In recent years, the Nigerian financial technology (FinTech) ecosystem has witnessed an unprecedented surge in groundbreaking technologies, disrupting traditional financial services and revolutionizing the way we transact, invest, and manage our finances. From peer-to-peer lending platforms to mobile payment solutions and blockchain-based innovations, the realm of FinTech has captured the imagination of investors and consumers alike.
With these revolutionary advancements, however, comes a myriad of legal considerations and regulatory complexities which FinTech companies must navigate to ensure their success and longevity in this ever-evolving industry. This newsletter seeks to provide answers to inquiries often made about the legal considerations for operating in the Nigerian Fintech environment.
- What is the most suitable Corporate for fintech businesses?
The Companies and Allied Matters Act (CAMA), 2020 provides for various structures that may be adopted by businesses such as limited liability and unlimited liability companies, limited liability partnerships, limited partnerships, business names, and incorporated trustees. The most appropriate structure for a fintech to adopt is that of a limited liability company.
Incorporating your FinTech business as a limited liability will not only provide a distinction of the shareholders' personal assets from that of the company but also helps in protecting shareholders against personal liability which may arise in the operation of the business. It will also boost investor confidence in the business, as equity ownership in a limited liability company can easily be transferred.
In addition, incorporating as a limited company, in general, will also aid in compliance with certain regulatory requirements and obtaining relevant licences required for the operation of a FinTech business in Nigeria. For instance, the Central Bank of Nigeria's (CBN) minimum capital requirements for payment services providers and payment service banks, and the requirement to establish a holding company structure for businesses wishing to operate under more than one licence category provided by the CBN.
- Is there a single regulatory framework for FinTechs in Nigeria?
Unlike other sectors within Nigeria which may operate under a single or centralized body of laws governing their businesses (e.g the traditional banks having the CBN Act, and the Banks and Other Financial Institutions Act (BOFIA), 2020 as their primary legislations), there is no single/primary legislation governing or regulating Fintech in Nigeria. There are however various laws and regulations which may be applicable to various aspects of the Fintech business. The CBN being the primary body responsible for regulating the financial sector in Nigeria has a plethora of regulations that are applicable to various aspects of the Fintech business some of which include:
- CBN Guidelines on Open Banking, 2023
- The CBN Guidelines on Mobile Money Services in Nigeria, 2015
- The CBN Guidelines on International Mobile Money Remittance Service in Nigeria, 2015.
- The CBN Guidelines on International Money Transfer Services in Nigeria, 2014
- The CBN Guidelines on Finance Companies in Nigeria
- The CBN Guidelines for Licensing and Regulation of Payments Service Banks in Nigeria, 2018, etc.
In addition to these regulations listed above, there are other regulations which may apply to certain Fintech companies depending on their operations, some of which are listed below;
- CAMA 2020, which is applicable to all companies and business registered in Nigeria.
- Federal Competition and Consumer Protection Act, 2018
- Money Laundering (Prohibition) Act, 2018
- Economic and Financial Crimes Commission (Establishment) Act, 2004
- Nigerian Data Protection Act (NDPA), 2023
- Banks and Other Financial Institutions Act, 2020
- Foreign Exchange (Monitoring and Miscellaneous) Provision Act, 1995
- Advance Fee Fraud and other Fraud Related Offences Act, 2006
- Securities and Exchange Commission (SEC) Rules for the Registration of Virtual Assets Service Providers, 2022
- SEC Rules on Issuance, Offering Platform(s), and Custody of Digital Assets,
- SEC Rules on Digital Assets Exchange, 2022, etc.
- Who are the Key Regulators in the Nigerian Fintech Sector?
There are various regulatory bodies exercising oversight of various aspects of the Fintech business in Nigeria some of which include;
- The CBN- exercising oversight for payment service providers, bureau de change companies, digital banks, payment service banks, etc.
- The FCCPC- exercising oversight in relation to mergers and/or acquisitions, competition and consumer protection regulatory functions.
- The Nigerian Data Protection Commission (NDPC)- regulating how companies collect, store, and process personal data in order to safeguard the rights of data subject.
- SEC- where the business of the FinTech involves trading in digital assets and other capital market activities.
- The National Office for Technology Acquisition and Promotion (NOTAP)- where the company imports foreign technology in the course of its business such as the use of patented inventions, supply of technical expertise, etc. the company will be required to register such technology transfer agreement.
- What Licence is required to operate a fintech business in Nigeria?
The nature of the license required is dependent on the specific service to be provided by the fintech business. Some of the most sought after licenses are highlighted below:
- Money lender's licence- this applies to FinTechs providing digital lending solutions to customers. This licence is to be obtained from the State within which the business intends to operate.
- Payment Service Providers Licence- some of the licences obtainable here include the mobile money operation licence, the switching and processing licence, payment solutions service provider licence, payment terminal service provider licence, super-agent licence and payment solution services licence.
- Microfinance Bank Licence- this licence is
obtainable from the CBN, and allows the company carry on such
activities such as;
- Acceptance of deposit
- Provision of microloans
- Provision of credit to customers
- Issuance of debentures
- Provision of banking activities to customers (limited to domestic remittance of funds), etc.
iv. Sub-broker Licence- this applies to Fintechs that offer a digital platform for others to invest in and purchase shares and stocks form foreign companies. This licence is obtainable from the SEC.
- What are the compliance requirements for Fintech in Nigeria?
- Anti-Money Laundering (AML)/Know-Your-Customer (KYC) Policy- Fintech companies are required to establish and maintain robust AML/KYC policies to prevent financial fraud and financing terrorist activities.
- Data Protection- Fintechs are also required to ensure that their data protection policies are efficient and effective in protecting the data of the users of their platform(s) and service(s). They are also required to file yearly reports of data audit conducted with the NDPC to ensure continued compliance with the requirements of the NDPA.
- Annual Returns and Corporate Governance- Fintechs like other companies incorporated under CAMA are also required to file their annual returns as and when due. They are also required to establish a proper corporate governance structure and generally comply with requirements established by their regulators.
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.