Understanding Fintech Regulatory Framework In Nigeria

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By Oyetola Muyiwa Atoyebi, SAN

INTRODUCTION

“A youthful population, increasing smartphone penetration, and a
focused regulatory drive to increase financial inclusion and
cashless payments, are merging to create the perfect recipe for a
thriving Fintech Sector in an electronic age where every day
financial transactions are conducted on electronic platforms.”
[1]

The 2008 financial crisis, also known as the great recession
period, witnessed the collapse of many renowned world banks,
businesses and world economies. Following this event, some banking
reforms were made to increase resilience of the Financial Sector
and maintain stability in the financial service delivery. Some of
the effects of technology on the Financial Sector include; the
closure of the gap between the financially excluded and financially
included, through innovations and the use of blockchain for data
management and optimization of internal processes.

WHAT IS FINTECH?

FinTech has become a buzzword of the decade. The term, which is
a portmanteau for ‘Financial Technology’ refers to the synergy
between finance and technology, which is used to enhance business
operations and delivery of financial services. It also captures all
manner of technological innovation in personal and commercial
finance. FinTech can take the form of software, a service, or a
business that provides technologically advanced ways to make
financial processes more efficient by disrupting traditional
methods. The financial products offered by FinTech include money
transfer, investing, lending, crowd funding, crypto-currency, smart
contract, peer- to- peer payments, amongst others.

FinTech in Nigeria is said to have been birthed in 2007, when
the Central Bank of Nigeria (CBN), launched the Payments System
Vision 2020 (PSV2020). Through the implementation
of the PSV2020 and subsequent activities of CBN and the Financial
Services Sector, Nigeria has witnessed an impressive growth of
electronic payments and a move from the dominance of cash as a
means of payment. In 2013, CBN initiated a further formal
assessment of the payments market, resulting in the issuing of
PSV2020 Release 2.0. The goal of the PSV2020 is
“to facilitate economic activities by providing safe and efficient
mechanisms for making and receiving payments with minimum risks to
the Central Bank, payment service providers and end users,
extending the availability and usage to all sectors and
geographies, banked and unbanked, and conforming to internationally
accepted regulatory, technical and operational standards.”[2]

In furtherance of its vision, the CBN made policies that laid
the foundation for the growth of the FinTech ecosystem in
Nigeria.

LEGAL AND REGULATORY FRAMEWORK IN NIGERIA

There is an absence of a direct and unified regulation on
FinTech in Nigeria, however; presently, there are Bills before the
National Assembly capable of expanding the FinTech Sector in
Nigeria. The Bills are the Payments System Management Bill,
2009 (PSMB) and the Electronic Transaction Bill, 2015
(ETB). The PSMB provides for the management,
administration, operation, regulation, oversight and supervision of
payments, clearing and settlement systems in Nigeria. The ETB Bill
provides for the legal recognition of electronic commercial
transactions where parties have, either expressly or by conduct,
accepted to contract through electronic means.

Central Bank of Nigeria

The Central Bank of Nigeria has over the years issued several
guidelines and regulations which impacts various aspects of the
FinTech industry.

Regulations issued by the CBN include:

CBN Guidelines on International Money Transfer Services in
Nigeria, 2014;
CBN Regulatory Framework for Licensing Super-Agents in Nigeria,
2015;

iii. CBN Guidelines on Mobile Money
Services in Nigeria, 2015;

CBN Guidelines on Transactions Switching in Nigeria, 2016;
CBN Guidelines on Operations of Electronic Payment Channels,
2016.
CBN Guidelines on Licensing and Regulation of Payment Service
Banks in Nigeria, 2018;

vii. CBN Regulatory Framework for Use of
Unstructured Supplementary Service Data (USSD) Financial Services
in Nigeria, 2018;

viii. CBN Regulation on Electronic Payments and
Collections for Public and Private Sectors in Nigeria 2019;

ix Risk-Based Cyber-Security
Framework and Guidelines for Deposit Money Banks and Payment
Service Providers, 2019

x Regulatory Framework for
Sandbox Operation, 2021

xi Framework for Quick Response
(QR) Code Payments in Nigeria, 2021

CBN Guidelines on International Money Transfer Services
in Nigeria, 2014

The Guidelines are directed at International Money Transfer
Service Operators (IMTSOs) that offer digital international money
transfer services. Person/Institution in this business must be
licensed by the CBN. Deposit money banks are prohibited from
operating as international money transfer service operators,
although they may act as agents.

For the purpose of licensing requirements, the Guideline makes
provisions for four categories of international money transfer
providers, to wit: Foreign International Money Transfer Operators,
Indigenous International Money Transfer Operators, Foreign
Technical Partners and Local Agents. The objectives of the
guidelines are to:

Provide minimum standards and requirements for International
money transfer services operations in Nigeria;

Ii. Specify
delivery channels for offering international money transfer
services (inbound/outbound), in a cost effective manner;

Iii. Provide an
enabling environment for international money transfer services in
the Nigerian economy;

Iv. Specify minimum
technical and business requirements for various participants in the
international money transfer services industry in Nigeria; and

Provide broad guidelines for implementation of processes and
flows of international money transfer services, from initiation to
completion.[3]

CBN Regulatory Framework for Licensing
Super-Agents in Nigeria

Super-Agents are companies licensed by the CBN to recruit agents
for the purpose of agency banking (i.e, provision of financial
services within the communities on behalf of banks). The minimum
requirements for Super-Agents are clearly stated in the
Regulation.

CBN Guidelines on Mobile Money Services in Nigeria,
2015.

This regulatory framework addresses business rules governing the
operation of mobile payment services, and specifies basic
functionalities expected of any mobile payment service and solution
in Nigeria. It identifies the participants and defines their
expected roles and responsibilities in providing mobile payment
services in the system. In addition, it sets the basis for the
regulation of services offered at different levels by the
participants.

CBN Guidelines on Transactions Switching in Nigeria,
2016.

The Guidelines set out the procedures for the operation of
switching services in Nigeria, including the rights and obligations
of the parties to the switching contract. It also compels the
switching companies to meet with minimum standards for switching,
as approved by the CBN.

CBN Guidelines on Operations of Electronic Payment
Channels, 2016.

These Guidelines supersede an earlier guideline on Standards and
Guidelines on ATM Operations in Nigeria and Guidelines on POS Card
Acceptance Services, issued by the CBN. It provides among others
that all ATM deployers/acquirers shall comply with Payment Card
Industry Data Security Standards (PCI DSS) and the following:

All ATMs shall be able to dispense all denominations of
Naira.
For deposit taking ATMs, acceptable denominations shall be
displayed by the deployer.
All ATM systems shall have audit trail and logs capabilities,
comprehensive enough to facilitate investigations, reconciliation
and dispute resolution.[4]

CBN Guidelines on Licensing and Regulation of Payment
Service Banks in Nigeria, 2018

The key objective of setting up PSBs is to enhance financial
inclusion by increasing access to deposit products and
payment/remittance services to small businesses, low-income
households and other financially excluded entities through
high-volume low-value transactions in a secured technology-driven
environment.

CBN Regulatory Framework for Use of Unstructured
Supplementary Service Data (USSD) Financial Services in Nigeria,
2018

The Guideline seeks to reduce the risks associated with the
implementation and use of USSD technology for offering financial
services in Nigeria. Only Mobile Network Operators (MNOs) and CBN
licensed entities with a letter of no objection or letter of
introduction from the CBN are eligible for the issuance of USSD
short codes by the Nigerian Communications Commission (NCC).

CBN Regulation on Electronic Payments and Collections
for Public and Private Sectors in Nigeria, 2019

The Regulation is a revision of the Guidelines on Electronic
Payment of Salaries, Pensions, Suppliers and Taxes in Nigeria
(2014), and is intended to guide the end-to-end electronic payment
of salaries, pensions and other remittances, suppliers and revenue
collections in Nigeria.

Risk-Based Cyber-Security Framework and Guidelines for
Deposit Money Banks and Payment Service Providers,
2019

The CBN Cybersecurity Guideline is divided into five main parts
covering: Cybersecurity Governance and Oversight, Cybersecurity
Risk Management System, Cybersecurity Operational Resilience,
Metrics, Monitoring & Reporting and Compliance with Statutory and
Regulatory Requirements. The issuance of the Guideline gave effect
to the National Cybersecurity Policy, which designates the
Financial Services Sector as a National Critical Information
Infrastructure (NCII)[5]

Regulatory Framework for Sandbox Operation,
2021

In view of increasing consumers’ appetite for payment solutions
and emerging disruptive technology in the Financial Services space,
the Central Bank of Nigeria (CBN) has deemed it pertinent to ensure
new, more flexible ways of engaging with the industry.

One of the options being the use of a Regulatory Sandbox which
is a formal process for firms to conduct live tests of new,
innovative products, services, delivery channels, or business
models in a controlled environment, with regulatory oversight,
subject to appropriate conditions and safeguards. This would enable
the Bank stay abreast of innovations while promoting a safe,
reliable and efficient Payments System to foster innovation without
compromising on the delivery of its mandate.

This Framework therefore defines the establishment, rules and
operations of a Regulatory Sandbox for the Nigerian Payments System
in order to promote effective competition, embrace new technology,
encourage financial inclusion and improve customer experience, with
a view to engendering public confidence in the Financial
System.[6]

Framework for Quick Response (QR) Code Payments in
Nigeria,2021

This framework provides regulatory guidance for the operation of
QR Code payment services in Nigeria. It aims to ensure the adoption
of appropriate QR code standards for safe and efficient payments
services in Nigeria. The framework therefore stipulates:

Acceptable QR Code Standards for implementing QR Payments in
Nigeria;
Interoperability of QR Payments in Nigeria;

iii. Roles and Responsibilities of Participants in QR Payments
in Nigeria;

Risk management principles for QR code Payments in
Nigeria.[7]

National Information Technology Development
Agency

Data protection and cybersecurity are governed by the Nigerian
Data Protection Regulations, 2019 (NDPR) issued by
the National Information Technology Development Agency
(NITDA) pursuant to the National Information
Technology Development Agency Act, 2007, which impacts the use,
transfer, and processing of data of Nigerian citizens.

The Regulation applies to all transactions intended for the
processing of personal data of natural persons residing in Nigeria
or Nigerian citizens residing in foreign jurisdictions. Pursuant to
the NDPR, all public and private organisations in Nigeria that
control the data of natural persons are required to adhere strictly
to the requirements under the NDPR regarding the protection of data
and privacy of persons.

The Electronic Transactions Bill, when enacted, will have far
reaching consequences for organizations that process personal data,
including fintech companies. For example, data controllers and
processors (including Fintech companies) will be restricted from
transferring personal data of individuals to a country outside
Nigeria, unless such country has adequate provisions for the
protection of data. The Electronic Transactions Bill will also give
individuals the right to request their personal data from a data
processor or controller, and to claim compensation against such
data processors and data controllers for any data breaches.

Federal Competition and Consumer Protection
Commission.

Another regulatory body for FinTech organisations is the Federal
Competition and Consumer Protection Commission. This body
established by the Federal Competition and Consumer Protection Act,
2018 (FCCPA), among other reasons was established
in order to develop and promote fair, efficient and competitive
markets in the Nigerian economy, facilitate access by all citizens
to save products, and secure the protection of rights for all
consumers in Nigeria.

The FCCPA which is applicable to all entities carrying on
business in Nigeria, including fintech companies, prohibits
anti-competitive practices, including price fixing, market sharing,
collusive tendering, or entering into any arrangement which might
cause a restraint on competition.

National Communication Commission (NCC)

FinTech companies offering services that involve the use of
mobile networks or mobile phones are subject to NCC’s regulatory
purview and must obtain requisite operating licenses from the
NCC.

National Insurance Commission

National Insurance Commission (NAICOM) was
established by the NAICOM Act, 1997, with the responsibility of
ensuring the control and regulation of insurance business in
Nigeria. Thus, where an Insurtech Company carries on business, it
will require a license from NAICOM.

Securities and Exchange Commission(SEC)

The SEC is the Securities and Capital Market Regulator in
Nigeria, pursuant to Investment and Securities Act, 2007(ISA).
FinTech companies desirous of raising capital from the Capital
Market must register their securities with the SEC and comply with
the ISA.

Other generally applicable laws and regulations include the:

Companies and Allied Matters Act, 2020 (as amended);
Money Laundering (Prohibition) Act, 2011 (as amended);
Corrupt Practices and other Related Offences Act, 2000;
Economic and Financial Crimes Commission (Establishment, Etc.)
Act, 2004;
Terrorism (Prevention) Act, 2011 (as amended); and
Cybercrimes (Prohibition, Prevention, Etc.) Act, 2015

Conclusion

Innovation and regulation are often seen as rivals. Hence,
posing a difficult task for the body saddled with the
responsibility of regulating the industry on how to regulate such
industry without putting a peg on innovation.

The importance of a solid legal framework for FinTech in Nigeria
cannot be over emphasized, as this will boost investors’ confidence
in the industry and increase the ease of doing business. It is
crucial that the framework must be flexible enough to accommodate
further growth and not inimical to the financial inclusion goal it
is meant to address.

Written by:

Mr. Oyetola Muyiwa Atoyebi, SAN is an
exceptional Technology lawyer and thought leader with over a
decade’s worth of experience in legal Practice and technology. He
has facilitated numerous transactions and given countless legal
opinions as regards tech in Nigeria, his outstanding performance
has attracted international recognitions and awards. He is the
youngest lawyer in Nigeria’s history to be conferred with the
highly coveted rank of a Senior Advocate of Nigeria (SAN).

He is the Managing Partner of OMAPLEX Law Firm,
an established law firm driven by Technology innovation. As an
expert in emerging areas of law practice, he has core competence in
information technology, cyber security, Fintech, Robotics and
Artificial intelligence. He is described to be the go-to person
when it comes to issues around tech.

The learned silk is best characterized as a diligent,
resourceful and yet humble individual who is revered for his highly
analytical and pragmatic approach to solving legal problems as well
as an unwavering commitment to achieving client goals. Indeed, his
hard work and dedication to his clientele sets him apart.

Beyond his interests in law, the learned silk is an avid golfer
and a tech enthusiast.

[1] Masahudu Ankilu< https://africaneyereport.com/harnessing-nigerias-fintech-potential/^[1]>

[2] CBN Payment System Visions 2020, 2013.

[3] CBN Guidelines on International Money Transfer
Services in Nigeria, 2014, p.3

[4] CBN Guidelines on Operations of Electronic
Payment Channels, 2016, p. 4

[5] Paragraph 7.5 of the National Cybersecurity
Policy, 2014.

[6] Regulatory Framework for Sandbox Operation,
2021, p.3

[7] Paragraph 2.0 of the Framework for Quick
Response (QR) Code Payments in Nigeria,2021.