By Edna Ukwuani-Nneji
Financial Technology, also known as Fintech is an emerging area of interest in the Nigerian financial sector. It is an innovation that disrupts traditional ways of conducting financial transactions by digitizing processes that were previously handled with paper money and human interaction.
This article is aimed at explaining the concept of Fintech, as well as examining the steps and procedure for registering a Fintech company in Nigeria.
What is Fintech?
Fintech refers to the integration of technology into offerings by financial services companies in order to improve their use and delivery to consumers.
Since its inception, it has made financial services more convenient, efficient and accessible to the general public, even with little or no knowledge about financial markets.
Sanicola, Lenny defines it thus; “the new applications, processes, products or business models in the financial services industry, composed of one or more complementary financial services and provided as an end-to-end process via the internet.”
Its primary goal is therefore, to improve financial processes and increase automation in the industry.
Early in the 21st Century when Fintech emerged, it initially applied to the technology employed at the back-end systems of established financial institutions; however, in recent times, there has been a shift to more consumer-oriented services to include different sectors and industries such as education, retail banking, fund-raising and nonprofit, investment management, to name a few, without the assistance of a person. It Is now utilised in the front, middle and back office operations.
Registering a Fintech Company in Nigeria
- Identify Your Domain and the Applicable Law(s)
Before registering a Fintech company, start-ups are advised to first identify what sub-sector of the industry they want to deal in, in order to know if it is regulated or restricted under Nigerian law(s). It is therefore necessary to consult the services of a savvy legal practitioner to help them identify these areas prior to registration.
One of such sub-sectors is dealing in virtual currency, which is restricted by the Central Bank of Nigeria (CBN), as they are not legal tender in Nigeria and therefore, has no legal protection in Nigeria.
- Know the Applicable Laws and Regulations in the Fintech Industry
Although Fintech has rapidly evolved to disrupt and reshape the finance and commerce sectors in Nigeria, there is yet to be a Fintech-specific statute in force in Nigeria. This lacuna has consequently engendered the erroneous notion that the Nigerian Fintech industry is uncharted territory.
However, notwithstanding the inexistence of a distinctive Fintech-specific regulation, some regulatory agencies have issued several Guidelines and Regulations to Fintech activities in Nigeria.
These regulatory agencies include:
- The Central Bank of Nigeria (CBN)
- The Nigerian Stock Exchange (NSE)
- Nigeria Communication Commission (NCC)
- The Corporate Affairs Commission (CAC)
- The Securities & Exchange Commission (SEC)
- National Office of Technology and Acquisition Promotion (NOTAP)
- National Insurance Commission (NAICOM)
- National Information Technology Agency (NITDA)
The regulations on Fintech activities in Nigeria are:
- The Company and Allied Matters Act (CAMA) LFN 2004, regulated by the Corporate Affairs Commission (CAC)
- Banks and Other Financial Institutions Act (BOFIA) 2004, regulated by the CBN
- Central Bank of Nigeria Act, regulated by the Central Bank of Nigeria (CBN)
- Circulars and Guidelines issued by the CBN
- Cyber Crimes(Prohibition and Prevention) Act 2015
- Foreign Exchange (Monitoring & Miscellaneous Provision Act)
- Investment and Securities Act
- Securities & Exchange Commission Rules 2013
- Nigeria Communication Commission Act
- Nigerian Data Protection Regulation, regulated by NITDA
- The Nigerian Insurance Act
- Know the Regulated Fintech Activities in Nigeria.
Among all the different sub-sectors of Fintech, the following are currently regulated by existing Nigerian laws:
- Digital Payments
a) Mobile Money/ E-Wallets
b)USSD Financial Services
c) International Money Transfer
- Asset Management
- Data Protection
- Cyber Security
- Consumer Protection
- Register with the Corporate Affairs Commission(CAC):
Any person desirous of setting up a Fintech start-up in Nigeria must first incorporate a Limited Liability Company (LLC) with the Corporate Affairs Commission. This also applies to foreign companies that wish to set up any kind of business in Nigeria.
The procedure for company registration with the CAC is as follows:
- Check for availability of proposed company name and reserve a new Name;
- Complete pre-registration Form- CAC 1.1
- Pay filing and Stamp Duties fees. (steps 1 to 3 can be completed on the Company Registration Portal (CRP) of the Corporate Affairs Commission (CAC))
- Prepare the Memorandum and Articles of Association (MEMART) of the company. The CAC has provided a generic format on their portal, however, to tailor MEMART to the object(s) of the company, it is advisable that it is drafted professionally by a Legal Practitioner.;
- Prepare, sign and scan copies of your pre-registration documents as follows:
- Form CAC 1.1;
- Recognised form of identification forDirector(s), Subscribers and Secretary,
- Proficiency certificates, where applicable;
- Evidence of payment of fees in (iii) above to the CAC
- Upload the scanned documents for processing
- Submit the original hard copies of the documents in (v) above to your preferred CAC office, to obtain your Certificate of Incorporation and the Certified True Copies of the documents.
- Declaration of compliance by a legal practitioner.
- Companies with foreign shareholders are required by law to:
- register with the Nigeria Investment Promotion Commission (NIPC),
- register with the National Office of Technology Acquisition and Promotion (NOTAP), and
- obtain a business Permit,
Incorporation may be commenced online by an individual applicant or through a CAC Accredited Agent on the CAC online portal. Where one commenced the incorporation by oneself, one still requires the services of a legal practitioner for an attestation in (viii) above. Company directors are exempt from this requirement, but they must show evidence of membership of the company.
- Obtain the necessary licenses.
After identifying your domain and knowing the applicable regulatory laws and bodies that govern Fintech, it is good to know and obtain the required licenses.
The Central Bank of Nigeria has introduced a licensing regime for all categories of Payment Service Providers (PSP) and financial technology companies in Nigeria. It is noteworthy that this regulation does not cover crowdfunding and virtual currencies like Bitcoin.
The PSP Licenses are as follows:
a) PSP SUPER LICENSE
b) PSP STANDARD LICENSE
c) PSP BASIC LICENSE
- Check if You Qualify for Government Funding and Incentive Schemes
Generally, there are no special funding requirements or special incentive schemes for investment in the Fintech industry in Nigeria. However, there are some incentives adopted by the Nigerian government to encourage both local and foreign investors in all sectors to invest in Nigeria, which may be relevant to investors in the Fintech industry. These incentives are:
a) Pioneer status,
b) Incentives for Venture Capital Companies, under the Venture Capital (Incentives) Act (VCA), V2, LFN 2004, and
c) Deduction for Research & Development.
In summary, incorporation with the CAC is the first step to registering a Fintech start-up in Nigeria; after which the company shall apply for the requisite licenses, depending on the category of Fintech service one embarks on. Also, dealing in the Fintech industry is capital intensive, therefore, it is recommended that a start-up is well self-funded; otherwise, it may consider building partnership(s) with, or acting as subsidiaries to other big players in the industry.
IMPORTANT NOTICE*** The information provided in this paper does not and is not intended to constitute legal advice. The contents of this paper are for general information purposes only. Please formally engage a lawyer in the relevant jurisdiction before acting on any information in this paper.