Nigerian Regulator Moves Against Binance Amid U.S. Crypto Crackdown

Binance Nigeria Limited, the Nigerian subsidiary of the world’s largest cryptocurrency exchange, Binance, has been accused of operating illegally in the country by Nigeria’s Securities and Exchange Commission (SEC), declaring that it is neither registered with the SEC nor subject to its oversight.

In a statement issued late Friday, June 9, the SEC advised Nigerian investors to exercise caution when dealing with unregistered and unregulated platforms and warned about the dangers of investing in crypto-assets, which remains under an implicit ban following a February 2020 order by the Central Bank of Nigeria (CBN) cutting off crypto companies from the country’s formal financial system.

“The attention of the Securities and Exchange Commission (the Commission) has been drawn to the website operated by Binance Nigeria Limited, soliciting the Nigerian public to trade crypto assets on its various web and mobile-enabled platforms,” the statement reads.

“Binance Nigeria Limited is neither registered nor regulated by the Commission and its operations in Nigeria are therefore illegal. Any member of the investing public dealing with the entity is doing so at his/her own risk. By this circular, Binance Nigeria Limited is hereby directed to immediately stop soliciting Nigerian investors in any form whatsoever,” the SEC adds.

The SEC’s move against Binance Nigeria is a component of a larger global trend among financial regulators keen to rein in the crypto industry as wariness of the risks for the financial system and investors intensify following several crypto-related fraud and theft incidents — most notably the malfeasance that resulted in the rapid collapse of FTX, one of the world’s top-three exchanges at one point, which shook up the industry.

The notification by the Nigerian regulator follows a lawsuit filed earlier this week by the U.S. SEC against Binance US, the global exchange’s U.S. affiliate, accusing it of running an unauthorised securities exchange. Binance US has pulled several trading pairs and halted dollar deposits and withdrawals as it scrambles to face the storm.

Cryptocurrencies have gained popularity worldwide, spawning an industry that soared to an all-time-high market cap of USD 3 T in November 2021 before suffering a slump. While the potential for quick, outsized profits remains the biggest draw all over the world, markets in the global south have especially shown glimpses of crypto adoption beyond speculation.

In areas troubled by inflation, currency depreciation/devaluation, and international payments hurdles, crypto-based assets like stablecoins have proved to be useful countermeasures to preserve and build wealth and unlock financial borders. These benefits—and income-seeking in the face of economic decline and unemployment battering a young population—sucked in a reported 53 million Africans at the height of the crypto boom period. Africa is estimated to account for around 16 percent of global crypto users as of the middle of the last year, with Nigeria leading on the continent and ranking fourth globally with 22 million users.

Thus, Binance, among other local and global crypto companies, including the now-defunct FTX, have demonstrated a keen interest in the Nigerian market over the last few years, making significant investments to attract users while unfazed by the unclear regulatory environment.

However, the lack of definitive action in the Nigerian government’s position on crypto since that central bank order forbidding banks from platforming crypto firms, coupled with a new piece of legislation seeking to tax gains on digital assets such as cryptocurrencies, may have encouraged local crypto startups and global firms to latch on to workarounds (such as peer-to-peer trading which boomed after the CBN order) and further advance their cause.

Binance, in particular, appears to have been orchestrating some bold moves in recent months. Last September, Binance Holdings Ltd. was reported to be lobbying Nigerian authorities in a bid to establish a digital economic zone that will help entrepreneurs fast-track blockchain technology, which has emerged as an area of interest for the country’s digital innovation agency.

However, the crypto giant may have flown too close to the sun with its most recent move Friday when it launched the BTC/NGN trading pair on its platform, allowing users to trade the Nigerian Naira directly against bitcoin.

Some local crypto industry stakeholders have speculated on Twitter that this action may have triggered the circular from the Nigerian SEC which served to proscribe Binance’s Nigerian arm, shortly after Binance launched the pair.

Others have opined that with the U.S. fighting crypto head-on, it might become common to see other regulators—especially those in Africa—issuing new circulars banning crypto since toeing the line of U.S. regulators with respect to crypto is generally popular among local watchdogs.

Further information on the matter is hard to come by at this time as both the Nigerian SEC and Binance Nigeria have not issued additional statements. The SEC however looks to be positioning for a crackdown, the finer details of which might come to light in time.

“As the regulator with the statutory mandate of investor protection, the Commission urges Nigerians to be wary of investing in crypto-assets, and crypto-asset-related financial products and services if the service provider/its platform is not registered or regulated by the Commission. Nigerian investors are hereby warned that investing in crypto-assets is extremely risky and may result in total loss of their investment,” the SEC circular reads in part.

“The Commission shall provide updates on further regulatory actions with respect to the activities of Binance Nigeria Limited, and other similar platforms and shall work with other regulators in Nigeria to provide further guidance on this matter,” it adds.

UPDATES:

• Binance has issued a cease and desist order against “Binance Nigeria Limited,” as revealed in a tweet shared on Sunday, June 19, by Binance CEO Changpeng Zhao referring to the embattled Nigerian establishment as a “scammer entity, Prior to that, Binance had distanced itself from Binance Nigeria Limited, stating that it has no affiliation to the entity.
• Other reports maintain that while the entity the Nigerian SEC referred to in the circular is not operational and indeed not affiliated to the crypto exchange, Binance, it was merely a clerical error as the regulator is fully referring to Binance itself and the circular comes on the back of at least one complaint filed with the commission about the global crypto exchange.

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