On 16 June 2021, the Nigerian Securities and Exchange Commission (SEC) announced an imminent roll-out of an Incubation Programme called SEC Regulatory Incubation (RI) programme for FinTechs operating or seeking to operate in the Nigerian Capital Market.
There is no doubt that FinTech operations in Nigeria have continued to gain enormous grounds. In order to keep up with the pace of developments in that space, regulators such as SEC have continued to update their rules and regulations in order to effectively regulate the FinTech space without compromising market integrity and investor confidence.
The RI programme is to be launched in the third quarter of 2021 and will only admit identified FinTech business models for a one-year period.
What is the Regulatory Incubator?
There has been growing concern among FinTech operators in Nigeria regarding new FinTech business models whose kinds of operations, though may have semblance of business to be regulated by SEC are not specifically designated to be regulated by SEC. As a result, this SEC Regulatory Incubation will allow these FinTech companies operate under some prescribed basic but limited provisions for a specified period.
This practice will enable SEC to have a first-hand supervision of these new models of providing Capital Market services before it becomes fully established either by proposing amendment to existing Rules or by making new ones.
These requirements apply to Fintech seeking registration and whose function or operations have been reviewed and deemed requiring an amendment to existing Rules or the creation of completely new ones.
Who will qualify for Admission into the RI Programme?
The programme applies to all FinTech businesses who consider that there is no specific regulation governing their business models or who require clarity on the appropriate regulatory regime that would apply to their businesses.
It also applies to all new business models and processes that require regulatory authorisation from SEC to continue carrying out full or ancillary technology-driven Capital Market activities. For instance, this will be a good opportunity for any digital asset exchanger.
There are certain pre-qualification requirements which applicants must meet to qualify for admission. These pre-qualification requirements include:
- Applicant shall be using innovative technology to offer a new type of product or service, or applying innovative FinTech to an existing product or service;
- Applicant shall be ready to take-off with live customers and operate within the purview of the SEC Regulatory Framework;
- The product or service shall be one that addresses a problem (compliance or supervision) or brings potential benefits to consumers or industry; and
- Applicant shall complete the FinTech Assessment Form and discuss the proposal with the Commission at an early stage.
Participation will involve two stages. The Initial Assessment Phase and the Regulatory Incubation Phase.
The above category of FinTech business can participate by submitting the relevant assessment forms provided by SEC for SEC’s assessment.
Depending on SEC’s assessment of each form together with meeting every other pre-qualification requirement, SEC will communicate with the FinTech companies selected for the programme ahead of each take-off-date.
Regulatory Incubation Operations Requirement
There are guidelines provided for certain operation requirements which must be met by the FinTech operator for regulatory incubation operations. These include that the FinTech operator shall:
- have an office in Nigeria;
- undertake to comply with AML/CFT requirements;
- be deemed fit and possess relevant skills in financial services and/or technology; and
- undertake to provide full disclosure to the Commission on the business through an incubation implementation plan etc.
Restrictions and Conditions
Please note that there are conditions attached for participating in the RI. All participating FinTech operators must among other conditions and restrictions comply with the following
- must not conduct any other investment business except as presented to the Commission;
- shall be under regulatory incubation only for a maximum period of one-year after which they shall apply for registration if found eligible or discontinue the activity.
- shall have the capacity to on-board a maximum of 100 clients who shall be fully informed of the service or product prior to onboarding. Subject to the Commission’s appraisal and approval, the firm may on-board additional clients if the need arises. Firms that are already in operation shall maintain their existing clients and cease on-boarding new ones.
A FinTech operator participating in the RI can be terminated upon failure to abide by any of the above conditions and restrictions in addition to any other grounds which SEC deems fit.
As has been mentioned above, an interested FinTech operator shall first and foremost prepare and file an assessment form with SEC together with an application form and a processing fee of ₦200,000.00.
The introduction of this RI presents a good opportunity for FinTech operators who need clarity on whether or not SEC can regulate their innovative business model. This helps in answering their questions of whether they would be required to obtain any relevant licences from SEC in order to comply with regulatory requirements.
FinTech operators who fall under this category will first and foremost be pre-qualified before they are admitted for the RI. These FinTech operators are advised to fill SEC’s assessment forms together with an application fee and forms and submit to SEC for their initial assessment.
Please note that the content of this Article is for general guidance on the Subject Matter. It is NOT and is not to be taken as giving legal advice.