Fintech 2024 Comparisons

Nigeria continues to maintain its prominent position among the top four countries in Africa for fintech. A recent report highlighted its leading role in hosting the largest concentration of fintech companies on the continent, with South Africa, Kenya and Egypt ranking second, third and fourth places respectively. In Q2 2023, Nigeria attracted 42% of the fintech deals in Africa, solidifying its status as the most active destination for such transactions.

This growth was primarily driven by the increased adoption of digital financial services and collaboration within the industry, fostering innovation and expanding the scope of financial inclusion. Beyond just payments, the fintech ecosystem has diversified its offerings to encompass a wider range of services. The transaction value of instant payments hit an all-time high of NGN387 trillion in 2023. In the first five months of 2023 alone, the transaction activity amounted to NGN211.1 trillion, partly as a result of a botched issuance of new notes by the Central Bank of Nigeria (CBN).

However, despite the robust performance of Nigeria’s fintech sector, the downward trend in the total value of funding and investment in the African fintech market continued in 2023. During the course of the year, the ecosystem saw a decrease from Q1 2023, when start-ups raised USD1.2 billion, to Q2 with USD877.8 million and Q3 with USD492.7 million. However, there was a modest increase in Q4, when a total of USD551.2 million was raised by start-ups. With a total of USD3.2 billion ‒ or even USD3.4 billion ‒ raised in 2023, it is evident that this marks the lowest funding for African start-ups since 2020’s USD2.1 billion, representing a 36% decline from the approximately USD5 billion raised in 2022.

The year 2023 saw Nigeria’s general elections usher in new leadership, bringing with it new economic policies. One significant change was the CBN’s unification of all foreign exchange (FX) market segments. This move, announced in June 2023, effectively merged all FX windows into the Investors and Exporters (I&E) window. Furthermore, on 14 June, the CBN announced its intention to transition from a controlled FX system to a free-floating one. This shift aims to enhance market liquidity and stability, ultimately attracting foreign investment to the Nigerian economy.

Fintech Regulatory Landscape in 2023

New data regulations

On 14 June 2023, President Bola Ahmed Tinubu signed the Data Protection Act 2023 (NDPA) into law. The NDPA applies to data controllers and data processors domiciled, ordinarily resident or ordinarily operating in Nigeria, or where the processing of personal data occurs within Nigeria. The NDPA also applies to data controllers or data processors not domiciled, ordinarily resident or ordinarily operating in Nigeria, so long as they are processing personal data of data subjects in Nigeria. The Nigerian Data Protection Commission replaces the Nigeria Data Protection Bureau (which itself had replaced the National Information Technology Development Agency (NITDA) in February 2022) as the primary regulator for data protection in Nigeria.

New CBN rules for Virtual Assets Service Providers (VASPs)

On 22 December 2023, the CBN issued Guidelines on the Operations of Bank Accounts for Virtual Assets Service Providers (“the Guidelines”). In issuing the Guidelines, the CBN has lifted the restrictions it had previously placed on banks and other financial institutions from operating accounts for cryptocurrency transactions. The framework provides minimum standards and requirements for banking business relationships and account opening for VASPs and creates an effective monitoring of the activities of banks and Other Financial Institutions (OFIs) in providing services for Nigerian Securities and Exchange Commission (SEC)-licensed VASPs/digital assets entities in the country. This shift signals a more open and regulated approach to the cryptocurrency ecosystem in Nigeria. While previously the focus was on restricting activity owing to concerns, the new Guidelines aim to provide a framework for safe and monitored engagement between VASPs, OFIs, and the financial system.

Launch of SEC Regulatory Incubation Programme

On 28 April 2023, the SEC issued a circular inviting application for the inaugural cohort of its Regulatory Incubation Programme (the “RI Programme”). The application period for Cohort 1 will span from 28 April 2023 to 26 May 2023. The RI Programme was newly introduced by the SEC on 16 June 2021, when it issued the Regulatory Incubation Guidelines for Specific Category of Fintech Entrepreneurs. The RI Programme offers fintech entrepreneurs the opportunity to test their innovative products and services in a controlled environment, without having to comply with all of the regulatory requirements that apply to established financial institutions. The RI Programme offers participants a wealth of opportunities, including obtaining regulatory clarity on the limits within which a proposed fintech innovation should be developed, relaxed regulatory compliance obligations within the regulatory incubation period, and an enabling environment to test innovations and products within the regulatory incubation period.

Business Facilitation Act 2023 (BFA)

In a bid to promote the ease of doing business and eliminate administrative bottlenecks, the BFA was enacted on 14 February 2023 to amend a number of business-related legislations. One significant change affecting the fintech industry is the BFA’s mandate for government agencies to publicly list all requirements for licences, products and services. Furthermore, the BFA establishes a framework for default approvals in cases where an MDA fails to convey its decision (either approval or rejection) within a specified timeframe for a given application.

Launch of LARP for MFB licence application

The CBN launched the Licensing, Approval and Other Requests Portal (CBN LARP), for the submission of microfinance bank (MFB) licence applications. The portal was designed to replace the manual process that is currently used for MFB licence applications. From 25 September 2023, applicants were required to submit both hard copy and online applications through the CBN LARP until 30 December 2023, when manual submissions became obsolete. The online application system offers numerous benefits, including a simplified process, time-saving, enhanced communication, expedited licence approvals, and robust security measures.

Finance Act 2023

A significant revision introduced by the Finance Act 2023 to the Capital Gains Tax (CGT) Act involves the categorisation of digital assets as chargeable assets, thereby making them liable to CGT. Thus, persons and entities are now required to pay a 10% tax upon the disposal of digital assets.

Customer Due Diligence (CDD) Regulations 2023

The CDD Regulations were issued by the CBN on 20 June 2023, with the intent to introduce provisions directed towards enhancing customer due diligence requirements and KYC requirements. All fintech companies are now required to adhere to these regulations during the processes of identifying, verifying, and onboarding new customers. Also, the regulations now include a mandate for financial institutions to collect the social media details of customers.

CBN Circulars on Payouts by International Money Transfer Operations (IMTO)

The CBN issued two circulars that expanded the scope of payout options for diaspora remittances by IMTOs. Per the circulars, beneficiaries of diaspora remittances received through IMTOs have the option of receiving payouts in US dollars or eNaira or naira. Prior to these circulars, beneficiaries through IMTOs could only receive such remittances in US dollars.

Suspension of applications for Payment Service Solutions category

The CBN suspended applications for new Payment Service Solutions licences. According to the CBN, this decision follows a review of the existing regulatory framework and the need to address identified challenges within the payments ecosystem

Forecasting Nigeria’s Fintech Market Growth in 2024

High inflation rate and FX scarcity

According to the National Bureau of Statistics, as of December 2023, Nigeria’s inflation surged to 28.92% – a 7.58% increase compared with December 2022. Prominent global rating agencies and economists have predicated a decline in the inflation rate in 2024. Despite the consolidation of all the segments of the FX market into the I&E window efforts of the CBN to improve the supply of FX, the FX market continues to experience high level of volatility, resulting in a further disparity between the parallel and official FX rates. This has continued to impact the repatriation of capital and the strain on foreign transactions.

Lay-offs and cut-offs

It was reported that several Nigerian fintech companies announced the shutting down of their operations in 2023. As of December 2023, Lazerpay, Bundle, Vibra, Pivo had shut down operations in Nigeria. With persisting economic challenges, it is likely that other businesses may follow suit.

Increased regulatory activities

The changes in leadership at the CBN are anticipated to bring forth a series of policy reforms aimed at strengthening the national economy. Already in 2024, the CBN issued newly revised guidelines that prevent fintech start-ups from carrying out International Money Transfer Operations (IMTOs). The CBN also increased the application fees for the IMTO license to NGN10 million. The new rules also set a minimum operating capital of USD1 million for foreign IMTOs and its naira equivalent for their indigenous counterparts. In a bid to further curb the inflation rate and the free fall of naira against the US dollar, it is expected that the CBN and other regulatory agencies may continue to dole out policies that could impact the operations of companies within the fintech sector.

Adoption of cryptocurrency

Following the relaxation of the restrictions on cryptocurrency transactions in Nigeria, there is an optimistic outlook for increased acceptance and utilisation of digital currencies in various sectors of the Nigerian economy. Businesses, financial institutions, and the general public are expected to embrace the convenience and efficiency offered by digital currencies, thereby fostering a more dynamic and inclusive financial ecosystem. It is likely that regulatory frameworks will be established to provide clarity and ensure the secure and responsible use of cryptocurrency.

The most prevalent fintech business models in Nigeria are:

• payments and remittances;
• lending and financing services;
• investech; and
• personal finance.

Payments and Remittances

The payments subsector of the fintech industry is by far the most active in Nigeria and has received the most interest from investors and regulators alike. Payment services cover business-to-business applications (such as payment-processing providers and solutions for accepting payments) and business-to-consumer applications (including services such as mobile wallets and payment applications that enable individuals to pay on the go and make peer-to-peer transfers). Remittance-related products focus on cross-border money transfers from migrant populations to their “home” country. This subsector comprises fintech companies and legacy players such as Payment Service Banks (PSBs).

Lending and Financing

Mobile lending applications and Buy Now, Pay Later (BNPL) services, also referred to as “point of sale instalment loans”, have proliferated the Nigerian fintech space. The ability to provide quicker loans through a simplified lending process (mostly without collateral) gives this model a competitive advantage over traditional lending, but legacy players are also deploying similar solutions. Nigerian fintech companies are also providing innovative solutions for financing asset and trade, particularly through the instrumentality of sale credits.

Investech

Investech start-ups are leveraging technology to provide Nigerians with the opportunity to grow their funds. Some of these opportunities range from real estate, agriculture and the money market. These fintech companies focus on deploying solutions to improve and democratise investment and wealth management to their customers.

Personal Finance

Another popular business model for fintech companies in Nigeria is to offer a personal savings solution that manages personal bills, accounts and/or credit.

Insurtech

Insurtech focuses on the intersection between insurance products/services and technology. Insurtech solutions include the streamlining of procuring insurance policies, paying premium and claims management. The use of technology in the insurance industry has led to a more efficient creation and distribution of insurance products and services.

Nigeria operates a three-tier federal system of government, with powers shared by the Nigerian Constitution among the federal, state and local governments. The regulation of banking activities falls within the purview of the federal government, thus the operations of most fintech companies are regulated by federal laws. Furthermore, there is no specific regulatory regime focused on fintech companies in Nigeria; rather, they are generally subject to the regime applicable to other companies operating similar businesses/models in a particular sector.

Payments

This subsector is principally regulated by the Banks and Other Financial Institutions Act 2020 (BOFIA), supplemented by various guidelines issued by the CBN from time to time that apply to legacy players and fintech companies alike. Any fintech operating as a Payment Service Provider (PSP) is required to incorporate a Nigerian entity and obtain a CBN licence to operate.

Lending and Financing

This subsector is also principally regulated by BOFIA – albeit supplemented by various guidelines issued by the CBN from time to time that apply to legacy players and fintech companies alike, including relevant prudential guidelines. In order to hold deposits and engage in lending/financing operations in Nigeria, fintech companies require any of the following:

• a commercial banking licence (national or regional);
• a merchant banking licence;
• a specialised banking licence or an MFB licence (national or state or unit); or
• a finance company licence from the CBN.

However, fintech companies that are not focused on holding deposits or providing lending services across the entire country may operate with a money-lender’s licence pursuant to the money-lender laws of the relevant state(s) they operate in. The money-lender’s licence application regime is less onerous than the other regimes – hence the attraction for fintech companies. Yet another alternative is for a fintech to partner with entities that hold the relevant lending licences and merely provide the technology platform through which the loans are advanced. The Federal Competition and Consumer Protection Commission (FCCPC) added an additional layer of regulatory framework to the digital lending space in 2022 by requiring all digital money-lenders to register with it in accordance with the FCCPC’s Regulatory/Registration Framework and Guidelines for Digital Lending.

Investech

Entities engaged in the provision of investment services must register with the SEC as capital market operators. Much like personal finance applications, investech companies have also begun partnering with registered capital market operators in order to provide these services.

Personal Finance

In order to accept deposits from customers, fintech companies are required to obtain any of the banking licences identified under “lending” from the CBN. In practice, however, fintech companies offering personal finance applications in Nigeria typically operate through partnerships with established MFBs or deposit money banks (DMBs). Fintech companies have also begun to acquire MFB licences to deliver their products.

Financial Services Through Telecommunications Infrastructure

In addition to the foregoing, pursuant to the Licence Framework for Value Added Services, the Nigerian Communications Commission (NCC) is responsible for the regulation of businesses that offer financial services by leveraging on mobile phones or other telecommunications infrastructure.

The compensation models for the industry participants vary depending on the business model.

For payment services, the compensation model is highly regulated in Nigeria. Companies in this subsector profit by receiving a percentage of the transaction fees that are typically incurred when making payments. In this regard, the Electronic Payment Guidelines provide that fees and charges for web transactions are to be agreed between service providers and banks/entities to which the services are being provided. They also provide that the maximum total fee that a merchant can be charged for web transactions will be subject to negotiations between the merchant and the acquirer (the bank that maintains the merchant bank’s account) and these negotiations must take into account the provisions of the CBN Circular on the Implementation of Interchange Fee (the “Interchange Guidelines”). The Interchange Guidelines regulate the interchange fees paid by the acquirers to card issuers (the financial institution that issues credit/debit cards to customers).

For online lending, the money-lender laws of various states prescribe limitations on the interest on loans that may be imposed by money-lenders.

In Nigeria, there is generally no difference between the regulation of fintech industry participants and the regulation of legacy financial institutions.

Fintech companies generally operate within the existing regulatory regime for the financial services industry. This is evident from the provisions of BOFIA, which explicitly recognise PSPs and IMTOs as financial institutions to be regulated as per other financial institutions (such as finance companies, which are legacy players) in the manner provided for by BOFIA. Also, legacy players are developing products to compete with fintech companies, thereby obscuring the regulatory lines.

In 2019, a Financial Industry Sandbox launched by the Financial Service Innovators Association of Nigeria in conjunction with the CBN and the Nigeria Inter-Bank Settlement System(NIBSS) was designed to allow fintech companies to test solutions and products within a controlled environment through the NIBSS Application Programming Interface (API) and those of other existing companies (“the Sandbox”).

Similarly, the RI Programme introduced by the SEC is targeted at individuals and businesses (registered, or intending to register, with the SEC) that are planning to launch an innovative product or process in the Nigerian capital market. Such innovators are expected to complete the fintech assessment form that can be accessed through the Innovation and FinTech Portal on the SEC website. Relatedly, the National Insurance Commission (NAICOM) has also introduced a regulatory sandbox programme for eligible applicants.

In furtherance of the CBN’s commitment to building a financial services sector that promotes innovation, effective service delivery, healthy competition and financial inclusion, the CBN Sandbox Regulations were released in January 2021 (the “Sandbox Regulations”). The Sandbox Regulations set out the requirements provided by the CBN for conducting live tests on innovative products, services and other solutions in a controlled environment. To this end, the CBN will review the products and solutions of applicants (licensed institutions, fintech companies, innovators and researchers) during their implementation. After having called for applications in December 2022, the CBN admitted selected applicants into its regulatory sandbox programme in 2023.

On 28 April 2023, the SEC issued a circular announcing the opening for applications for the inaugural cohort of its RI Programme. The application period for Cohort 1 ran from 28 April 2023 to 26 May 2023. The RI Programme is designed to address the needs of new business models and processes that require regulatory authorisation to continue carrying out full or ancillary technology-driven capital markets activities. Following the application process, the SEC admitted selected applicants into its RI Programme.

NAICOM issued its Regulatory Sandbox Programme effective from 1 May 2023. There are expectations that persons offering innovative insurance solutions that do not (clearly) fall under any of the existing regulatory framework may apply to join the NAICOM sandbox programme.

The legislation establishing various regulators usually specifies the jurisdiction limits of such regulators.

The CBN is the apex monetary authority in Nigeria responsible for the regulation of all banks and financial institutions operating in Nigeria. The bulk of fintech companies in Nigeria deal in payment/financial services and, in so doing, assume quasi-banking functions – thereby coming within the regulatory purview of the CBN.

The SEC is the primary regulatory body for investments and capital markets transactions in Nigeria. The jurisdiction of the SEC in the regulation of fintech companies that operate can be found in the operation of investech applications and crowdfunding platforms, among others. In the same vein, certain fintech companies that offer the option of pooling together capital from individual investors towards investment in certain asset classes (collective investment schemes) must be registered with the SEC.

NAICOM regulates the insurance industry in Nigeria. Its jurisdiction extends to insurtech companies that carry on insurance businesses.

The Nigerian Data Protection Commission oversees the implementation of the NDPA and regulates the processing of personal information, along with related matters.

Furthermore, the NCC is empowered by the Nigerian Communications Act 2003 to regulate the telecommunications industry in Nigeria. Thus, fintech companies offering services that involve the use of mobile networks or mobile phones are subject to the NCC’s regulatory purview and must obtain operating licences from the NCC.

Finally, the FCCPC is the apex regulator for consumer protection and competition affairs in Nigeria. Acting in its capacity as the regulatory authority saddled with implementing the Federal Competition and Consumer Protection Act (FCCPA), the FCCPC regulates the activities of fintech companies, with the aim of protecting the rights of consumers under the FCCPA.

Generally, the powers given to players in the financial services industry by the regulator(s) through the various licences cannot be transferred, assigned or otherwise outsourced to third parties without the consent of the regulator. However, there are exceptions. By way of example, certain financial services can be provided by a third party (agent) to customers on behalf of DMBs or mobile money operators (as vendors) pursuant to the CBN Guidelines for the Regulation of Agent Banking and Agent Banking Relationships in Nigeria. The vendors are required to submit an application for approval to the CBN, stating the extent of agent banking activities and the responsibilities of relevant parties, as well as the risk management, internal control, operational procedures and any other policy and procedures relevant to the agent banking arrangement. The parties to the agent banking arrangement are also required to enter into service-level agreements and agent banking contracts satisfactory to the CBN.

BOFIA imposes an obligation on financial institutions (including fintech companies operating as digital banks, IMTOs, PSPs and fintech companies whose objectives include investment management) to adopt policies stating their commitments to complying with AML/CFT obligations under subsisting laws and regulations. Such financial institutions are also obligated under BOFIA to implement control measures to prevent any transaction that facilitates criminal activities, money laundering, or terrorism.

More specifically, the CBN AML/CFT Regulations 2022 require financial institutions to, among other things:

• adopt customer due diligence measures for the purpose of identifying and verifying their customers; and
• monitor and report transactions that may be deemed suspicious.       

Various significant enforcement actions were taken in 2023, especially by the SEC. These actions include blacklisting six online trading platforms over carrying out unauthorised investment services on 19 April 2023. One of the major reasons for the blacklisting of these firms was non-registration with SEC. The blacklisted firms include Prime Invest and Primeinv.co, FXBoxed, New Financa LLC and New FX Limited, Axi24, Evolve Consulting LCC, and Trust Fund – Mining Global Pty Limited.

Shortly afterwards, the activities of a cryptocurrency site known as Binance were declared illegal in Nigeria by the SEC on 9 June 9 2023. The SEC in its circular noted that Binance was neither registered with nor regulated by the SEC. In December 2023, the SEC sealed the premises of Ready Finance Investors Limited for engaging in illegal investment and other capital market activities.

Relatedly, on 22 May 2023, the CBN – in carrying out its function as the regulatory body governing financial institutions – released a circular revoking the licences of some MFBs for reasons of contravening the provisions of BOFIA BOFIA and the Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria.

In addition to the primary regulations governing their businesses, fintech companies are subject to general laws/regulations with attendant compliance obligations. However, there is generally no difference in the application of these regulations to fintech companies compared with their application to legacy players.

For instance, the NDPA is the principal privacy law in Nigeria and all companies collecting and processing customers’ data must comply with its provisions. The NDPA mandates operators to maintain security measures for the protection of such data.       

The NIBSS, among other things, initiates and develops an integrated nationwide network for electronic or paperless payments, funds transfer and settlement of transactions. In order to fulfil its mandate, the NIBSS sets verification standards that must be complied with by industry participants who seek to consummate transactions on the NIBSS network.

In addition, the Companies and Allied Matters Act 2020 (as amended) (CAMA) stipulates that all companies in Nigeria must prepare audited financial statements comprising an auditor’s report certified by an independent auditor. However, companies that have not carried on business since incorporation and small companies as defined under Section 394 of the CAMA are exempt from preparing audited financial statements. Thus, all fintech companies operating in Nigeria must be audited annually by certified independent audit firms, except those that fall within the exemption bracket.

Generally, it is not permissible for licensed/registered companies offering regulated products to offer unregulated products and services. Regulated entities operating in the financial services industry submit annual returns for their operations/businesses and undergo an annual examination that will expose any unregulated products/services. Nonetheless, certain participants offer regulated and unregulated products and services through the same legal entity.

The main legislation prohibiting money laundering in Nigeria is the Money Laundering (Prevention and Prohibition) Act 2022 (MLPA). The CBN’s AML/CFT Regulations regulate financial institutions under the CBN’s regulatory purview and the SEC’s AML/CFT Regulations regulate institutions under the regulatory purview of the SEC.

The MLPA, which is more general in its scope, imposes the obligation to conduct KYC checks on financial institutions and designated non-financial businesses (DNFBs). To the extent that an unregulated entity does not fall under the definition of a financial institution or a DNFB, it is not bound by the requirements of the MLPA – given that it relates to financial institutions and DNFBs, including the fulfilment of the KYC requirements. However, a fintech company that holds a CBN or SEC licence and/or falls under the definition of a financial institution or DNFB under the MPLA is required to comply with the KYC requirements as stipulated under the relevant laws and regulations and to make the required periodical returns.       

In August 2021, the SEC issued the Rules on Robo-Advisory Services in Nigeria (the “Robo-Advisory Rules”) in a bid to regulate the adoption and deployment of robo-advisory services in the Nigerian capital market. Pursuant to the provisions of the Robo-Advisory Rules, every robo-adviser is required to comply on an ongoing basis with applicable business conduct requirements set out in the Investments and Securities Act No 29 of 2007 (as amended) (ISA) and the rules and regulations, notices and guidelines issued pursuant to the ISA.

Although the Robo-Advisory Rules are silent on the types of business models that can be established, they recognise that the services provided by robo-advisers can be fully automated – with no human intervention in the entire advisory process.

Robo-advisory solutions have been sparsely deployed in providing financial advisory services in Nigeria, as traditional (human) models continue to remain popular. Nevertheless, numerous investech solutions (such as RiseVest and Cowrywise) use robo-advisory-based interfaces (ie, the process of gathering information from a client/user through surveys and questionnaires, then investing or providing investment recommendations based on such data). Predominantly, the legacy asset management/stockbroking firms have implemented automated solutions more for first-link interfaces with customers.

Robo-advisory services are limited in their deployment in Nigeria. However, regulators have taken a proactive approach in ensuring that robo-advisers – as they expand in the Nigerian market – ensure best execution of customer trades.

In July 2018, the Nigerian Exchange Group Plc (then the Nigerian Stock Exchange, or NSE) issued the Rules on Order Handling and Best Execution (the “NGX Order Handling Rules”), which stockbrokers/dealing members – whether they utilise technology solutions in their service offerings or not – are required to comply with in the execution of customer trades. The Robo-Advisory Rules also seek to regulate the adoption and deployment of robo-advisory services in the Nigerian capital market, and set out compliance requirements and standards that robo-advisers in Nigeria are required to adhere to when ensuring adequate protection for their clients.

Differences in the business or regulation of loans exist in Nigeria based on the nature of the borrower. Loans are typically provided under a commercial bank licence or MFB licence issued by the CBN. Although the commercial banking licence targets the general populace, MFBs target low-income earners, vulnerable groups, informal sector operators, micro-entrepreneurs, subsistence farmers and SMEs, and provide loans with less stringent application and collateral requirements. It is not unusual to see online or digital lenders collaborate with MFBs or obtain MFB licences, thanks to relaxed application and compliance processes compared with the traditional banks, with restrictions on the value of loans that may be granted to individual businesses. However, traditional banks are not prevented from granting loans to similar entities – many of which have already introduced specialised online lending products targeted at SMEs.

Also, fintech companies that are not focused on holding deposits but instead focus on providing lending services within the geographical limits of a state may operate with a money-lender’s licence pursuant to the money-lender laws of the relevant state(s) they operate in. The money-lender’s licence application regime is less onerous than the other regimes; hence the attraction.

In order to improve underwriting processes, online lenders are using deep-learning algorithms to process vast amounts of data and more accurately quantify the risk of default. The introduction of the Credit Reporting Act in 2017, which facilitates credit reporting and gathering, appears to have also strengthened the underwriting process – given that the loans availed through these platforms are mostly provided without collateral. This has allowed the banks to underwrite loans for the mass markets with credit loss rates well below the industry average. Furthermore, the Global Standing Instruction mandate of the CBN became effective in August 2020 and is aimed at facilitating loan recovery from individual borrowers across the financial system.

However, there are no specific regulations that provide for a particular underwriting process for online lenders in Nigeria. Thus, general requirements applicable to traditional players will apply to online lenders.

There is no particular source of funds peculiar to fintech companies for online lending purposes in Nigeria. However, the most popular is lender-raised equity. Other sources of funds include loans (shareholder or third-party), deposit-taking activities, debt capital markets instruments, peer-to-peer bilateral funding, and securitisations.

Loan syndications are quite popular in the Nigerian financial market, albeit mostly with traditional banking institutions as opposed to online lenders – given that the value of loans typically disbursed through online lending platforms tends to be small.

Usually, where the value of a loan to be procured by a borrower is huge, a financial institution will pool together a syndicate of other banks to provide the loan on similar terms. A security trustee is appointed to hold collateral provided by the borrower for the benefit of the syndicate of lenders. A facility agent is also appointed to collect interests and repayments from the borrower and distribute to the syndicate, as well as monitor the borrower’s financial covenants and administer waivers and amendments to the loan documentation. Syndicated loans are also subject to prudential guidelines prescribed by the CBN from time to time.

Payment processors and payment gateways in Nigeria often operate within existing payment rails established by the CBN, such as the Real Time Gross Settlement System. Within this system, payment processors and payment gateways (acting through settlement banks) are able to provide an avenue for real-time processing and settlement of transactions undertaken between customers and merchants.

The CBN regulates cross-border payments and remittances, and issues licences to organisations seeking to provide such services in Nigeria. The most relevant regulations in this respect are the Pan African Payment and Settlement Systems (PAPPS) Guidelines, the Guidelines on International Money Transfer Services in Nigeria (the “IMTS Guidelines”) and the Guidelines on International Mobile Money Remittance Services (the “IMMRS Guidelines”).

Specifically, the IMTS Guidelines provide minimum standards and requirements for international money transfer operations, specify delivery channels for such money transfer operations and provide guidelines for the implementation of processes and flows of international money transfer services. The IMMRS Guidelines were issued to complement the IMTS Guidelines by facilitating foreign exchange transactions through mobile applications.

The PAPSS Guidelines were issued with the objective of regulating cross-border payments within the African Continental Free Trade Agreement framework. The PAPSS Guidelines are aimed at enabling innovation in cross-border trade and access to new markets, thereby providing a simple process that reduces the complexities and costs of foreign exchange for cross-border transactions between African markets and secures instant cross-border payment capabilities to their customers all over Africa.

Fund administrators are primarily regulated under Nigerian law by the ISA and the SEC Rules. The SEC Rules set forth that fund managers may engage in investment advisory services, selection of securities for the fund/portfolio, publication of financial market periodicals, management of funds and portfolios on behalf of investors, or any ancillary activities. As such, where an entity is looking to engage in these services, registration with the SEC as a portfolio/fund manager is mandatory.

Investors or fund advisers may negotiate additional provisions in relevant contracts with fund administrators to ensure they administer their functions with due care and skill in line with investors’ commercial objectives.

In order to assure investor protection, the SEC Rules contain robust provisions around information to be placed in any prospectus, trust deed or contract with fund administrators (including maximum incentive fees chargeable by a fund manager.

The applicable and permissible platforms for trading securities in Nigeria are dependent on the type of security intended to be listed. For debt securities, the current trading platforms permissible are the NGX and the FMDQ Securities Exchange Limited (FMDQ). Equity securities can be traded publicly on the NASD Plc (the “NASD OTC Securities Exchange”) and NGX, whereas commodities can be traded on the AFEX Commodities Exchange Limited, the Lagos Commodities and Futures Exchange, the Nigeria Commodity Exchange, and the FMDQ.

Pursuant to the completion of the demutualisation process of the NSE in 2021, a new non-operating holding company, the Nigerian Exchange Group Plc (the “NGX Group”), was created. The NGX Group has three operating subsidiaries:

• NGX Exchange Limited, the operating exchange;
• NGX Regulation Limited, the independent regulation company; and
• NGX Real Estate Limited, the real estate company.

The NGX is responsible for listing, trading, technology, market data and other core exchange functions. The NGX also provides for the Growth Board, which is a trading platform available to small and mid-sized fast-growth companies in order to raise critical long-term capital at relatively low cost so they can realise their business potential.

Currently, the primary regulation for listing on the NGX is the NGX Rulebook 2015 (as amended from time to time). The regulations for listing securities on the FMDQ include the FMDQ Bond Listing and Quotation Rules December 2014, the FMDQ Short-Term Bonds Registration Process and Listing Rules 2016, the Sukuk Listing Rules 2017, and the FMDQ Commercial Paper Registration and Quotation Rules April 2021, whereas the regulation for listing on the NASD is the NASD OTC Market Rules. These rules are, however, amended from time to time.

In addition to the foregoing, FMDQ Private Markets Limited (a subsidiary of FMDQ Group Plc) provides a platform for the notation of instruments issued by private companies in the capital markets. FMDQ Private Markets provides a medium for the disclosure of activities of private companies in the Nigerian capital markets by serving as an information repository for the recording of these activities via a restricted access portal (the Private Companies’ Securities Information and Distribution Portal) and on either the FMDQ Private Markets Private Companies’ Bonds (PCB) Main Board, Growth Board or Cradle Board, depending on the nature of the issuer and its ability to meet the relevant requirements.

The rules and regulations applicable to each asset class extend to securities listing, transaction monitoring, and compliance by members with the ISA, the SEC Rules and the various rules of the applicable exchanges and trade points. The ISA empowers the SEC to regulate the derivatives market and, in December 2019, the SEC approved and published rules regulating derivatives trading in Nigeria that apply to exchange-traded derivatives and OTC derivatives where specifically mentioned.

Adoption of cryptocurrency in Nigeria had been initially met with skepticism and regulatory uncertainties, until recently. The first positive response was given by the SEC in September 2020 when it published the Statement on Digital Assets and their Classification and Treatment, whereby the SEC – asserting that all digital assets are securities (unless proven otherwise) and thus subject to its regulatory purview – set out a regulatory framework for digital assets.

On the other hand, after two previous circulars warning of the dangers of cryptocurrencies, in February 2021 the CBN issued a circular prohibiting banks and other financial institutions from facilitating transactions involving cryptocurrency and directing said banks and other financial institutions to identify and close down the accounts of persons operating cryptocurrency exchanges within their systems. This directive from the CBN was generally regarded as a “crypto ban”. Following the crypto ban, the SEC released a statement asserting that there was no conflict between its position and the CBN position but that entities affected by the crypto ban would not be admissible to its RI Programme until such entities are able to operate bank accounts in Nigeria.

Notwithstanding the foregoing, in May 2022 the SEC issued the Rules on Issuance, Offering Platforms, and Custody of Digital Assets (the “Digital Assets Rules”, or DAR), which sought to establish a framework for the regulation and operations of digital assets within Nigeria. The general expectation, albeit unconfirmed by either regulator at the time, was that entities registered by the SEC under the DAR would be exempted from the crypto ban imposed by the CBN. Twenty months after the issuance of the DAR, the CBN issued the Guidelines on Operations of Bank Accounts for Virtual Asset Service Providers, whereby it – in essence – confirmed that entities registered under the DAR framework may now operate specialised bank accounts in Nigeria. However, the authors are mindful that – as at the end of 2023 – the SEC was yet to complete any registration under the DAR, despite the high number of applicants.

Aside from the actions of the SEC and the CBN, the National Assembly passed the Nigerian Finance Act 2023 in June 2023. Under the Act, individuals and businesses that buy, sell and trade digital assets (including cryptocurrencies) will be subjected to a deduction of 10% tax on their earnings. Similarly, it will be recalled that VASPs had been included in the MLPA. Relatedly, the CBN had issued a Central Bank Digital Currency called e-naira in 2021 and indicated approval for a stablecoin pegged to the naira called cNGN in 2023.

In essence, cryptocurrency exchanges have had a profound impact on the regulatory environment in Nigeria, and the regulatory changes have in turn affected the fintech market. The absence of a clear-cut regulatory oversight concerning the cryptocurrency exchanges has had a significant impact on the financial market, with almost USD2 million lost by a single cryptocurrency exchange platform called Patricia. This loss remains unaccounted for and there were valid concerns at the time that the loss might spill over to the formal payment/banking system.

It should be remembered that three of the major fintech companies that closed down operations in 2023 are cryptocurrency-related and there has been speculation that the high burn rate in the industry is not unconnected to the regulatory hurdles faced by participants. With the emergence of an accepted regulatory framework without any reference to a crypto ban, it is expected that there would be clear prudential guidelines and remedies to address any other issues that might arise in relation to cryptocurrency exchange platforms.

Companies seeking to be listed on the NGX must comply with the NGX’s listing rules in the NGX Rulebook as well as the relevant provisions of the CAMA, the ISA and the SEC Rules. A company may be listed on the Main Board, the Premium Board, the Technology Board or the Growth Board of the NGX. In addition, the main board of the NGX has three listing standards that are applicable to companies seeking to list on the Main Board. The NGX Rulebook also stipulates other listing requirements for companies seeking to be listed on the Premium Board, the Growth Board and the Technology Board.

Furthermore, the FMDQ Bond Listing and Quotation Rules December 2014 provides for the listing standards for the quotation of securities for companies, mutual funds, exchange-traded funds, and mortgage-backed and asset-backed securities on the FMDQ. Meanwhile, the NASD OTC Market Rules sets out the requirements for a company seeking to be listed on the NASD OTC Securities Exchange.

Also, private companies seeking to note securities on the FMDQ Private Companies’ Securities Information and Distribution Portal must comply with the requirements of the following rules issued by the FMDQ Private Markets, depending on the type of  security:

• Private Companies’ Bonds Noting Guidelines June 2021;
• Private Companies’ Notes Noting Guidelines June 2021;
• Sukuk Noting Guidelines June 2021; and
• Private Companies’ Equities Noting Guidelines April 2022.

There are no general order handling rules applicable to dealers in the Nigerian capital markets regulatory sphere, as each exchange is expected to issue its order handling rules. By way of example, the NGX Order Handling Rules regulate order handling and execution for dealing members. These rules provide that when executing a client’s order, a dealing member must take into account the following criteria for determining the relative importance of the execution factors:

• the characteristics of the client, including the categorisation of the client as retail or institutional;
• the characteristics of the client order; and
• the characteristics of securities that are the subject of that order, including expected return, risk, liquidity and volatility.

Peer-to-peer trading platforms are theoretically subject to the same regulatory regime as centralised trading platforms. However, decentralised peer-to-peer trading platforms have emerged as an alternative to traditional players, especially when the regulatory environment prevented traditional players from effectively participating.

A good example of the foregoing is the use of peer-to-peer trading platforms to fund and withdraw from accounts held with cryptocurrency exchange platforms. It should be recalled that the crypto ban was in place until December 2023, thereby forcing traders in cryptocurrency to embrace peer-to-peer trading platforms so as to allow inflow and outflow of monies without the risk of having their bank accounts closed down.

One issue that relates to the best execution of customer trades is that under the NGX Order Handling Rules, every dealing member must establish and implement an order execution policy to allow it to obtain the best possible result for its client order. Pursuant to this best execution obligation, investment companies are obliged to execute customer orders in a way that would provide the best results for the customers, considering customer preferences such as price, cost, speed, clearing, settlement, custody and counterparty.

There are currently no rules or regulations expressly permitting or prohibiting payment for order flow. However, the NGX Order Handling Rules provide that each dealing member must execute its client’s specific instructions and take all reasonable steps to obtain the best possible result for a client while executing an order or a specific aspect of an order. In addition, the NGX rules on the registration of market makers provide that every applicant who intends to be a market maker must ensure that they have in place a proper supervisory programme and a system to ensure a proper management of conflict of interest.       

Currently, the NGX has a market surveillance and investigation department whose primary mission is to protect the integrity of the capital market from fraud, manipulation and abusive practices and to ensure fair and orderly market and investor protection. Additionally, the NGX launched the X-Whistle, which is a whistle-blowing portal for secure and effective submission of information relating to violations of rules and regulations in the Nigerian capital market. X-Whistle allows any person to raise genuine concerns about unethical or unlawful conduct by market participants on an anonymous basis, with the objective of protecting market integrity. In 2020, the NGX (then NSE) upgraded X-Whistle in order to strengthen investor protection. The upgraded portal features a single repository for complaints, tips and referrals, and the ability to generate detailed and varied reports, with analytics for proper tracking.

Just like the NGX, the FMDQ also has a market surveillance department that monitors members’ trading activities to ensure transparency, credibility and integrity in the FMDQ markets. The FMDQ also takes disciplinary actions against its members for violations of the FMDQ rules and regulations and publishes compilations of these actions on its website monthly. The FMDQ whistle-blowing policy provides an avenue for stakeholders (members, employees, regulators, investors, industry professionals, issuers and the general public) to provide tips regarding activities/issues within the FMDQ portals.

There are currently no regulations in relation to high-frequency and algorithmic trading in Nigeria.

Although high-frequency trading is not prevalent in Nigeria, the NGX Rulebook provides that firms wishing to be considered for market-making functionality when applying for a dealing membership will need to meet higher technological requirement levels, which include the ability to manage, measure and control their portfolio risk using probability algorithms that take into consideration their open positions, borrowing inventory, and collateralised obligations.

The SEC Rules and the ISA do not specifically provide for the registration of market makers in high-frequency and algorithmic trading when they are functioning in a principal capacity.

There are no regulatory distinctions between funds and dealers engaged in high-frequency and algorithmic trading.

There are currently no regulations in relation to high-frequency and algorithmic trading and programmers in respect of same in Nigeria. However, the Robo-Advisory Rules provide that robo-advisers must – at a minimum – disclose in writing the following to their clients:

• assumptions, limitations and risks of the algorithms;
• circumstances under which the robo-advisers may override the algorithms or temporarily halt the robo-advisory service; and
• any material adjustments to the algorithms.

In addition, robo-advisers are required to have policies, procedures and controls in place to monitor and test the algorithms on a regular basis in order to ensure that they are performing as intended and – at a minimum – processes and controls to detect any error or bias in the algorithms.

There are currently no specific laws or regulations governing DeFi in particular Nigeria. However, the authors are mindful that the operations of DeFi platforms are likely to be treated as those of a VASP under the DAR. DeFi platforms may seek registeration under the DAR accordingly.

In Nigeria, financial research platforms and participants are typically not subject to registration. Non-registration of such platforms and participants thereto with the regulators only applies to the extent that such a platform only provides factual financial data, news, research and analytics for engaging in the Nigerian financial markets. Where such platforms proceed to offer investment advisory services and make recommendations as to the types of securities to buy and sell, such platforms would be required to register with the SEC.

Similarly, companies desirous of publishing information about insurance products may be subject to the registration framework under the 2022 Insurance Web Aggregators Operational Guidelines (the “Web Aggregator Guidelines”). The Web Aggregator Guidelines define a web aggregator as a company registered under the CAMA and approved by NAICOM, which maintains a website and provides information on insurance products – especially in relation to price or feature comparison – in a bid to offer leads to an insurer. An existing insurance operator (insurer/broker) who wishes to play this role is required to obtain a no-objection from NAICOM, whereas a non-insurance operator has to obtain a licence from NAICOM via a more demanding application process.

Presently, rumours and other unverified information on financial research platforms are not specifically regulated – although the Web Aggregator Guidelines, for example, stipulate that the content of a web aggregator’s website must be unbiased and factual at all times. In any case, financial research platforms seek to preserve their reputation by ensuring that they gather their information from authoritative sources and that due care and caution is taken in compiling their publications. They may also limit their liability by inserting language in their terms and conditions (T&Cs) to the effect that absolute accuracy, adequacy or completeness of information furnished cannot be guaranteed. Nonetheless, liability for false and misleading statements may be incurred under general common law principles and under Nigerian criminal law.

Presently, there are no ways to curate conversations to avoid “pump and dump” schemes, spreading insider information and other types of unacceptable behaviour on financial research platforms.

Financial research platforms that provide a forum for users to exchange information harbour an inherent risk that such information may be socially and legally unacceptable, and pump and dump schemes are touted. However, some platforms typically reserve the right to deny access to public forums to users. Unacceptable behaviour may prompt a financial research platform to deny access to its site. It should be noted that, in the T&Cs developed by the financial research platform, there is typically language around limitation of liability such that users are aware that they bear some risk when they rely on information posted on the platform in order to make an investment decision.

Typically, insurtech companies may directly provide insurance services if they obtain an insurance licence from NAICOM or may serve as an aggregator where they provide the platform on which individuals can access different types of insurance cover from different insurance companies in Nigeria. Where an insurtech company serves as an aggregator, it would not be required to provide any form of underwriting services. However, to the extent that the insurtech company engages in the business of directly providing insurance services, it would be required to underwrite the insurance cover provided.

There are no specific regulations governing underwriting for insurtech in Nigeria. However, the Prudential Guidelines for Insurers and Reinsurers in Nigeria (the “NAICOM Guidelines”) impose an obligation on insurtech companies directly providing insurance services to provide a risk management framework so as to address material risks, which include underwriting risk. In order to comply with the NAICOM Guidelines, insurtech companies may use sophisticated software to assess risk.

The Insurance Act provides for two main classes of insurance businesses: life insurance business and general insurance business. Life insurance is classified into individual life insurance, group life insurance and health insurance business. General insurance business is classified into fire, motor vehicle, marine and aviation, bonds credit guarantee and suretyship insurance. These main classes of insurance are treated differently by industry participants and regulators.

To the extent that insurtech companies are directly providing insurance services, they will be required to register with NAICOM before commencing operations and the type of insurance business they intend to provide (life, general, composite) will determine the obligations (including minimum capital requirements and registers/records) they must fulfil under the Insurance Act. There are also separate application and registration processes for insurtech companies (directly engaged in insurance services), depending on which of the classes of insurance they provide.

There is no substantive law that regulates regtech providers in Nigeria. However, depending on the nature of tools adopted and the services provided, the activities of regtech companies may be regulated by cross-sectorial laws and/or regulation. An example of such regulation is the NDPA. Accordingly, regtech providers whose activities entail processing of personal data of data subjects would be bound to comply with the provisions of the NDPA. Where the activities of regtech providers involve the processing of personal data of a customer of a financial institution, for example, such regtech company will be directly obliged to comply with the provisions of the NDPA.

Generally, the nature and terms of the contract between financial services firms and regtech providers are predominantly governed by the general principles of contract and the agreed terms of the parties during negotiation. Notwithstanding the existence of such contracts, financial services firms have a duty to ensure that specific contractual terms/clauses are inserted in service contracts to make the services consistent with regulatory provisions.

The CBN, through the Consumer Protection Framework 2016, imposes a duty on financial services institutions to ensure that they put in place effective consumer risk management frameworks to protect consumers’ information and assets. Consequently, financial services firms – when contracting with regtech providers – insist on assurances that the regtechs accurately process and adequately protect consumer details.

The application of blockchain technology in the Nigerian financial services industry is increasingly gaining momentum, as industry players are now utilising same in their service delivery. Notably, in 2022 it was announced that NGX would commence the use of blockchain technology for trade settlement in 2023; however, no further developments were recorded in this regard.

Relatedly, as mentioned in 7.3 Impact of the Emergence of Cryptocurrency Exchanges,there have been ongoing discussions on the adoption of cNGN (a stablecoin pegged to the naira).

Blockchain technology is generally unregulated in the Nigerian financial services industry. However, the adoption of blockchain technology via digital or virtual assets is now regulated in certain respects – particularly following the introduction of the DAR, which introduced a registration framework for initial digital asset offerings within Nigeria or targeting Nigerians, as well as a registration framework for VASPs, digital assets offering platforms, digital assets custodians and digital assets exchanges. The CBN has also relaxed its stance on digital assets by permitting SEC-licensed VASPs to operate bank accounts

Per the SEC’s DAR, blockchain assets may be divided into digital assets and virtual assets. Digital assets mean a digital token that represents assets such as a debt or equity claim on the issuer, whereas virtual assets mean a digital representation of value that can be transferred, digitally traded, and used for payment or investment purposes. Virtual assets do not include digital representation of fiat currencies, securities and other financial assets.

The DAR require all promoters/entities/businesses proposing to conduct initial digital asset offerings within Nigeria (or targeting Nigerians) to submit an assessment form, a draft White Paper, and a legal opinion on whether or not the tokens are securities. The SEC will review the submission and, where the SEC concludes that the assets are securities, the issuer will be required to register such asset. The authors, however, note that the SEC has yet to issue any licence pursuant to these rules.

Blockchain asset trading platforms are regulated under Part D – Rules on VASPs and Part E – Rules on Digital Asset Exchange (DAX) of the DAR.

VASPs are required to register under Part D by filing the appropriate SEC forms and submitting all required documents. VASPs have various obligations, including obligations to monitor and ensure compliance with its rules, ensure fair treatment of its users, and obtain and retain self-declared risk acknowledgement forms from users prior to them investing.

DAX operators are required to comply with general requirements for VASPs and seek registration as a DAX operator under Part E. There are various regulatory restrictions/obligations for DAX operators. These obligations include reporting obligations and the submission of rules to SEC. Perhaps the most prominent restriction is the prohibition of DAX operators from facilitating the trading of any virtual/digital asset unless the SEC has issued a no-objection to the trading of the virtual digital asset.

The DAR provide limits on funds to be raised by an issuer. Specifically, the maximum quantum of funds that may be raised by an issuer within any continuous 12-month period is NGN10 billion or 20 times the issuer’s shareholders’ funds (whichever is lower). The issuer is also required to demonstrate that the gross proceeds to be raised would be sufficient to undertake the project as proposed in the White Paper.

In addition, it is probable that market intermediaries and market operators dealing in such fund derivatives and collective investment will need to be registered or approved by the SEC.

The e-naira and the cNGN are the only virtual currencies/stablecoins recognised by the CBN. It is also unlikely that virtual currencies will be deemed a virtual asset or a digital asset under the DAR. Nevertheless, pursuant to the 2020 SEC Statement on Crypto-Assets, virtual currencies will be treated as commodities if traded on a recognised investment exchange and/or where they are issued as an investment.

Decentralised finance (DeFi) is a relatively new concept globally and in Nigeria. The authors are not aware of any regulations that specifically define DeFi in Nigeria. Thus, DeFi platforms in Nigeria will be subject to extant regulations issued by the SEC (particularly the DAR), the CBN or NAICOM – depending on the nature and scope of the activities being undertaken by the relevant DeFi platform.

NFTs may be regarded as virtual assets or digital assets under the DAR.

In 2021, the CBN issued the Regulatory Framework for Open Banking in Nigeria (“the Open Banking Framework”) in its effort to enhance competition and innovation in the banking system. Subsequently, building on the Open Banking Framework, the CBN – in collaboration with industry stakeholders – developed and issued the Operational Guidelines for Open Banking (the “Operational Guidelines”) in 2023. The Operational Guidelines set out detailed provisions on – among other things – the responsibilities and expectations for the participants in the open banking ecosystem, the framework for sharing information, and customer experience standards.

The ease of accessibility to data occasioned by open banking raises confidentiality and privacy concerns. It is, however, commendable that the Open Banking Framework and Operational Guidelines require participants to comply with all data privacy laws and regulations (including the NDPA consumer protection obligations).

Under Nigerian law, the elements of fraud – otherwise known as “obtaining by false pretence” – are that:

• there was a pretence that emanated from the accused person;
• the pretence was false and the accused person either knew of its falsity or did not believe in the truth of the pretence;
• there was an intention to defraud;
• the item in question is a thing capable of being stolen; and
• the accused person induced the owner/victim to transfer their whole interest in the property.

The foregoing also applies to financial services and fintech in Nigeria. Such entities are required to file returns as to incidents and attempts of fraud recorded within the reporting period.

Regulators in Nigeria are focused on combating all areas of fraud in the financial industry. However, the key areas of focus are money laundering and advance fee fraud and other related offences.