On 30 June 2021, Goldsmiths Solicitors in collaboration with Afriwise, held the first of its Webinar series which examined the regulatory issues for FinTech to be aware of when doing business in Nigeria. The salient points from that discussion was published by the well respected African Law & Business publication, a very credible pan-African source of news with phenomenal coverage, covering 191 jurisdictions.
This publication no doubt reinforces Goldsmiths Solicitors as a leading law firm in the Nigerian FinTech space.
The head of Goldsmiths Solicitors’ oil and gas and intellectual property (IP) groups, Lagos-based Colin Egemonye, a dual-qualified barrister in Nigeria, and England and Wales, highlighted some key Nigerian regulatory considerations for fintech companies.
These include anti-money laundering and know-your-customer (KYC) checks, as well as data protection and privacy considerations.“How do you store data? How protected are your users? How compliant are you with data protection laws?” Egemonye asked, before noting the reporting obligations such as data compliance reports, a process which “continues throughout your life cycle as a business”.
For those setting up a new fintech business in Nigeria, issues to consider include the overlap of regulatory authorities, regulatory uncertainties and high cost implications, said Egemonye. For instance, “the cost of licenses are quite high”, and there are additional taxes and stamp duty payable.
There is also a lack of unified regulations, he said and “sometimes it is not very clear what the policies are”. In addition, there is a lack of stringent regulatory requirements and it can take a very long time to obtain a license, he explained. He added that there are many agencies in Nigeria and they often they say different things.
Fintech companies can overcome these issues By adopting international best practices and adhering to international standards. In addition, fintechs could establish better relationships with regulators, he said: “It is very important that fintech companies establish these relationships and maintain them.”
Establishing international affiliations or reciprocal agreements could be beneficial, as well as adopting corporate social responsibility measures. This could involve providing training for regulators which in turn could help to build relationships with regulators, he noted.
TECHNOLOGY COMMERCIALISATION AND IP
For many fintechs, it is also important to be able to monetise IP rights, said Egemonye, emphasising that IP protection can bridge the gap between technology theft and commercialising technology. It can also protect fintechs from unfair competition. It also “protects your names, your symbols and your slogans”, he said. In addition, the protection of IP rights is vital for venture capital.
However, Egemonye queried whether trade secrets are actually protected in, for example, confidentiality and non-disclosure agreements. He warned that fintechs must be aware of the protection they are actually afforded in these types of contracts.
CORPORATE GOVERNANCE and TAX ISSUES
There are a number of corporate governance considerations for fintech companies in Nigeria, including directors’ reporting duties, disclosure obligations and having the right monitoring and control procedures in place.
Tax issues remain, with Egemonye saying:
“One would have thought by now there would be specific tax laws in Nigeria.” The lack of specific tax laws means fintech companies are subject to the general tax laws applying to companies, including company income tax, value added tax, capital gains tax and stamp duty, he said.
However, some companies may be eligible for relief or a deduction in company income tax and value added tax. There is also a tax exemption on interest on foreign loans for some companies, he said. However, these incentives “are not specific to fintech companies” Egemonye noted.
EMERGING REGULATORY ISSUES
There are “quite a lot of emerging issues fintech companies need to be aware of” he continued, however, there have been lots of improvement from governments and their interest in technology and fintech companies. Furthermore, “in Nigeria there is a renewed government interest in technology generally”.
Nigeria’s Securities and Exchange Commission has a Regulatory Incubation Programme which is specifically designed for fintech companies operating and wanting to operate in Nigeria. It aims to address some of the regulatory issues for technology-focused companies.
One of the biggest legal constraints in Nigeria will be faced by those in the e-commerce sector, a sector which lacks a specific law, said Egemonye, although the Electronic Transactions Bill 2019 addresses certain e-commerce issues, but has not yet been enacted.
Egemonye concluded: “The fintech sector is fast paced and fluid” and there has been “lots of renewed interest generally in Nigeria”.
Fintech has been booming in Africa over the last few years.
Nigerian fintech Global Accelerex received a USD 20 million investment from private equity firm Africa Capital Alliance in November last year.