(a) Crowdfunding, peer-to-peer lending
Crowdfunding: Although the Securities and Exchange Commission (SEC) had previously proposed a Regulatory Framework for Crowdfunding, in 2016 it released a statement suspending crowdfunding activities in Nigeria. It gave various reasons for the move, including the fact that the Investment and Securities Act 2007 and the Companies and Allied Matters Act 1990 did not anticipate such activities and thus did not provide for them. Under the Companies and Allied Matters Act, private limited liability companies are prohibited from inviting the public to subscribe to any shares or debentures of a company or to deposit money with them. The Companies and Allied Matters Act also prohibits private companies from having more than 50 shareholders.
The Investment and Securities Act prohibits any person from making any invitation to the public to acquire or dispose of any securities of a company, or to deposit money with any company for a fixed period or payable at call, whether bearing interest or not, unless the body corporate concerned is a public company. However, donation and reward-based crowdfunding activities are excluded from the SEC’s regulatory sphere and some fintech companies are thus operating within those areas.
Peer-to-peer lending: Peer-peer lending (P2P) operators are expected to obtain a licence from the CBN pursuant to the Banks and Other Financial Institutions Act. They may also operate as moneylenders and obtain money lending licences from the states in which they operate. However, because of how onerous it is to obtain these licences, some fintech companies operate as fund managers or even as micro-finance banks.
(b) Online lending and other forms of alternative finance
Online lending generally comes under the supervision of CBN and SEC. Consequently, an organisation that provides interstate marketplace lending will have to operate as a financial institution and will be regulated by the CBN.
However, if the institution is limited to a single state, it may register as a marketplace lender in accordance with the Money Lenders Law in the state where it decides to operate from.
(c) Payment services including marketplaces that route payments from customers to suppliers (eg, Uber and AirBnb)
Depending on the specific services they render, fintech companies will likely be subject to the following CBN regulations and guidelines:
- the CBN Guidelines on Operations of Electronic Payment Channels in Nigeria 2016;
- the CBN Regulation for Bill Payments in Nigeria 2018;
- the CBN Guidelines on Mobile Money Services in Nigeria 2015;
- the CBN Regulation for Direct Debit Scheme in Nigeria 2018;
- the CBN Regulatory Framework for the Use of Unstructured Supplementary Service Data for Financial Services in Nigeria 2018;
- the CBN Guidelines for the Operation of International Money Transfer Services in Nigeria 2014;
- the CBN Guidelines on International Mobile Money Remittance Service in Nigeria 2015; and
- the CBN Regulatory Framework for Mobile Payments Services in Nigeria 2009.
One major legal issue is the obvious duplication of regulations (eg, the CBN Guidelines on Mobile Money Services in Nigeria 2015, the CBN Guidelines for the Operation of International Money Transfer Services in Nigeria 2014 and the CBN Guidelines on International Mobile Money Remittance Service in Nigeria 2015). This duplication is also causing concern that fintech companies may need several licences to operate, depending on their scope of operations. This concern is particularly acute given that obtaining CBN licences is a time-consuming process.
Presently, forex trading is exclusively made available to the Central Bank of Nigeria, other allied banks, and large financial institutions.
However, online retail forex trading is presently unregulated in Nigeria. This led SEC to issue a statement in October 2018 where it stated that until a framework for regulation of online retail forex trading is developed by SEC, any person participating or engaged in such investment activity does so at his or her own risk.
Consequently, many local and international brokers operate without being regulated by any regulatory authority.
(f) Investment and asset management
While no specific regulations govern the use of fintech in the investment and asset management market, certain laws and regulations that govern the industry will apply, such as the following:
- The Investment and Securities Act and the Rules of the Securities and Exchange Commission – the regulations directed towards securities settlement will apply; and
- The Nigerian Stock Exchange Rulebook 2015 provides for direct and remote access to the Automated Trading System, and directs brokers/dealers to make use of technology to ensure thorough processing of transactions and market makers to utilise risk management tools/technology.
(g) Risk management
There are no specific regulations in Nigeria on robo-advice, which remains a new phenomenon.
The insurance industry is primarily regulated by the Insurance Act and the National Insurance Commission Act 1997. There is currently no legislation in Nigeria that would apply to insurtech.