1 Legal and enforcement framework
1.1 In broad terms, which legislative and regulatory provisions govern the fintech space in your jurisdiction?
- The Mobile Money Guidelines 2015 apply to companies that provide mobile payment services.
- The Guidelines on the Operation of Electronic Payments 2016 regulate payments from automated teller machines, point of sale machines and mobile point of sale devices, as well as those made via the Internet.
- The Guidelines on International Money Transfers 2014 prohibit persons and institutions from providing international money transfer services without a licence from the Central Bank of Nigeria (CBN). It also sets out requirements for overseas partnerships.
- The Regulatory Framework for the use of Unstructured Supplementary Service Data in Nigeria 2018 establishes rules to prevent the abuse/breach of unstructured supplementary service data financial services in Nigeria.
- The objectives of the Data Protection Regulation 2019 include:
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- safeguarding the rights of natural persons to data privacy;
- promoting the safe execution of transactions involving the exchange of personal data;
- preventing the manipulation of personal data; and
- ensuring the competitiveness of Nigerian businesses in international trade.
The scope of the regulation includes all transactions intended for the processing of personal data of natural persons in Nigeria; it also applies to natural persons residing in Nigeria and to those of Nigerian descent residing outside Nigeria.
- The CBN Regulation for Bill Payments in Nigeria 2018 covers bill payments through various payment channels and any payment platform that seeks to integrate commercial payment activity and merchant aggregators in Nigeria. Payment methods include cheques, cards, direct debits, instant payments and automated clearing houses.
- The CBN Guidelines for Licensing and Regulation of Payment Service Banks in Nigeria allow non-traditional banking institutions, including telecommunications company, to provide banking services. It sets the minimum capital requirement for payment service banks at NNG 5 billion.
1.2 Do any special regimes apply to specific areas of the fintech space?
No.
1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?
The following authorities regulate the activities of fintech players in Nigeria:
- The CBN is the apex monetary authority of Nigeria. It governs most fintech players in Nigeria, including venture-funded companies offering services and partnerships to traditional players in the financial ecosystem.
- The Securities and Exchange Commission is the main regulatory institution of the Nigerian capital markets.
- The Corporate Affairs Commission regulates and supervises the formation, incorporation, management and winding up of companies.
- The Nigerian Communications Commission (NCC) regulates fintech companies that act as mobile network providers pursuant to the Licence Framework for Value Added Service issued by the NCC.
1.4 What is the regulators' general approach to fintech?
Policymakers and regulatory authorities have shown significant interest in the fintech industry. New regulations and initiatives to develop the industry are currently being contemplated.
1.5 Are there any trade associations for the fintech sector?
No.
2 Fintech market
2.1 Which sub-sectors of the fintech industry have become most embedded in your jurisdiction?
- Consumer/small and medium-sized enterprise (SME) lending;
- Mobile and online banking;
- Digital banking;
- Blockchain;
- Asset management (savings/investments); and
- Alternative financing (crowdfunding/peer-to-peer lending).
2.2 What products and services are offered?
- Payment gateways;
- Saving and investment services;
- Loans to SMEs and individuals with jobs; and
- Banking services.
2.3 How are fintech players generally structured?
N/A
2.4 How are they generally financed?
Fintech players in Nigeria are generally financed by debt and equity funding/investment. The funds are provided by the federal government, venture capitalists and private equity firms. Some fintech players also raise funds through crowdfunding platforms and initial coin offerings.
In 2017, 30 Nigerian companies raised $63.3 million between them. The number of Nigerian start-ups securing investment increased by more than 90% in 2018 and total funding jumped by 50% (connectingafrica.com).
2.5 How are they positioned within the broader financial services landscape?
Fintech companies are largely well positioned in the broader financial services landscape, as both regulators and traditional financial services companies are increasingly receptive to their services. This is evidenced by the growing use of fintech in service delivery (eg, most banks in Nigeria now use AI-powered bots) and the provision of loans and infrastructure to support the development of the industry.
2.6 Do start-ups generally outsource back office functions and is there a developed market for them to access? What are the legal implications of outsourcing?
Because a number of fintech companies do not have the capacity in the early stages of their development, they tend to outsource some of their back office functions, such as regulatory compliance, accounting and IT services.
There is no general legislation that regulates outsourcing in Nigeria, although there are some laws that affect some sectors. For example, the Central Bank of Nigeria Guidelines for the Regulation of Agent Banking and Agent Banking Relationships in Nigeria provide that financial institutions that intend to engage in agent banking must assess the adequacy of their controls for outsourcing activities through regular audits.
3 Technologies
3.1 How are the following key technologies in the fintech space regulated and what specific legal issues are associated with each? (a) Internet (e-commerce); (b) Mobile (m-commerce); (c) Big data (mining); (d) Cloud computing; (e) Artificial intelligence; and (f) Distributed ledger technology (Blockchain, cryptocurrencies)
(a) Internet (e-commerce) and (b) Mobile (m-commerce)
The following regulations apply to te-commerce and mobile commerce:
- The Mobile Money Guidelines 2015 apply to companies that provide mobile payment services.
- The Guidelines on the Operation of Electronic Payments 2016 regulate payments made from automated teller machines, point of sale machines and mobile point of sale devices, as well as those made via the Internet.
- The Guidelines on International Money Transfers 2014 prohibit persons and institutions from providing international money transfer services without a licence from the Central Bank of Nigeria (CBN), upon application to the director of the Trade and Exchange Department. It also sets out requirements for overseas partnerships. Fintech companies operating in the e-commerce and m-commerce sectors must be licensed by the CBN under the terms and conditions set out in the guidelines before they can operate. Some fintechs have therefore partnered with licenced organisations and use their platforms to carry out their transactions.
(c) Big data (mining)
Big data is largely regulated by the Data Protection Regulation 2019, which seeks to protect the personal data of all Nigerians and non-Nigerian residents in Nigeria. The scope of the regulation includes all transactions intended for the processing of personal data of natural persons in Nigeria; it also applies to natural persons residing in Nigeria and those of Nigerian descent residing outside Nigeria.
One legal issue regarding big data and the Data Protection Regulation is speculation on the applicability of the regulation, as the regulation is regarded as subsidiary legislation.
(d) Cloud computing
The provision of cloud services is not currently regulated in Nigeria. While data centres are primarily considered IT infrastructure, the connectivity to the data centre falls within the purview of the Nigerian Communications Act 2003 and the regulatory authority of the Nigerian Communications Commission (NCC).
While there is currently no licence requirement for the provision of cloud services, the NCC is developing a ‘managed services' licensing framework.
However, the following laws and regulations can be said to apply to the provision of cloud services:
- the Nigerian Communications Act 2003;
- the Data Protection Regulation 2019; and
- the CyberCrimes Prohibition, Prevention etc Act 2015.
That said, given that cloud services are not regulated at present, foreign companies would have no obligations under these laws from a regulatory compliance perspective.
(e) Artificial intelligence
Artificial Intelligence (AI) is not regulated in Nigeria. Nonetheless, start-ups and established banks in Nigeria are making significant progress in AI-fintech development. For example, most banks in Nigeria now use AI-powered bots to assist customers with opening accounts, transferring funds and lodging complaints.
(f) Distributed ledger technology (Blockchain, cryptocurrencies)
Nigeria is yet to introduce a legal framework for cryptocurrencies or blockchain platforms. In January 2018 the CBN issued a statement warning the public against trading in digital assets and described such activities as a "gamble". In 2018 the Securities and Exchange Commission (SEC) also issued a statement warning crypto traders to exercise caution when engaging in crypto activities, as cryptocurrencies are not a regulated currency.
4 Activities
4.1 How are the following key activities in the fintech space regulated and what specific legal issues are associated with each? (a) Crowdfunding, peer-to-peer lending; (b) Online lending and other forms of alternative finance; (c) Payment services (including marketplaces that route payments from customers to suppliers (eg, Uber and AirBnb); (d) Forex; (e) Trading; (f) Investment and asset management; (g) Risk management; (h) Roboadvice; and (i) Insurtech.
(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.
(d) Forex
N/A
(e) Trading
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
N/A
(h) Roboadvice
There are no specific regulations in Nigeria on robo-advice, which remains a new phenomenon.
(i) Insurtech
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.
5 Data security and cybersecurity
5.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have for fintech companies?
The applicable data protection regime in Nigeria is the Data Protection Regulation 2019.
The objectives of the regulation include:
- safeguarding the rights of natural persons to data privacy;
- fostering a safe conduct of transactions involving the exchange of personal data;
- preventing the manipulation of personal data; and
- ensuring the competitiveness of Nigerian businesses in international trade.
The scope of the regulation includes all transactions that involve the processing of personal data of natural persons in Nigeria; it also applies to natural persons residing in Nigeria and those of Nigerian descent residing outside Nigeria.
5.2 What is the applicable cybersecurity regime in your jurisdiction and what specific implications does this have for fintech companies?
Sections 38 to 40 of the CyberCrimes Prohibition, Prevention, etc Act 2015 require that all service providers preserve, hold or retain traffic data, subscriber information, non-content information and content data, and release such information to a law enforcement agency upon request.
As such, fintech companies that handle customer information should ensure that any such information provided is kept confidential and utilised only for legitimate purposes under the act, any other legislation or an order of a court of competent jurisdiction, having regard to the individual's constitutional right to privacy.
6 Financial crime
6.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction and what specific implications do these have for fintech companies?
The following laws generally govern money laundering and financial crimes in Nigeria:
- the Money Laundering (Prohibition) Act, 2011 (as amended);
- the Corrupt Practices and other Related Offences Act, 2000;
- the Advance Fee Fraud and other Fraud Related Offences Act, 2006;
- the Banks and Other Financial Institutions Act, 1991 (amended in 2002);
- the Central Bank of Nigeria Anti-Money Laundering/Combating the Financing of Terrorism Regulations, 2013;
- the Money Laundering (Prohibition) Act, 2011 (as amended);
- the Terrorism Prevention Act, 2012 (as amended);
- the Terrorism Prevention (Freezing of International Terrorist Funds and other Related Matters) Regulations, 2013;
- the Economic and Financial Crime Commission (Establishment) Act 2004; and
- other international instruments (eg, the Financial Action Task Force Recommendations; United Nations Security Council resolutions).
Although there are no laws specifically designed to regulate money-laundering activities conducted through fintech platforms, certain provisions in the above laws may have specific implications for fintech businesses, as they apply to financial institutions generally. For instance, fintech companies must take appropriate steps to identify, assess and understand their money-laundering risks for specific customers, countries and geographical areas of operation. They are also required to report suspicious fund transfers and comply with the Central Bank of Nigeria's know-your-customer requirements.
7 Competition
7.1 Does the fintech sector present any specific challenges or concerns from a competition perspective? Are there any pro-competition measures that are targeted specifically at fintech companies?
Although the Nigerian fintech sector continues to grow in size and influence, it presents no serious challenges in terms of competition.
There are currently no pro-competition measures specifically designed to regulate the activities of fintech companies in Nigeria. However, the Nigerian Federal Competition and Consumer Protection Act, 2018 – which prohibits agreements in restraint of competition and require service providers to draw the attention of consumers to notices which purport to limit liability or impose obligations –is binding on all fintech companies.
8 Innovation
8.1 How is innovation in the fintech space protected in your jurisdiction?
The Nigerian IP laws generally protect fintech innovation.
For instance, the Nigerian Copyright Act (Cap C28, Laws of the Federation of Nigeria, 2004) protects software and computer programs that power or aid the functioning of fintech platforms and applications. To be eligible for protection, the software or program must have been reduced to writing and must possess some level of originality.
The Patent and Designs Act (Chapter P2, Laws of the Federation of Nigeria, 2004) makes it possible to protect functional and technical parts of fintech innovations, as long as they are new, result from inventive activity and are capable of industrial application. Fintech companies also commonly protect their innovations – processes, data, manual, algorithms and so on – by keeping them secret and confidential. Such trade secret protection is generally preferred to patent protection because it lasts indefinitely, involves no registration cost and does not require compliance with formalities such as compulsory disclosure to any government agencies.
Finally, the Trademarks Act (Chapter T13, Laws of the Federation of Nigeria, 2004) makes it possible to protect a fintech company's brand, logo, icon, phrases and unique designs which distinguish it from other players in the space.
8.2 How is innovation in the fintech space incentivised in your jurisdiction?
It is widely recognised that fintech is the single most important driver of financial inclusion in Nigeria. To this end, the government has created the Financial Industry Sandbox, which is managed by the Financial Service Innovators Association of Nigeria, under the supervision of the Central Bank of Nigeria and the Nigeria Interbank Settlement System. The objective of the sandbox is to provide a structured and controlled environment that promotes and empowers fintech innovation without stifling it. Generally, innovative fintech platforms in Nigeria benefit from quick customer adoption and retention, growth, influence and funding opportunities.
9 Talent acquisition
9.1 What is the applicable employment regime in your jurisdiction and what specific implications does this have for fintech companies?
The applicable laws on employment in Nigeria are set out in:
- the Constitution of the Federal Republic of Nigeria, 1999 (as amended);
- the Labour Act (L1, Laws of the Federation of Nigeria, 2004);
- federal and state laws relating to employment and labour; and
- the common law of contract.
There are no fintech-specific employment laws in Nigeria, but fintech companies are still generally required to comply with legislation such as the Constitution of the Federal Republic of Nigeria (which prohibits discrimination on account of sex or on any other grounds) and the Labour Act (if fintech companies have staff who generally perform clerical work or manual tasks).
9.2 How can fintech companies attract specialist talent from overseas where necessary?
Fintech companies are generally free to recruit foreign expertise to anchor or aid their operations and processes by leveraging their products, market share and existing networks, or those of their funding partners. In doing so, however, they are expected to comply with the provisions of the law concerning business and residence permits.
10 Trends and predictions
10.1 How would you describe the current fintech landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
The Nigerian fintech landscape is primarily comprised of firms that largely operate within the digital payment, lending and personal finance spaces. Nigerian banks are also leveraging fintech to provide a wide range of financial services. With over $103,410,795 raised last year alone, fintech continues to grow. with payment services leading the arrays of services offered. Other common services include asset management, digital banking and consumer lending.
In terms of regulators, the Central Bank of Nigeria (CBN), which regulates financial services in Nigeria, is a major player. Other regulators include the Nigeria Communication Commission, the National Information Technology Development Agency and the Nigeria Deposit Insurance Commission. Other stakeholders in the space include both local and international investors.
In terms of key trends, fintech is increasingly being adopted in the Nigerian capital markets and insurance spaces, with a view to accelerating financial inclusion, increasing access to funding and promoting technological advancement. This trend is expected to continue and the fintech sector is expected to diversify.
The amendments to the Investment and Securities Act which are currently before the National Assembly may provide a legal basis for equity crowdfunding in Nigeria. There is also considerable interest in the adoption and regulation of cryptocurrency, especially given Facebook's announcement of Libra; speculation is thus ongoing as to whether the CBN may abandon its previous stance of dissociating itself from digital currencies.
11 Tips and traps
11.1 What are your top tips for fintech players seeking to enter your jurisdiction and what potential sticking points would you highlight?
With a population of about 200 million people and an overall financial exclusion rate of over 40%, Nigeria could benefit significantly from advances in the fintech space. New market entrants should:
- develop a comprehensive understanding of the Nigerian market, including relevant regulations, regulators and consumer behaviour;
- leverage local talent while maintaining strong ties with foreign technical partners to launch, navigate and build at scale;
- maximise and properly manage their intellectual assets and licences in software and similar technology; and
- secure more funding than initially envisaged.
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.