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Understanding The Regulatory Landscape for Fintech in Nigeria.

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Overview

Technology and the desire for financial inclusion has boosted the Fintech industry in Nigeria. It is important to look at the regulations in foreign investors or start up seeking to invest or launch their fintech firms in Nigeria. This article highlights the primary legal requirements together with the regulating bodies that cover the functioning of FinTech.

Regulatory Framework

Working properly in the Central Bank of Nigeria (CBN)

At the moment, the regulation is under the Central Bank of Nigeria (CBN), which makes it the main regulator for several fintech subsectors. It is mandated with the responsibilities of supervising and regulating all financial institutions including; Fintech.

Banks and Other Financial Institutions Act (BOFIA) 2020:

This piece of legislation gives legal framework for the regulation of banks and other financial institutions in Nigeria. All those companies, which provides banking and financial services, are to be regulated under BOFIA. CBN operates under this Act and it entrusts license issuance and provides operational regulations for Fintechs.

Payment Systems 2020: This creates the vision that would help Nigeria to become an economy without physical cash. It oversees the payment in electronic form, and companies providing payment services, which are referred to as Payment Service Providers or PSPs, of which most of them are considered to be fintech.

Companies and Allied Matters Act (CAMA) 2020

The CAMA 2020 is the most significant piece of legislation relating to the companies and any other related matters in Nigeria. As legal frameworks of the company formation and structure for foreigners intending to start a fintech company in Nigeria, CAMA can be relied on.

Section 78(1): This section make it mandatory for any foreign company that wishes to commence business in the country to form a Nigerian company through the Corporate Affairs Commission (CAC). It is especially important for those Fintech firms who are owned by investors located in different countries but require a presence in Nigeria.

Section 20: This section provides permission to foreign persons to incorporate private limited company, it is the most suitable legal type of financial startup for fintech.

Section 836: This Section sets out provisions regarding this take-over.The National Information Technology Development Agency (NITDA)

Data protection and cybersecurity are regulated by NITDA, both of which are relevant to fintech firms that interact with buyers financial data.

Nigeria Data Protection Regulation (NDPR) 2019: This regulation seek to encourage any party processing personal data to protect such data and by extension it imposes on fintech firms the requirement to practice data protection in accordance to the international standards.

Compliance and Licensing

Licensing Requirements

CBN Licensing: Companies providing payment services, money transfer mechanisms or acting as a digital bank has to secure the licensing from the CBN. The CBN has provided certain rules of engagement for the categories of fintech services it recognizes mobile money operations, payment processing system, and electronic wallets.

Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF): Policies relating to AML and CTF are very important since fintech companies need to avoid their platforms from being used in any unlawful processes. The CBN requires that reporting and compliance in these areas shall be on an ongoing basis and must align to international best practices.

Local Partnerships and Collaboration

It is very competing to venture into the Nigerian fintech market, and as a foreign investor it is easier to penetrate the market by partnering existing local players. Partnering with Nigerian companies or emerging Fintech firms can precisely assess the Nigerian market, understand the legal structures and get the approval and confidence of the Nigerian consumers and the relevant authorities.

Section 7 CAMA 2020: This section of the CAMA 2020 centers its provision on the promotion of local content and companies’ relations. Local content regulation applies to all companies and especially foreign ones are advised to engage Nigerian partners to fully satisfy local content provision which in turn could help in getting approvals from the regulatory authorities and increase the success rates of the operations.

Technology and Infrastructure

The structure of Nigeria’s fintech industry is primarily informed by technological advancement and innovation. Setting up the fintech firm with correct kind of technology and ability infrastructure is one of the key success factors.

NITDA’s Role: The National Information Technology Development Agency has the responsibility of encouraging technology driven programmes. Fintechs also fall under regulation by NITDA where they have to adhere to set standard protocols, on storage of data, and matters touching on cyber security among others.

Intellectual Property Protection

Preserving the intellectual property rights is very important to the Fintech industry most especially for the firms which deal in new technological products. For anybody to protect their innovations, it is necessary that their IP rights fall under the Nigerian laws.

Trademarks Act: This act governs the protection of patents and designs in Nigeria. Fintech firms should trademark and patent their brands and technologies respectively to avoid people emulating same brands and using technologies similar to their owned ones.

Regulatory Sandboxes

The CBN together with NITDA should introduce more regulatory sandboxes for innovation to take place but in regulated environment. Sandbox enable the fintech firms to introduce new products within the market but under the CSM regulation oversight.

Enhanced Data Protection

One of the emerging themes in the fintech industry is the increase in a need for data security and privacy. The NDPR is on course to be updated to meet the international best practices which in effect will put pressure on the fintech firms to improve on the standards of data protection.

Cross-Border Regulations

Just like other countries experiencing the expansion of fintech, Nigeria may seek to establish alliances with these countries in order to establish compatible laws that will allow the conduct of cross border transactions without violating the country’s laws.

Conclusion

For any fintech firm wishing to operate it should be very clear on the legal framework within which it operates in Nigeria. The CBN, CAMA, and NITDA are the major regulatory authorities that are involved in the regulation of fintech in the country. Any foreign investor who wants to set up a fintech company in Nigeria should be aware of these rules and regulations to avoid confrontation with the law.

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Foreign investors and entrepreneurs who wish to tap into fintech in Nigeria must consult the country’s legal and regulatory advisors. Here’s a piece of advice for those doing business in Nigeria: To carry out business with no hindrances, be sure to adhere to the laws and policies of the nation because keeping the laws is a plus in the eyes of the Nigerian customers and business partners. One should try to collaborate with local professionals in order to avoid the managerial pitfalls that might occur due to Nigeria’s regulatory demands and achieve the fintech company’s goals.

This indicates that the Nigerian market is available for foreign Fintech investors This should be done with the right strategy and adequate knowledge of the country’s laws. Consult with professionals in Nigeria and legal consultants to be knowledgeable with the country’s laws and to guide the layout of the venture. You will also be able to avoid getting yourself entangled in legal concerns while laying down a firm growth and innovation strategy into the Fintech sector in Nigeria.

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