Fintech landscape and initiatives

General innovation climate

What is the general state of fintech innovation in your jurisdiction?

The Nigerian commercial market offers a wide range of fintech products, including:

  • innovative payment gateways;
  • digital currencies;
  • mobile lending;
  • insurance; and
  • wealth management.

This is principally accessed through a fintech company’s online or mobile banking platforms.

Most market activity is centred on payment systems and applications, money lending and wealth management to, among other things:

  • the requirements of holding cash or transacting via a bank account;
  • provide easy access to obtaining loans with or without collateral; and
  • provide personal savings platforms.

Important players in the Nigerian fintech market include:

  • the Remita e-payment platform, through which payments are made to almost all federal government parastatals and other private establishments in Nigeria;
  • Paystack – a platform which allows users to pay directly from their bank account and processes digital payments for clients;
  • ALAT – an online mobile banking platform that enables all banking activities to be carried out online;
  • e-Transact; 
  • Flutterwave;
  • PiggyBank – an online savings platform;
  • Invoice NG – an online invoicing software;
  • Kliqr – an online platform for expense management; and
  • online retail outlets such as:
    • Yudala;
    • Konga; and
    • Jumia.

Significant growth in the Nigerian fintech industry has seen the establishment of the Fintech Association of Nigeria, a self-regulatory, not-for-profit and non-political organisation incorporated to regulate companies in the fintech business. The association serves as a platform for the development of the fintech industry in Nigeria and a forum for the exchange of ideas by and between various stakeholders in the industry. The Central Bank of Nigeria (CBN) also initiated the Payment System Vision 2020 to fast track the development of fintech in the country, which has encouraged the use of electronic payment methods.

The CBN is also actively aiming to improve the current fintech landscape. The CBN has proposed a licensing structure in its published draft Circular on the Exposure Draft of New CBN Licensing Regime (Licence Tiering) for Payment System Providers, which proposes a new licensing regime for all fintech companies and, if implemented, will properly position traditional banks to address emerging fintech-related issues with respect to:

  • cyber risks;
  • risk management framework;
  • capital adequacy;
  • better focused regulation; and
  • oversight operations.

The circular provides for the issuance of the following licensing structure:

  • a payment service provider (PSP) super licence with a minimum capital requirement of N5 billion for a three-year period;
  • a PSP standard licence with a minimum capital base of N3 billion for a three-year period; and
  • a PSP basic licence with a minimum capital base of N100 million for a two-year period.

The proposed licensing regime has received mixed reactions from fintech stakeholders, principally because of the onerous capital requirements which could make it difficult for some fintech companies to operate. In light of this feedback, the CBN is expected to issue new guidelines, which consider these concerns and find the right balance between protecting customers and creating non-stifling regulations.

Government and regulatory support

Do government bodies or regulators provide any support specific to financial innovation? If so, what are the key benefits of such support?

To help promote innovation, the government is providing:

  • infrastructural support to innovation and technology hubs;
  • shared spaces;
  • a more consistent power supply; and
  • subsidised internet services.

Fintech entities engaged in innovative activities such as software development and publishing may also qualify for some of the incentives that are generally available to businesses in Nigeria, including:

  • investment tax credits for research and development (R&D) – the Companies Income Tax Act provides that companies and other organisations that engage in R&D activities for commercialisation will enjoy a 20% investment tax credit on their qualifying expenditure for that purpose. The act also provides that profit reserved by a company for the purposes of R&D is tax deductible provided that such reserves do not exceed 10% of the company’s total assessable profit;
  • pioneer status – companies that are classified as operating in a pioneer industry or that engage in the production of pioneer products can apply for pioneer status, which – when granted – provides corporate tax relief and holidays for the first three to five years of operation. This may be extended for two further one-year periods, subject to factors such as the relative importance of the industry to national development at the time. The e-commerce service industry is accommodated under this scheme; and
  • the Nigerian Investment Promotion Commission (NIPC) Act empowers the NIPC to negotiate, in collaboration with appropriate government agencies, special incentives for strategic or major investment.

Fintech companies can also access government funding through schemes such as:

  • the Youth Entrepreneurship Support Scheme of the Nigeria Bank of Industry (BOI) and the National Youth Service;
  • the BOI Graduate Entrepreneurship Fund; and
  • the Lagos State Employment Trust Fund for Micro, Small and Medium-Sized Enterprises Loan Programme for Lagos residents.

Further, the CBN, in partnership with the Bill and Melinda Gates Foundation, is developing a regulatory framework for fintech as a new group in the financial services sector. The objective is to empower start-ups, innovators, technology companies and young Nigerians with great ideas but a lack of financial resources to release their products or integrate with banks.

Financial regulation

Regulatory bodies

Which bodies regulate the provision of fintech products and services?

The following government authorities regulate fintech activities of fintech companies, depending on the services provided;

  • the Central Bank of Nigeria (CBN);
  • the Nigerian Securities and Exchange Commission (Nigerian SEC);
  • the Nigerian Stock Exchange (NSE);
  • the Corporate Affairs Commission; and
  • the Nigerian Communications Commission (NCC).

The apex financial regulatory bodies – the CBN and the Nigerian SEC – have taken steps to include fintech in the existing laws. New laws which are specifically tailored to the development of fintech are in the process of being enacted, including:

  • the Companies and Allied Matters Bill;
  • the Proposed Regulatory Framework for Crowdfunding Activities by the Nigerian SEC;
  • the Proposed Electronic Transactions Bill; and
  • the Payment Systems Management Bill.

These bills seek to promote e-commerce in Nigeria and consolidate the regulation of electronic payments.

Regulated activities

Which activities trigger a licensing requirement in your jurisdiction?

Under the Nigerian framework, fintech activities trigger licensing requirements when companies provide fintech-based products or services which are similar to an existing regulated financial product or service. For example, a banking licence must be obtained from the CBN before a fintech company can engage in lending operations.

Under the Guidelines for the Operation of International Money Transfer Services in Nigeria 2014, the CBN established a detailed legal framework requiring, among other things, international money transfer operators to obtain licences from the CBN before engaging in money transfer services or otherwise face penalties. Under the CBN Guidelines on International Mobile Money Remittance Service in Nigeria 2015, foreign international money transfer operators that wish to operate in Nigeria must apply to the CBN for a licence and evidence that they possess a licence in their home country. In addition to the CBN guidelines, payment services involving mobile telephone infrastructure are regulated under the NCC Licence Framework for Value Added Service. Under this framework, mobile payment service providers must obtain a five-year renewable licence from the NCC.

In addition, the general provisions of the law in relation to the registration and incorporation of businesses and companies must be complied with if the business intends to take full advantage of the law in Nigeria. Where a foreign entity intends to supply fintech products in Nigeria, it must comply with certain requirements in addition to incorporating a company, such as obtaining a business permit and expatriate quota from the Federal Ministry of Interior. Technology transfer agreements between foreign companies and fintech entities in Nigeria must be registered with the National Office for Technology Acquisition and Promotion.

The CBN has also proposed a bill that would provide a licensing framework to guide the operation of payment providers and fintech companies.

Consumer lending

Is consumer lending regulated in your jurisdiction?

There is a proliferation of consumer lending platforms in Nigeria utilising the developing public awareness of fintech, including Kiakia.co, Quickcheck, Paylater and Renmoney. They offer unsecured loans to small and medium-sized businesses at competitive interest rates with attractive payback periods. The friendly interest rates and comfortable loan sizes, which are tailored to the needs of the middle class, have gained consumer lenders significant market shares from microfinance banks and other retail-banking divisions of traditional banks.

Consumer lending is generally regulated by the Banking and Other Financial Institutions Act, the CBN Act and various CBN published guidelines. These laws may restrict the interest rates that fintech companies can charge. For example, fintech companies must comply with:

  • the regulatory capital requirements (their capital to risk weighted assets ratio must be at least 12.5%);
  • limits on the value of loans that can be granted to any person (20% of the finance company’s shareholders’ funds unimpaired by losses); and
  • limits on the amounts that can be borrowed.
Secondary market loan trading

Are there restrictions on trading loans in the secondary market in your jurisdiction?

There are no restrictions on trading loans in the Nigerian secondary market. Financial institutions engage in trades of syndicated loans in large transactions to subsequent purchasers. This is generally regulated by the CBN.

 

Collective investment schemes

Describe the regulatory regime for collective investment schemes and whether fintech companies providing alternative finance products or services would fall within its scope.

The Nigerian SEC Rules primarily provide general regulations for collective investment schemes, which apply to fintech companies engaged in this activity. Entities that wish to provide alternative finance products must satisfy the rules. One such rule is that a fintech company’s securities must be registered. Fintech companies engaged in peer-to-peer, marketplace funding would fall within the scope of this regulation. Crowdfunding activities are restricted in Nigeria.

Alternative investment funds

Are managers of alternative investment funds regulated?

Fintech is slowly being used in the securities trading and investment management areas to aid asset and investment management. Securities trading as undertaken on the Nigerian Stock Exchange automated trading system (ATS) is one example of the use of fintech in this sector. The ATS can be directly or remotely accessed and all dealing members must possess sufficient knowledge to operate its risk management tools. In addition, various Nigerian companies offer investment tools online and through mobile platforms (eg, i-Invest, Meritrade and FBNQuest) in order to offer investment advice to customers.

The main legislation that governs the wholesale securities market is the Investment and Securities Act, supplemented by the rules and regulations of the Nigerian SEC and the guidelines jointly made by the Nigerian SEC and the CBN.

Peer-to-peer and marketplace lending

Describe any specific regulation of peer-to-peer or marketplace lending in your jurisdiction.

Peer-to-peer lending is in its developmental stage in Nigeria, although it has existed informally for years. Pursuant to the Banks and Other Financial Institutions Act, entities which wish to provide marketplace lending must register as a bank or other financial institution. Further, the moneylender laws of various Nigerian states regulate peer-to-peer and marketplace lending. Fintech companies which provide lending platforms must comply with the requirements of the law, including obtaining a licence under the law of the state in which they operate. FINT, an online lending platform, is the market leader for peer-to-peer lending in Nigeria.

Crowdfunding

Describe any specific regulation of crowdfunding in your jurisdiction.

There is no existing regulation on crowdfunding as Nigeria has not fully embraced this concept, especially compared with other jurisdictions. On 15 August 2016 the Nigerian SEC stated that all crowdfunding activities in Nigeria should be suspended until specific and comprehensive regulations on the subject are established. This is because Nigerian law does not contemplate crowdfunding activities and actually imposes restrictions on inviting the public to subscribe to shares or securities of a company or person, unless it is a public company and the requisite Nigerian SEC approvals have been obtained. Although there are no regulations or laws in place for reward and equity-based crowdfunding in Nigeria, regulatory amendments to permit equity crowdfunding are underway.

Invoice trading

Describe any specific regulation of invoice trading in your jurisdiction.

There is no specific regulation governing invoice trading in Nigeria. However, forms of invoice trading (eg, invoice discounting and invoice factoring activities) are within scope of the Banking and Other Financial Institution Act and are primarily regulated by the CBN.

Payment services

Are payment services regulated in your jurisdiction?

Payment services are regulated by the CBN through its guidelines and the Banks and Other Financial Institutions Act. The CBN’s Guidelines on Operations of Electronic Payment Channels in Nigeria 2016 provide minimum standards and requirements for the operation of point-of-sale card acceptance services. Stakeholders include:

  • merchant acquirers;
  • card issuers;
  • merchants;
  • cardholders;
  • card schemes;
  • switches;
  • payments terminal service aggregators (PTSAs); and
  • payments terminal service providers (PTSPs).

The guidelines on e-payments also specify requirements for the deployment of cashpoints, including that no issuer or acquirer can make a transfer outside the country if:

  • the transaction would take place via a cashpoint or any acceptance device in Nigeria; and
  • the issuer is a Nigerian bank or any other issuer licensed by the CBN.

Other guidelines and regulations issued by the CBN include:

  • the CBN Guidelines on Mobile Money Services in Nigeria 2015;
  • the CBN Regulation for Bill Payments in Nigeria 2018;
  • the CBN Regulatory Framework for the Use of Unstructured Supplementary Service Data for Financial Services in Nigeria 2018;
  • the CBN Regulation for Direct Debit Scheme in Nigeria 2018;
  • the CBN Guidelines on International Money Transfer Services in Nigeria 2014; and
  • the CBN draft Risk-Based Cybersecurity Framework and Guidelines for Deposit Money Banks and Payment Service Providers 2018.

New laws are also in the process of being enacted, including the Payment Systems Management Bill.

Open banking

Are there any laws or regulations introduced to promote competition that require financial institutions to make customer or product data available to third parties?

Several laws and regulations that promote competition and protect consumer data apply to the Nigerian fintech industry, including:

  • the Treaty on the UN Guidelines on Consumer Protection, which has been domesticated by the Nigerian government;
  • the Federal Competition and Consumer Protection (FCCP) Act 2019, which established the FCCP Commission and charged it with the responsibility of protecting consumers by taking both preventive and remedial measures regarding consumer products and services;
  • the CBN Consumer Protection Framework 2016, which applies to various types of financial institution under the regulatory purview of the CBN, including fintech entities;
  • the Release of Consumer Protection Framework for Banks and Other Financial Institutions issued by the CBN; and
  • the National Information and Technology Development Agency Act.

The CBN restricts financial institutions from divulging customer information and data to third parties and ensures the protection of such information from unauthorised access by third parties, except where a bank must disclose the information by law or a customer consents to the disclosure.

Insurance products

Do fintech companies that sell or market insurance products in your jurisdiction need to be regulated?

The Nigerian Insurance Commission (NAICOM) provides a framework for the regulation of insurers, including fintech companies engaged in insurance activities. Companies entering into the digital insurance (and other insurance-related fintech services) market must ensure that they are registered with NAICOM before commencing operations.

Credit references

Are there any restrictions on providing credit references or credit information services in your jurisdiction?

There are no restrictions on providing credit references in Nigeria. Credit bureaus must be registered by the Corporate Affairs Commission and licensed by the CBN to carry on business. Pursuant to the CBN Regulatory Guidelines for the Licensing, Operations and Regulation of Credit Bureaus in Nigeria, lending institutions must have a permissible purpose to access any credit information from credit bureaus.

Cross-border regulation

Passporting

Can regulated activities be passported into your jurisdiction?

Regulated fintech activities cannot be passported into Nigeria. Pursuant to the Companies and Allied Matters Act, foreign companies that wish to do business in Nigeria must:

  • be incorporated in Nigeria (unless they fall within a limited set of exceptions);
  • obtain certain permits from the Ministry of Interior before they can begin operations; and
  •  obtain an electronic certificate of capital importation issued by an authorised dealer.
Requirement for a local presence

Can fintech companies obtain a licence to provide financial services in your jurisdiction without establishing a local presence?

In general, for a company to carry on business activities in Nigeria, it must be duly registered with the Corporate Affairs Commission and have a registered business address in Nigeria. However, for financial services such as mobile money remittance services, the Central Bank of Nigeria (CBN) Guidelines on International Mobile Money Remittance Service in Nigeria provide that foreign institutions seeking to offer international mobile money remittance services in Nigeria may apply and obtain an approval from the CBN on the condition that they are registered entities licensed to carry out money transfer activities in their home country.

Foreign fintech companies can also obtain a licence to provide financial services without registering with the Corporate Affairs Commission where they apply for exemption from registration pursuant to the Companies and Allied Matters Act.

Sales and marketing

Restrictions

What restrictions apply to the sales and marketing of financial services and products in your jurisdiction?

Various financial services are marketed in Nigeria. However, the Central Bank of Nigeria’s guidelines restrict the sale and marketing of virtual currencies trading and crowdfunding in Nigeria.

Change of control

Notification and consent

Describe any rules relating to notification or consent requirements if a regulated business changes control.

If a company changes control, the relevant authorities must be notified and their approval obtained. In general, companies must notify:

  • the Corporate Affairs Commission;
  • the Federal Competition and Consumer Protection Commission;
  • the Nigerian Securities and Exchange Commission (where a public company is involved); and
  • their relevant industry-specific regulatory body.

Financial crime

Anti-bribery and anti-money laundering procedures

Are fintech companies required by law or regulation to have procedures to combat bribery or money laundering?

In general, financial institutions in Nigeria must comply with:

  • the Money Laundering (Prohibition) Act 2011 (as amended);
  • the Central Bank of Nigeria (CBN) Anti-money Laundering and Combating the Financing of Terrorism in Banks and Other Financing Institutions in Nigeria Regulations 2013; and
  • the Corrupt Practices and Other Related Offences Act 2004.

If financial institutions carry on fintech business, they must abide by the rules and procedures prescribed under the abovementioned laws.

Guidance

Is there regulatory or industry anti-financial crime guidance for fintech companies?

No specific financial crime law governs the provision of fintech products and services. However, some financial crime laws or regulations may apply to specific fintech services, depending on the sector to which they relate.

The CBN Anti-money Laundering and Combating the Financing of Terrorism in Banks and Other Financial Institutions in Nigeria Regulations 2013 require all financial institutions to adopt a policy on anti-money laundering and combat the financing of terrorism. Fintech companies fall under this category. They must also have policies and procedures to address any risks for customers in relation to anti-money laundering and the financing of terrorism. In addition, the following financial crime laws apply to fintech companies:

  • the Money Laundering (Prohibition) Act 2011 (as amended);
  • the Economic and Financial Crimes Commission (Establishment) Act (Cap E1, LFN 2004);
  • the Terrorism (Prevention) Act 10/2011;
  • the Corrupt Practices and Other Related Offences Act (Cap C31 LFN 2004); and
  • the Federal Competition and Consumer Protection Act 2019.

Peer-to-peer and marketplace lending

Execution and enforceability of loan agreements

What are the requirements for executing loan agreements or security agreements? Is there a risk that loan agreements or security agreements entered into on a peer-to-peer or marketplace lending platform will not be enforceable?

No standard requirements exist for executing loan agreements in Nigeria. However, there are formalities for executing documents (eg, loan and security agreements).

Typically, security and loan agreements are executed as a deed. Individuals executing deeds in Nigeria must sign, seal and deliver such documents in the presence of at least one witness or be attested to by one witness. If a corporate entity executes loan or security agreements, the common seal of the company must be conducted in the presence of two directors or at least a director and a secretary.

If the execution of the security and loan agreements satisfy the relevant formalities, the documents are enforceable. However, following recent court decisions, the absence of attestation on an agreement duly executed by parties does not make the agreement unenforceable. Further, the Companies and Allied Matters Bill states that agreements must be executed by the common seal of the company.

Assignment of loans

What steps are required to perfect an assignment of loans originated on a peer-to-peer or marketplace lending platform? What are the implications for the purchaser if the assignment is not perfected? Is it possible to assign these loans without informing the borrower?

No requirements exist for perfecting assignment of loans originated on a peer-to-peer marketplace lending platform in Nigeria. However, for a loan assignment to be perfected in Nigeria:

  • a notice of the assignment must be issued to the borrower;
  • the instrument of assignment must be duly stamped at the Federal Inland Revenue Service; and
  • the prescribed stamp duties must be paid.

Thus, if an assignment is not perfected, it is unenforceable.

Borrowers must be informed in order for loans to be assigned because the issuance of a notice of assignment is a key requirement for perfecting a loan assignment in Nigeria.

Securitisation risk retention requirements

Are securitisation transactions subject to risk retention requirements?

Securitisation involves an arrangement in which one party (the originator) sells a portfolio of assets to a special purpose vehicle (the issuer), which finances the purchase by packaging the cash flows from the assets as tradable financial instruments, which are sold to investors.

Securitisation transactions are subject to risk retention requirements and the special purpose vehicle must usually retain the risk. Originators can agree to share risk retention in some cases and some alternative risk retention methods permit retention of risk by other third parties.

Securitisation confidentiality and data protection requirements

Is a special purpose company used to purchase and securitise peer-to-peer or marketplace loans subject to a duty of confidentiality or data protection laws regarding information relating to the borrowers?

Special purpose vehicles are regulated companies that are subject to the rules and regulations that apply to other companies, including provisions on data protection and the confidentiality of information relating to borrowers.

Artificial intelligence, distributed ledger technology and crypto-assets

Artificial intelligence

Are there rules or regulations governing the use of artificial intelligence, including in relation to robo-advice?

No specific regulations govern the use of AI. The use of AI and robo-advice in the Nigerian fintech environment is still in the development stage. The banking sector has been easing its way into the use of AI through chat boxes, which are available on different online and mobile platforms.

 

Distributed ledger technology

Are there rules or regulations governing the use of distributed ledger technology or blockchains?

Although there are start-ups engaged in the use of blockchain technology to process payments and other transactions in Nigeria, virtual currency activities are largely unregulated in Nigeria. In its 12 January 2017 Circular to Banks and Other Financial Institutions on Virtual Currency Operations in Nigeria, the CBN gave specific instructions to all financial institutions on the use of virtual currencies, advising that virtual currency is not recognised as legal tender in Nigeria and that its use will be at the risk of the user. This was reiterated to the public via a CBN press statement on 28 February 2018. This may be as a result of the difficulties in regulating and monitoring operations relating to virtual currencies.

Notwithstanding this, the CBN has established a committee charged with the preparation of a road map for policies and guidelines that will guide blockchain technology regulation in Nigeria.

Crypto-assets

Are there rules or regulations governing the use of cryptoassets, including digital currencies, digital wallets and e-money?

Cryptocurrency activities are unregulated in Nigeria. In its 12 January 2017 Circular to Banks and Other Financial Institutions on Virtual Currency Operations in Nigeria, the CBN issued a warning to all financial institutions against the use of virtual currencies. The CBN prohibited the holding of and entry into transactions with cryptocurrencies by licensed banks and other financial institutions. While banking operations in digital currencies are discouraged, transactions in virtual currencies are not prohibited in Nigeria.

Digital currency exchanges

Are there rules or regulations governing the operation of digital currency exchanges or brokerages?

Nigeria has yet to enact laws or introduce regulations to govern the operation of digital currency exchanges or brokerages.

Initial coin offerings

Are there rules or regulations governing initial coin offerings (ICOs) or token generation events?

Neither rules nor regulations govern ICOs in Nigeria as they constitute a restricted cryptocurrency activity. However, there have been pockets of cryptocurrency activities and an ICO in Nigeria led by SureRemit.

Data protection and cybersecurity

Data protection

What rules and regulations govern the processing and transfer (domestic and cross-border) of data relating to fintech products and services?

The Nigeria Data Protection Regulation 2019 –the only data protection-specific regulation in Nigeria, issued by the Nigerian Information Technology Development Agency – provides that all personal data, notwithstanding the means through which it is obtained, can be processed only where the data subject gives their consent directly or indirectly or where it relates to a task carried out in the interest of the public.

The Central Bank of Nigeria (CBN) Consumer Protection Framework 2016 made pursuant to the CBN Act 2007 imposes a burden on financial institutions to maintain the confidentiality and privacy of all financial services customers. Companies must ensure that the appropriate data protection measures and employee training programmes are in place to prevent unauthorised access to or alteration, disclosure, accidental loss or destruction of customer data. Service providers must also obtain written consent from consumers before their data is shared with third parties or used for promotional offers.

Data processing is also regulated by the Nigerian Communications Commission (NCC) Consumer Code of Practice Regulations 2007, which provide that all licensees must take reasonable steps to protect consumer information against improper or accidental disclosure and ensure that such information is securely stored. The CBN Regulatory Framework for the Use of Unstructured Supplementary Service Data for Financial Services in Nigeria, which came into force in June 2018, also imposes security and customer data protection requirements, including data encryption.

Pursuant to Section 9 of the Credit Reporting Act 2017, credit bureaus must ensure that data subjects’ rights to privacy, confidentiality and protection of their credit information are maintained. This section also prescribes the preconditions under which data subjects’ credit may be disclosed.

Cybersecurity

What cybersecurity regulations or standards apply to fintech businesses?

No cybersecurity laws currently apply specifically to or provide a framework for dealing with fintech businesses. However, an existing cybersecurity framework contains standards which apply to fintech entities, including:

  • the Cybercrime (Prohibition Prevention) Act 2015;
  • the NCC Consumer Code of Practice Regulations 2007;
  • the Terrorism (Prevention) (Amendment) Act 2013; and
  • the Advance Fee Fraud and Other Fraud-Related Offences Act 2006.

These laws provide a framework for:

  • the verification of the identity of customers carrying out electronic financial transactions;
  • the protection of consumer information against improper or accidental disclosure; and
  • the penalties for soliciting and rendering support to any association for the commission of a terrorist activity.

Outsourcing and cloud computing

Outsourcing

Are there legal requirements or regulatory guidance with respect to the outsourcing by a financial services company of a material aspect of its business?

The primary applicable rules for financial services companies (ie, banks and insurers) are the Blueprint and Prudential Guidelines. Other applicable rules in relation to banks include:

  • the Central Bank of Nigeria (CBN) Guidelines on Electronic Banking in Nigeria 2003 (the e-Banking Guidelines), which prescribe standards for electronic banking;
  • the Regulatory Framework for Bank Verification Number Operations and the Watch-List for the Nigerian Banking Industry 2017, which addresses, among other things, the storage of sensitive customer information; and
  • the CBN’s Consumer Protection Framework 2016, which imposes a duty on financial institutions to maintain the confidentiality and privacy of all financial services customers.

The Blueprint requires banks to enter into a contract (which should be drafted in conjunction with the legal department of the bank) with any service provider or vendor. Such contracts must include:

  • the scope of services to be provided;
  • the service performance requirements;
  • the division and agreement of responsibilities;
  • the contact points, communication and reporting frequency and content;
  • the training of banking institution employees;
  • contract review and dispute resolution processes;
  • the price structure and payment terms;
  • compliance with the applicable laws, regulations, regulatory guidance and standards;
  • considerations of IP rights and copyright;
  • the right to audit (ie, the right of the bank or its representatives to audit the service provider or have access to audit reports);
  • liability limitations;
  • the ability to subcontract services;
  • the termination rights of each party; and
  • obligations at termination and beyond.

In addition, the CBN e-Banking Guidelines requires banks that outsource electronic banking services to maintain control of the arrangement through service level agreements over the services and products provided by third parties.

 

Cloud computing

Are there legal requirements or regulatory guidance with respect to the use of cloud computing in the financial services industry?

The abovementioned rules and requirements apply to cloud computing.

Intellectual property rights

IP protection for software

Which intellectual property rights are available to protect software, and how do you obtain those rights?

Nigerian innovations and inventions are generally protected by Nigerian IP legislation, namely:

  • the Copyright Act (Cap C 28 LFN 2004), which protects literary works;
  • the Patents and Designs Act (Cap P2, LFN 2004), which protects industrial designs, inventions and improvements on existing patented inventions which are capable of industrial application, including computer and software programs; and
  • the Trademarks Act (Cap T14 LFN 2004), which protects owners of registered trademarks and industrial designs.

The rights to intellectual property can be obtained by filing an application to the relevant government agency responsible for registering such rights following the prescribed procedure. Once the rights are obtained, the holder can preclude any other person from using, making, importing or selling such invention or innovation. The Patent and Designs Act will generally protect interests and rights to software-implemented inventions.

IP developed by employees and contractors

Who owns new intellectual property developed by an employee during the course of employment? Do the same rules apply to new intellectual property developed by contractors or consultants?

Section 2(4) of the Patent and Designs Act provides that where an invention is made in the course of an investor’s employment, or in the execution of a contract for the performance of a specified work, the right to such patent or design is vested in the employer or the person who commissioned the work.

However, the act protects the employee’s interest by providing that where the inventor’s contract of employment does not require them to exercise any inventive activity but they have, in making the invention, used materials at their disposal through their employment, they are entitled to fair remuneration, taking into account their salary.

Joint ownership

Are there any restrictions on a joint owner of intellectual property’s right to use, license, charge or assign its right in intellectual property?

Joint owners of intellectual property include:

  • a person who shares a joint interest in all or part of an intellectual property; or
  • persons who have an interest in the various copyright in a composite production.

There are no restrictions on a joint owner’s right to use, license, charge or assign its right, except where the joint owners decide to allocate the shares of their contributions where the intellectual property is divisible in nature.

Trade secrets

How are trade secrets protected? Are trade secrets kept confidential during court proceedings?

Trade secrets are generally protected by concealing the ownership information from unauthorised persons or parties. This is achieved through the signing of non-disclosure agreements, confidentiality agreements and provisions on confidentiality, which may be inserted into agreements.

There are usually exceptions to the non-disclosure of trade secrets, including where it is required:

  • by law or a valid court order; or
  • at the request or rules of any governmental, supervisory or regulatory authority.
Branding

What intellectual property rights are available to protect branding and how do you obtain those rights? How can fintech businesses ensure they do not infringe existing brands?

Trademarks and industrials designs are available to protect branding.

The rights to a trademark or design can be obtained by filing an application for registration at the Trademarks, Patents and Designs Registry of the Federal Ministry of Industry.

Fintech businesses can avoid infringing existing brands by conducting a search at the registry to:

  • ensure such brand name, mark or design has not been registered at the registry; and
  • promptly register the brand name, mark or design in its favour.
Remedies for infringement of IP

What remedies are available to individuals or companies whose intellectual property rights have been infringed?

Individuals or entities whose IP rights have been infringed may institute legal proceedings in court and obtain reliefs against the infringing party. The remedies available in a claim for IP rights infringement include:

  • damages;
  • injunction;
  • account of profits;
  • delivery up; and
  • imprisonment (where such infringement constitutes a crime).

Competition

Sector-specific issues

Are there any specific competition issues that exist with respect to fintech companies in your jurisdiction?

The changing fintech landscape makes it clear that there are competition issues that may arise for fintech entities (eg, technological interoperability and standardisation between systems and fintech products). There is a potential concern that an active pursuit of non-interoperability by fintech entities can deter competition if it renders access to a market difficult. At the same time, industry standardisation – which can positively address this issue by lowering entry costs and prices – may also give rise to unwanted side effects, such as oligopolies where platforms choose to split the market between them. Information sharing concerns may also pose a risk to competition.

Fintech entities must ensure that their actions do not amount to:

  • collusion with other players;
  • aggressive price fixing; or
  • foreclosure of the market.

Tax

Incentives

Are there any tax incentives available for fintech companies and investors to encourage innovation and investment in the fintech sector in your jurisdiction?

Like other business in Nigeria, fintech companies engaged in innovative activities such as software development and publishing qualify for some of the tax incentives that are generally available, including:

  • investment tax credits for research and development (R&D) – the Companies Income Tax Act provides that companies and other organisations that engage in R&D activities for commercialisation will enjoy a 20% investment tax credit on their qualifying expenditure for that purpose. The act also provides that profit reserved by a company for the purposes of R&D is tax deductible provided that such reserves do not exceed 10% of the company’s total assessable profit; and
  • pioneer status – companies that are classified as operating in a pioneer industry or that engage in the production of pioneer products can apply for pioneer status, which – when granted – provides corporate tax relief and holidays for the first three to five years of operation. This may be extended for two further one-year periods, subject to factors such as the relative importance of the industry to national development at the time. The e-commerce service industry is accommodated under this scheme.
Increased tax burden

Are there any new or proposed tax laws or guidance that could significantly increase tax or administrative costs for fintech companies in your jurisdiction?

The finance minister has announced a proposed increase in the value added tax paid by companies (fintech inclusive) in the government’s drive to generate revenue for the economy. However, this has not been implemented as it requires an amendment of the regulating act. If this is implemented, it is believed that it may cause a setback in innovation and monopoly of the market as only a few players may participate.

 

Immigration

Sector-specific schemes

What immigration schemes are available for fintech businesses to recruit skilled staff from abroad? Are there any special regimes specific to the technology or financial sectors?

In general, entities in Nigeria that wish to employ or recruit expatriates must conform to the established regulations for such employment. This also applies to fintech businesses seeking to recruit employees from outside Nigeria. No special regime exists specifically for fintech businesses.

Entities which seek to employ expatriates must apply to the Federal Ministry of Interior for the issuance of an expatriate quota for the relevant number of expatriate personnel that they intend to employ. On the grant of the expatriate quota, entities can invite the relevant skilled employees from abroad into Nigeria. This invitation entitles these expatriates to apply for the combined expatriate residence permit and alien card (CERPAC).

Further, no special immigration regime applies to the fintech sector. The Companies and Allied Matters Act requires foreign investors wishing to do business in Nigeria to incorporate a Nigerian company for this purpose, unless the foreign party or the business falls within the limited exceptions permitted by law. The incorporated Nigerian company must then obtain a business permit from the Ministry of Interior.

Under the Nigerian Investment Promotion Commission (NIPC) Act, companies with foreign participation must register with the NIPC. Registration with the NIPC affords foreign investors many benefits, including:

  • guaranteed repatriation of capital and dividends; and
  • the ability to submit disputes with the government to arbitration by the International Centre for Settlement of Investment Disputes.

Companies can hire expatriates to work in Nigeria only by obtaining expatriate quotas and expatriates must enter Nigeria on a residency visa, which is exchanged for a CERPAC on entry into Nigeria. Nationals of the Economic Community of West African States have a right of entry into Nigeria for 90 days and must register with the Nigerian Immigration Service and be issued a residence card in order to be eligible to work.

Update and trends

Current developments

Are there any other current developments or emerging trends to note?

There are no current emerging trends and development technologies in the fintech landscape of Nigeria, except those already discussed, including:

  • AI;
  • distributed ledgers;
  • application programming interfaces; and
  • other biometrics.

Law stated date

Correct on:

Give the date on which the above content is accurate.

10 September 2019.