THE LEGAL FRAMEWORK OF FINTECH IN NIGERIA.

Before we begin, let's answer a question people ask frequently.

What exactly is fintech?

Fintech, or financial technology, is the term used to describe any technology that delivers financial services through software, such as online banking, mobile payment apps or even cryptocurrency. Fintech is a broad category that encompasses many different technologies, but the primary objectives are to change the way consumers and businesses access their finances and compete with traditional financial services.

Financial technology has been around for decades, but over the last few years, fintech companies have revolutionized the way people interact with financial services.

Over the past few years, fintech companies have disrupted virtually every aspect of the financial industry. Ten years ago, people had to visit a bank or financial company to apply for a mortgage, small business loan or simply transfer funds from one bank to another. Today, fintech has made it possible to invest, borrow, save and transfer funds through online and mobile services without ever stepping foot inside a bank. Though traditional institutions were slow to adopt fintech solutions, both startups and established companies are betting on digitized financial services.

Laws Regulating Fintech in Nigeria

It is believed to a great extent that there are no Fintech Regulations in Nigeria basically because there are currently no regulations with the word 'FINTECH' written on their covers. However, there are legislations regulating the operation of financial institutions in Nigeria and those legislations apply to fintech companies and startups as well.

Also, the Central Bank of Nigeria released certain guidelines which regulate certain areas of fintech such as Mobile Money/ E-Wallets, USSD Financial Services, International Money Transfer, fintech Testing, Data Protection, Cyber Security and Consumer Protection.

Legislations

The legislations regulating the activities of all financial institutions in Nigeria are include:

1. Companies and Allied Matters Act (as amended), 2020
2. Investment and Securities Act, 2007
3. Securities and Exchange Commission Rules (as amended), 2013
4. Federal Competition and Consumer Protection Act, 2018
5. National Insurance Commission Act, 1997
6. Money Laundering (Prohibition) Act, 2011
7. Economic and Financial Crimes Commission (Establishment) Act, 2004
8. Terrorism (Prevention) Act, 2011
9. Advance Fee Fraud and other Fraud Related Offences Act, 2006
10. Cybercrimes (Prohibition, Prevention, Etc) Act, 2015
11. Nigeria Data Protection Regulation, 2019
12. Bank and Other Financial Institution Act, 2020
13. Foreign Exchange (Monitoring and Miscellaneous) Provision Act, 1995
14. NCC Value Added Services and Aggregator Framework, 2018.

Central Bank of Nigeria Guidelines

The guidelines introduced by the CBN for the purpose of regulating Fintech in Nigeria include the followings:

1. The CBN Guidelines on Mobile Money Services in Nigeria, 2015
2. The CBN Guidelines for Licensing and Regulation of Payment Service Banks in Nigeria, 2018
3. The CBN Risk-Based Cyber-Security Framework and Guidelines for Deposit Money Banks and Payment Service Providers, 2018
4. The CBN Microfinance Policy, Regulatory and Supervisory Framework, 2011
5. The CBN Guidelines on Operations of Electronic Payment Channels in Nigeria, 2016
6. The CBN Regulation for Bill Payments in Nigeria, 2018
7. The CBN Regulatory Framework for the Use of Unstructured Supplementary Service Data (USSD) for Financial Services in Nigeria, 2018
8. The CBN Guidelines on International Mobile Money Remittance Service in Nigeria 2015
9. The CBN Regulation for Direct Debit Scheme in Nigeria 2018
10. The CBN Guidelines on International Money Transfer Services in Nigeria, 2014
11. The CBN Regulation on Electronic Payments and Collections for Public and Private Sectors in Nigeria, 2019
12. The CBN Revised Guidelines for Finance Companies in Nigeria, 2014

Let's discuss a few of these guidelines to know their objectives and the area of fintech they regulate

CBN Guidelines on Operations of Electronic Payment Channels in Nigeria

These guidelines were made to regulate payments made from Point of Sale Machines (POS), Mobile Point of Sale (MPOS) Devices, Automated Teller Machines (ATM's) and also those made through the Internet.

The Guidelines outlines stakeholders to include: Card Issuers, Card Schemes, Merchants, Switches, Merchant Acquirers, Payments Terminal Service Aggregator (PTSA), Cardholders and Payments Terminal Service Providers (PTSP).

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.

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 some of these guidelines.

Regulatory Framework for the use of Unstructured Supplementary Service Data (USSD) in Nigeria (The Regulation)

The CBN, on 1st June 2018, published a Regulatory Framework with the aim of establishing rules and preventing the abuse and breach of USSD financial services in Nigeria.

The Regulation lays out potential participants in the USSD ecosystem and prescribes that MMOs and CBN licensed financial Institutions (other than MMOs and with a CBN letter of no objection), should obtain a license from Nigerian Communications Commission (NCC) to operate USSD services.

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.

It also states that Financial Institutions involved in USSD transactions should be responsible for setting up dispute resolution mechanisms for customer complaints.3

The Mobile Money Guidelines

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.?The Mobile Money Guidelines mandate a Mobile Money Operator to;

• Be licensed 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 main objectives of the Mobile Money Guidelines are to specify the participants in a mobile money transaction, the minimum and business requirements for participants and promote the safety of mobile money services in Nigeria.

The Mobile Money Guidelines specifies the technology standards and user interface for Mobile Money Services and mandate that the user interface does not provide access to confidential information and only secure channels should be used in providing Mobile Money Services.

The Mobile Money Guidelines also provides for the roles and responsibilities of participants such as; banks, licensed corporate organisations, infrastructure providers,?mobile network?operators and consumers.

The Guidelines on International Money Transfers (International Money Transfer Guidelines)

The CBN in 2014, released the International Money Transfer Guidelines which prohibits a person or an institution from providing international money transfer services, except they have obtained a license from the CBN (on application to the Director, Trade and Exchange Department, CBN).

In it, there is also contained 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.?The International Money Transfer Guidelines further provide for dispute resolution, remedial measures and sanctions where there is failure to comply.

CONCLUSION

In conclusion, there is a legal framework for fintech in Nigeria and the CBN is actively regulated the activities if the growing fintech ecosystem to ensure the users are safely operating on a technology that can be of great advantage but also bears with great risk which might affect a large number of the population if not regulated properly.