By Davidson Oturu,1 Hannatu Dan-Habu2 & Kanyinsola Ojeshina.3
Financial technology ('FinTech') represents technologies that are disrupting the traditional banking services and revolutionising the financial landscape. For example, one can now open a bank account, save, borrow, invest and transfer money over the internet without visiting a bank. FinTech companies are also able to provide core financial products such as mortgages and loans as well as raise funds for charitable causes without dealing with a traditional bank or financial institution
As a result of the rapid growth and popularity of the FinTech industry, regulators such as the Central Bank of Nigeria and the Securities and Exchange Commission are currently exploring ways of regulating FinTech companies operating in Nigeria.
FinTech Regulations in Nigeria
Presently, there is a misconception that there are no FinTech Regulations in Nigeria simply because there are currently no regulations with the word 'FINTECH' written boldly on their covers.
However, a closer look will show, that while there is no comprehensive Fintech regulation contained in one document in Nigeria and some aspects of Fintech are not regulated (e.g. cryptocurrency and crowdfunding), there are several regulations that affect various aspects of FinTech within Nigeria with many more regulations on the way.
The aspects of FinTech currently regulated within Nigeria include:
- Digital Payments
- Mobile Money/ E-Wallets
- USSD Financial Services
- International Money Transfer
- FinTech Testing
- Data Protection
- Cyber Security
- Consumer Protection
In this 3-part overview, we will study these regulations in some detail and provide a broad assessment of what regulations in Nigeria currently apply to FinTech companies.
- Digital Payments
Generally, payments and transfers made electronically, or with mobile devices, Automated Teller Machines, Point of Sale Machines and the Internet, are regulated under several guidelines in Nigeria. We will briefly examine these guidelines.
- The Mobile Money Guidelines
In 2015, The Central Bank of Nigeria published guidelines on the use of Mobile Money Services within Nigeria ('Mobile Money Guidelines') which apply to FinTech companies that provide mobile payment services.
The objectives of the Mobile Money Guidelines are to specify the participants in a mobile money transaction, the minimum and business requirements for these participants and promote the safety and effectiveness of mobile money services in Nigeria.
The Mobile Money Guidelines define 'Mobile Money Operators' (MMOs) as the party that provides the mobile payment system infrastructure for participants that are signed on to their scheme.4 The Mobile Money Guidelines mandate a Mobile Money Operator to;5
- Be licenced by the Central Bank of Nigeria
- Be issued a unique scheme code by the Nigerian Inter-Bank Settlement System (NIBBS)
- Be issued a unique shortcode by the Nigerian Communications Commission; before carrying out mobile money services.
The Mobile Money Guidelines provide for the roles and responsibilities of participants such as; banks, licenced corporate organisations, infrastructure providers, mobile network operators and consumers.6
The Mobile Money Guidelines also specify the technology standards and user interface for Mobile Money Services and mandate that the user interface is not to provide access to confidential information and only secure channels should be used in providing Mobile Money Services.7
- The Guidelines on the Operation of Electronic Payments ('Guidelines on e- Payments')
The Guidelines on e-payments were released in June 2016, to regulate payments made from Automated Teller Machines (ATM's), Point of Sale Machines (POS) and Mobile Point of Sale (mPOS) Devices as well as those made via the Internet.8
The Guidelines provide for the stakeholders in their transactions as including; Merchant Acquirers, Card Issuers, Merchants, Cardholders, Card Schemes, Switches, Payments Terminal Service Aggregator (PTSA) and Payments Terminal Service Providers (PTSP).9
The roles and responsibilities of each of these stakeholders are prescribed by the Guidelines which also provide for the minimum specifications for POS and mPOS Terminals.10
The standards for ATM technology in these Guidelines include that all ATM deployers/acquirers are to comply with Payment Card Industry Data Security Standards (PCI DSS) and must be licenced by CBN.11 The Guidelines on e-payments also specify the conditions for deployment of ATMs, including the provision that no issuer or acquirer will be allowed to send a transaction outside the country if the transaction is at an ATM or at any acceptance device in Nigeria and the issuer is a Nigerian bank or any other issuer licenced by the CBN.12
The Guidelines on e-Payments provide minimum standards and requirements for the processing of online transactions. It specifies the stakeholders as; Acquirer (including a CBN licenced web payment aggregator), Issuer, Merchant (website owner), Payments Gateway Providers, and Customers and lays out their roles and responsibilities.13 The Guidelines also provide a settlement mechanism for each of the means of electronic payments including dispute resolution clauses and sanctions in the event of failure to comply.14
- The Guidelines on International Money Transfers ('International Money Transfer Guidelines')
In 2014, the CBN released the International Money Transfer Guidelines which prohibits a person or an institution from providing international money transfer services, except they have obtained a licence from the CBN (on application to the Director, Trade and Exchange Department, CBN).15
It also contains requirements for overseas partnerships, states what activities are permissible and non-permissible, states the requirement for disclosure to customers and provides the basics of inward and outward money transfer services.16 The International Money Transfer Guidelines further provide for dispute resolution, remedial measures and sanctions where there is failure to comply.17
- Regulatory Framework for the use of Unstructured Supplementary Service Data (USSD) in Nigeria ('The Regulation').
On 1st June 2018, the CBN published a Regulatory Framework with the aim of establishing rules and preventing the abuse/breach of USSD financial services in Nigeria.
The Regulation lays out potential participants in the USSD Ecosystem and prescribes that MMOs and CBN licenced financial Institutions (other than MMOs and with a CBN letter of no objection), should obtain a licence from Nigerian Communications Commission (NCC) to operate USSD services.18
The framework prescribes risk mitigation procedures including; ensuring at least, radio encryption between users' SIM-enabled device and base stations and that Customer information that is logged by the USSD application as part of financial transactions should not include sensitive information such as customer PIN.19
It also states that Financial Institutions involved in USSD transactions should be responsible for setting up dispute resolution mechanisms for customer complaints.20
While these are the regulations that affect Digital Payments currently, there are others such as; the CBN Draft e-Payment Guidelines for Salaries, Pension, Remittances Suppliers and revenue collections- undergoing various stages of drafting.
Until a single comprehensive legislation is published, they will all fall within the ambit of FinTech in Nigeria.
1 Partner, ǼLEX Legal Practitioners & Arbitrators.
2 Associate, ǼLEX Legal Practitioners & Arbitrators.
3 Associate, ǼLEX Legal Practitioners & Arbitrators.
4 Paragraph 23 of the CBN Guidelines on the use of Mobile Money Services within Nigeria.
5 Paragraph 7.1 of the CBN Guidelines on the use of Mobile Money Services within Nigeria.
6 Paragraphs 8.0-8.5 of the CBN Guidelines on the use of Mobile Money Services within Nigeria.
7 Paragraph 14.1 of the CBN Guidelines on the use of Mobile Money Services within Nigeria.
8 Sections/Table of Contents CBN Guidelines on Operations of Electronic Payment Channels in Nigeria.
9 Paragraphs 2.2, 3.3 and 4.4 of the CBN Guidelines on Operations of Electronic Payment Channels in Nigeria.
10 Paragraphs 2.3, 3.2 and 4.3 of the CBN Guidelines on Operations of Electronic Payment Channels in Nigeria.
11 Paragraph 1.1.1 of the CBN Guidelines on Operations of Electronic Payment Channels in Nigeria.
12 Paragraph 1.2 (c) of the CBN Guidelines on Operations of Electronic Payment Channels in Nigeria.
13 Paragraphs 4.4 and 4.5 of the CBN Guidelines on Operations of Electronic Payment Channels in Nigeria.
14 Paragraphs 1.6, 1.8, 2.10, 3.10, 3.11 and 4.9 of the CBN Guidelines on Operations of Electronic Payment Channels in Nigeria.
15 Paragraphs 2.0-2.2 of the CBN Guidelines on International Money Transfer Services in Nigeria.
16 Paragraphs 2.4, 3.1, 3.2, 4.0, 4.2, and 4.3 of the CBN Guidelines on International Money Transfer Services in Nigeria.
17 Paragraphs 5.0, 7.0 and 8.0 of the CBN Guidelines on International Money Transfer Services in Nigeria.
18 Paragraphs 4.0 and 5.0 of the CBN Regulatory Framework on the use of Unstructured Supplementary Service Data (USSD) in Nigeria.
19 Paragraphs 6.5 and 6.7 of the CBN Regulatory Framework on the use of Unstructured Supplementary Service Data (USSD) in Nigeria.
20 Paragraph 7.0 of the CBN Regulatory Framework on the use of Unstructured Supplementary Service Data (USSD) in Nigeria.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.