A Federal High Court in Abuja, on Wednesday, 17th of August, 2021 granted the request of the Central Bank of Nigeria (CBN) to freeze the accounts of four fintech companies, namely, Risevest Technologies Limited, Bamboo Systems Technology Limited, Bamboo Systems Technology Limited OPNS, Chaka Technologies Limited, CTL/Business Expenses, and Trove Technologies Limited, for 180 days. This development comes at the heels of investigations by the chief regulatory body on allegations of these fintechs operating without a license as asset management companies, and utilizing foreign exchange sourced from the Nigerian FX market for purchasing foreign bonds/shares in contravention of the CBN circular (TED/FEM/FPC/GEN/01/012), dated July 01, 2015. The circular, titled, ‘Re-Inclusion of some imported goods and services on the list of items not valid for foreign exchange in the Nigeria foreign market’, highlighted 41 products not valid for foreign exchange at the Nigerian foreign exchange window. The last product on that long list of items was the Euro bond/foreign currency bond/shares. This was the premise for clamping down on these fintech companies who were providing average Nigerians access to foreign financial instruments.
The motion was filed by Chief Michael Kaase Aondoakaa, SAN, on behalf of the CBN Governor, with claims that the foreign exchange deals occurring under their ambit, was only further weakening the naira relative to the US dollar. This action by the CBN comes on the back of the recent ban on the sale of foreign exchange to Bureau De Change (BDC) operators in Nigeria. Summarily, the general reasons behind the verdict of the Federal High Court, and the follow-up action of the CBN are:
- Non-documentation by these fintechs in violation of CBN’s foreign exchange manual, and the Monitoring and Miscallenous Provisions Act.
- Access to and procurement of foreign exchange via banks from the Nigerian foreign exchange market via several BDCs.
- Transfer of cash deposits of more than $10,000 to various overseas accounts, contrary to the provisions of extant laws and regulations.
- Trading in foreign securities, bonds, shares and cryptocurrencies, contravening CBN’s directive in the February 5, 2021 and July 1, 2015 circulars.
Earlier this year, in April, these fintech startups had been hard hit by the regulatory hammer of the Securities and Exchange Commission (SEC), faulting their claims to having a partnership with Capital Market Operators (CMOs) which have been registered with the market authority. The SEC had maintained that these fintech companies were operating within the country through sales or issuance of foreign stocks whose entities were not registered within Nigeria. With this earlier clampdown, these fintech startups had lost a lot of users and were only just regaining their market image and reputation.
In a response to the ban, Risevest and Bamboo have reassured its users of the safety and accessibility of their funds and investments, and that negotiations with the regulators are ongoing, ensuring that all matters are resolved amicably.
Many Nigerian startups are apprehensive of the regulatory climate in the country, following a number of crackdowns and policy shifts that have left these startups struggling to survive. Especially in the fintech space, where a lot of growth in investments has been recorded recently, regulations have emerged that have put many startups in this niche in precarious positions. Commentators have decried the move by the apex bank, pleading that these startups are not scapegoated in a bid to rescue the falling Naira. The Central Bank of Nigeria has, however, reiterated its commitment to implementing policies for the regulation of fintech-related services in the Nigerian financial sector. Its aim remains to facilitate an enabling ambiance for the delivery of financial services in an effective, efficient and sustainable manner while ensuring financial stability in Nigeria.
In that light, on August 3, 2021, the CBN issued a new governing regime for Payments Service Holding Companies (PSHCs) detailing regulations and guidelines on mobile money operations, switching and processing, and payment solution services. These guidelines offer clarity on the structure, licensing, ownership and control, corporate governance issues, permissible and non-permissible activities, prudential requirements, and shared services arrangements between PSHCs and their subsidiaries. Other regulations around open banking, digital sub-broker regulations for capital market operators, and cryptocurrency trading and use have emerged within the past few months.