?

• Accelerated Onboarding: To speed up the approval process for companies already in the process of applying for registration with the SEC.
• Regulatory Guidance: To provide guidance and support to businesses so they can meet regulatory expectations before fully entering the market.
• Enhanced Understanding: To allow the SEC to gain a better understanding of digital asset business models and tailor regulations for market integrity, investor protection, and anti-money laundering measures.

Who is eligible for ARIP?

To be eligible, your business must:

• Be incorporated and have a physical office in Nigeria.
• Have a Chief Executive Officer or Managing Director who is resident in Nigeria.
• Be involved in investment and securities business related to virtual assets, such as initial token offerings (ITOs), offering, trading, exchange, custody, and transfer of virtual/digital assets, Distributed Ledger Technology (DLT)-related services, regardless of physical location but serving Nigerian consumers.
• Be seeking registration or have a pending application with the SEC related to virtual assets.

What are the application steps?

1. Initial Assessment: Complete and submit an initial assessment form through the SEC’s online portal.
2. Eligibility Notification: The SEC will review your submission and notify you of your eligibility status.
3. Formal Application: If eligible, you will be asked to complete a formal application to join ARIP through a registered solicitor or adviser.
4. Approval in Principle (AIP): Upon successful application, you will receive an AIP, allowing you to operate under ARIP guidelines while awaiting full registration.

What are the application requirements and fees?

• Non-Refundable Processing Fee: N2,000,000 (Two Million Naira or USD1,200).
• Application Forms: SEC Forms 2 and 2D (for at least 4 sponsored individuals, including the Managing Director and Compliance Officers).
• Corporate Documents: Certified copies of your Certificate of Incorporation, Memorandum and Articles of Association, and CAC forms showing share capital, allotment, and director details.
• Financial Documents: Latest audited accounts or audited statement of affairs.
• Identification: Tax Identification Number, Clearance Certificate, and valid identification (including NIN and BVN) of sponsored individuals.
• Other Documents: Sworn undertakings, evidence of registration with the Nigerian Financial Intelligence Unit (NFIU), etc.
• Additional Requirements: The SEC may request further documentation as needed.

What are the operational requirements?

• Shareholder Funds and Fidelity Bond: You must maintain the required shareholder funds and have a current fidelity bond covering at least 25% of those funds.
• Record-Keeping and Reporting: You must adhere to strict record-keeping and reporting requirements, including weekly, monthly, and quarterly reports.
• On-Site and Off-Site Monitoring: Your business will be subject to both on-site and off-site inspections, audits, and monitoring by the SEC.
• Controls and Restrictions: You’ll need to implement risk management frameworks and comply with anti-money laundering and counter-terrorism financing regulations. There are also restrictions on promotional activities and customer base growth (limited to 10% growth) during the ARIP period.

What happens after the ARIP period?

After the ARIP period, your business may:

• Be granted formal registration to operate in the Nigerian capital market.
• Be subject to new regulations or guidelines based on the SEC’s findings during ARIP.
• Be denied permission to operate if you fail to meet requirements.

What are the penalties for non-compliance?

Non-compliance with ARIP requirements can result in hefty fines, starting from N5,000,000 (Five Million Naira) and additional daily penalties of N200,000. Other administrative sanctions or even suspension from capital market activities are also possible. Unauthorized virtual asset service providers may face penalties of N20,000,000 or N10,000,000, depending on their activities.

Key Considerations

• Local Presence: ARIP requires a physical office and resident CEO in Nigeria, which may necessitate establishing a subsidiary or branch in the country.
• Regulatory Compliance: Be prepared to invest in robust compliance measures to meet stringent reporting and monitoring requirements.
• Risk Management: Develop a comprehensive risk management framework to address potential risks associated with your virtual asset activities.

How to Apply for Nigeria’s Accelerated Regulatory Incubation Program (ARIP)

The application for ARIP shall be filed by the applicant through a registered solicitor or adviser. Crypto startups targeting Nigeria can apply for the Accelerated Regulatory Incubation Program (ARIP) by visiting the SEC Platform: https://eportal.sec.gov.ng/incubation/assessment