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.

Law stated date

Correct on:

Give the date on which the above content is accurate.

10 September 2019.