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Nigeria’s Fintech Regulatory Hurdles: SEC’s New Rule And CBN’s BVN Validation Suspension


On Thursday, 8th of April, 2021, the Securities and Exchange Commission (SEC) issued a warning to “unregistered” investment platforms, asking them to desist from offering Nigerians access to foreign securities. The Commission stated that only registered platforms can offer foreign securities to Nigerians. According to SEC’s published statement, “The Commission categorically states that by the provisions of Sections 67-70 of the Investments and Securities Act (ISA), 2007 and Rules 414 & 415 of the SEC Rules and Regulations, only foreign securities listed on any Exchange registered in Nigeria may be issued, sold or offered for sale or subscription to the Nigerian public.”

The regulatory battle between investment-tech platforms and the SEC has been ongoing for a while. In December 2020, the Commission issued a statement which stated that investment platform, Chaka, would be restricted from offering stocks to the Nigerian public. However, on March 26, 2021, Chaka announced that it had taken necessary steps to obtain a newly created license. An excerpt from the company’s announcement says:
“We are pleased to inform our stakeholders and the general public that Chaka has taken the necessary steps to register with the Securities & Exchange Commission of Nigeria (SEC) for a newly created license, as SEC continues to maintain its avowed intention to encourage innovation within the market space.” With the SEC’s recent statement on the “proliferation of unregistered online investment and trading platforms,” things are a bit blurry on the state of regulations for investment platforms like Chaka.

The existence of investment platforms like Chaka, Trove, and Bamboo, has caught the attention of many Nigerians who are excited about having access to a simple means of investing in foreign securities. This has provided a path to financial freedom for many Nigerians, as well as a means to hedge against the constant devaluation of the Naira.

The regulatory hurdle plaguing these investment platforms may, however, wipe away the benefits that the platforms offer to Nigerians, thereby, threatening the streams of income that some Nigerians generate from trading foreign securities through these platforms, as well as leveraging the platform’s services to hedge their wealth against the devaluation of the naira. This would also directly affect the core of the business model of these investment companies, thereby, threatening their survival.

At the moment, the Nigerian fintech space is facing multiple struggles with regulations. The issue between the SEC and investment-tech platforms is one out of many. Just this week, news broke that the CBN suspended the provision of BVN validation service to fintechs and non-bank financial institutions. According to an email sent by Paystack, CBN’s directive will affect every third-party partner. The email reads thus:
“We’ve recently been made aware of a regulatory directive from the primary custodian of Nigeria’s BVN service to all their partners to suspend the provision of the BVN validation service to their third-party partners. In light of this news, we’re hereby informing you that the BVN Resolve service will be temporarily unavailable starting at midnight, today, April 8.”

This directive may have significant negative effects on the operations of fintechs in the country because identity verification or Know Your Customer (KYC) is critical for any financial institution to engage in any business with a customer. The verification system of many fintech startups in Nigeria is centered around BVN. Thus, banning BVN validation for these startups may adversely affect their operations.

Building an alternative identity verification system that does not require BVN could be more expensive because identity verification alternatives like ID verification cost more, which could increase the running costs of fintechs in Nigeria or lead to an increase in the cost of accessing their services by users. However, cheaper available KYC alternatives could suffice for the verification of identity for many platforms.

It is presently unclear why CBN is issuing this directive or why the SEC has been coming for Chaka and other investment platforms. However, we do know that the fintech space has been apparently under intense heat from regulatory bodies in recent times.

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