The Fintech sector in Nigeria is one of the fastest-growing sectors in the country. Nigeria is home to over 200 fintech companies including several fintech solutions offered by banks and mobile network operators as part of their product portfolio.
The increasing inclusion of mechanisms for day-to-day transactions is contributing to making it a thriving sector. Businesses now see the need to leverage the ever-expanding digital platforms in their daily activities which provides numerous benefits for consumers. COVID-19 and the resultant lockdown had a springboard effect on the growth of the Fintech market both in Nigeria and globally, in addition to other factors such as technological innovations, mobile money operators, e-commerce, etc. However, the fintech sector in Nigeria still experiences some challenges which affect its administration in Nigeria.
One of the challenges faced in the Nigerian fintech space is the absence of a unified statute and regulatory structure that adequately oversees the ever-expanding fintech activities in Nigeria. The Fintech sector in Nigeria is relatively young but has made giant strides in becoming an integral part of the general economic landscape of the country. Therefore, the existence of a unified regulation to govern their activities is an imminent necessity.
Currently, the fintech sector is regulated by a variety of laws that regulate different aspects of fintech transactions. (The laws applicable to a fintech company are determined by the scope of its product).
Some of the applicable regulations in the Nigerian fintech space include the Banks and Other Financial Institutions Act, 2020 (BOFIA) which established the Central Bank of Nigeria (CBN) as the apex regulator of financial institutions, the Nigerian Deposit Insurance Corporation Act, 2006 (NDICA), the Companies and Allied Matters Act, 2020 (CAMA), the Nigerian Investment Promotion Commission Act, Chapter N117 (Decree No. 16 of 1995) LFN (NIPCA), the Nigerian Data Protection Regulation, 2019 (NDPR), the Cybercrimes (Prohibition and Prevention) Act, 2015, the Nigerian Communications Act, 2003 (NCA), the Corrupt Practices and other related Offences Act, 2004, the Economic and Financial Crimes Commission (Establishment) Act, 2004, the National Insurance Commission Act, 1997 (NAICOM Act), the Investment and Securities Act, 2007 (ISA), the Money Laundering (Prohibition) Act, 2011, the National Information Technology Development Agency Act, 2007 (NITDA), etc.
Some of these regulations are considered primary as they regulate financial practices which are the bedrock of the fintech industry. They include;
- BOFIA which specifically empowers the CBN to make guidelines for the regulation of financial institutions to address cyber security issues in the delivery of financial or banking services. Under the above, CBN regularly releases various guidelines some of which include; CBN Guidelines on mobile money services in Nigeria 2015, CBN Guidelines for licensing and regulation of payment service banks in Nigeria 2018, CBN Guidelines on Operations of Electronic Payment Channels in Nigeria 2016, CBN Regulatory Guidelines on the e-Naira 2021, etc.
- ISA, which established the Securities and Exchange Commission (SEC), responsible for the regulation of Nigeria’s capital market including digital assets.
- NDIC established by the NDIC Act is responsible for insuring deposit-taking financial institutions (including fintech companies) that are in the business of obtaining and saving money deposited by Nigerian consumers.
- CAMA, which established the Corporate Affairs Commission (CAC) to regulate all companies incorporated in Nigeria including fintech companies.
- Nigerian Communications Commission (NCC) established by the NCA, regulates fintech companies offering services that involve the use of telecommunication infrastructure.
- NDPR, issued by the National Information Technology Development Agency (NITDA) under the NITDA Act. The NDPR aims to protect data privacy rights.
These laws, among others, create different policies and regulatory bodies in the fintech industry. However, the lack of uniformity often results in ambiguities, overlap, contradictions, and regulatory loopholes as no unique law has been enacted solely for the fintech industry. The different laws also create different agencies which result in regulatory requirements, processes, and procedures which can be repetitive and cumbersome. Furthermore, the governing bodies and licenses required for the regulation of fintech services will largely depend on the transaction the fintech company engages in thereby causing uncertainty for intending applicants.
Given the nature of the Fintech industry and the propensity for innovations, these regulations often struggle to keep up. Recently, the Security and Exchange Commission released new rules for digital assets to regulate NFTs, cryptocurrencies, and other digital currencies. Commendable as this development is, it further highlights the necessity of a new law that would be tailored to tackle the unique challenges the fintech industry presents. A unified statute would also provide for streamlined regulation and eliminate the incidents of overlapping regulations and agencies.
In conclusion, notwithstanding these challenges, the fintech sector has been of great positive impact on businesses overall. Businesses must begin to realign their business strategies to include digital platforms and must also make sure they are up to date with the latest fintech developments and opportunities that would positively impact their businesses. The Nigerian Government, lawmakers, and stakeholders also need to collaborate in the development of initiatives that stimulate the growth of fintech in Nigeria and in addition, engage in capacity development programs with business owners to enlighten them on the benefits of utilizing digital platforms as a channel for financial transactions and commerce.
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Author: Ariteshoma Etete, Junior Associate, Centurion Law Group, Nigeria.