In the last few years, the Nigerian Financial Technology (FinTech) space has witnessed exponential growth and has attracted both local and international investors. Nigeria is home to some unicorns especially in the payments segments of the financial services sector. Like in most jurisdictions, the regulators appear to be playing ‘catch up’ with FinTechs and it has been said that there appears to be an over regulation of FinTechs in Nigeria.

FinTechs in Nigeria are regulated by a number of regulators through laws, guidelines and regulations. While there appears to be concerns that FinTechs are overregulated in Nigeria in view of the series of regulations that mandatorily apply to their operations, there is also the view that the idea of overregulating FinTechs is a myth.

The article discusses the regulation of FinTechs in Nigeria in order to explore whether the concerns relating to the overregulation of FinTechs in Nigeria is a myth or reality.

The Reality of Overregulation of FinTechs in Nigeria

The main regulators regulating FinTechs in Nigeria include the Central Bank of Nigeria (CBN), the Nigerian Securities and Exchange Commission (SEC), Nigerian Deposit Insurance Commission (NDIC), the Nigeria Data Protection Commission (NDPC), Federal Competition and Consumer Protection Commission, etc.

These regulators have taken a robust approach to regulating the business activities and operations of FinTechs in many areas including licensing, consumer protection, data protection, risk management, technical requirements, etc.

These regulatory activities have prompted the discussion about the possibility of overregulation of FinTechs in Nigeria especially as sometimes there are conflicting signals coming out from different regulatory agencies. Some of these issues include the following:

1. Rigid Licensing Regime: Mandatory registration and licensing obligations are imposed on FinTechs before the commencement of any business operations in Nigeria by both the Central Bank of Nigeria and SEC.

There are mandatory, regulatory and documentary requirements for these registrations and licensing which are usually rigid and strict and may vary depending on the product offerings, business activities or nature of the FinTech company. These requirements are sometimes said to be very rigid and there are hardly any flexibilities or discretions on the part on the regulators.

2. Overlapping Regulatory Oversight: FinTechs in Nigeria are regulated by multiplicity of agencies. This multiple regulatory oversight creates a complex and confusing regulatory and compliance environment.

For instance, a digital money lending company licensed by the CBN and required to comply with the consumer protection framework of the CBN may also be required to comply with FCCPC’s regulations requiring registration with the FCCPC.

These two requirements are not the same and usually lead to overlapping and sometimes conflicting regulatory requirements.

In the past, the CBN had restricted banks from opening and operating bank accounts for digital/virtual assets companies despite the fact that SEC recognizes cryptocurrencies as digital assets and issued clear guidelines which regulate the operation of cryptocurrency and virtual asset companies in Nigeria.

The new Investment and Securities Act, 2025 somewhat seeks to address some of these conflicting positions. The jury is however still out on how the regulators would enforce the provisions of the new law.

3. Compliance with Established Minimum Standards: Minimum standards are prescribed and mandatorily required for equipment and technologies to be deployed in the provision of financial services by FinTechs in Nigeria.

For instance, the CBN provided the minimum standards for the equipment, applications and processing systems required for the provision of contactless payment through the Guidelines for Contactless Payments in Nigeria, 2023.

Thus, the systems to be deployed for contactless payments must comply with Advanced Encryption Standards, Payment Application Data Security Standard, ISO27001 – Information Security Management System, etc. for the operation of any contactless payment in Nigeria.

4. Prior Approval: There are a number of instances where CBN would require prior approval before certain actions could be undertaken by a FinTech company.

One of such instances is the requirements for potential operators in the FinTech space to obtain CBN’s prior approval in the form of Approval-in-Principle (AIP) before its promoters could apply to the Corporate Affairs Commission (CAC) for the incorporation of their companies. The CAC on the other hand will not usually require for Approval-in-Principle before it incorporates a FinTech company.

However, a promoter who incorporates a FinTech company before applying to the CBN for AIP could face regulatory challenges in obtaining the license as the CBN regulations with respect to these FinTech licenses are clear – do not incorporate before applying for AIP.

CBN also requires operators in the financial services sector to obtain prior approval and ensure that individuals to be employed are not blacklisted for employment in the sector.

With the bureaucracy in the CBN, it usually takes weeks or even months before these approvals could be obtained which can delay the commencement of business operations of the FinTech companies.

5. Stringent Capital Requirements: The capital requirements for various FinTech licenses from the CBN have been criticized and said to be very burdensome especially for start-ups.

These capital requirements have been said to make the provision of financial services unnecessarily expensive. For examples, the capital requirement for Payment Solution Service (PSS) license is 250 million Naira, Mobile Money Operators (MMO) license is 2 billion Naira, etc. these are expensive and not affordable for many potential players in the FinTech space.

These enormous capital requirements will inevitably stifle innovation and hinder financial inclusion. In 2018, the CBN increased the capital thresholds for Microfinance Banks (MFBs) from 100 million Naira to 1 billion Naira for state MFBs, and from 2 billion Naira to 5 billion Naira for national MFBs thereby causing many FinTechs to go out of business as they simply could not meet the new capital requirements.

6. Frequent Regulatory Changes and Issuance of New Regulations: The Nigerian FinTech regulatory environment is constantly evolving and this is closely marked by regulators issuing frequent amendments to guidelines and regulations. In some circumstances, guidelines and regulations are superseded with the issuance of new ones that introduce additional onerous compliance obligations, revised licensing fees, etc.

These frequent changes create regulatory compliance burden on FinTechs, requiring them to ensure that their processes, systems and operations comply with the latest regulations or amendments. For instance, the CBN issued a circular on 6 May 2024 requiring all financial institutions to reconfigure their systems for the purpose of deducting cybersecurity levy within a stipulated period.

However, barely two weeks after the CBN directive, the CBN circular requiring financial institutions to reconfigure their systems for the cybersecurity levy deductions was withdrawn by the CBN. Many financial institutions would have incurred cost as a result of taking steps to comply with the circular failing which they may be sanctioned by the CBN.

7. Compliance Costs: The many regulations hurdle that FinTechs are required to comply with, are quite expensive thereby leading to increased and expensive compliance costs. Many startup FinTechs struggle to absorb these costs. These enormous compliance costs together with operational costs create regulatory and operational burden for many FinTechs which if not managed properly, could prevent them from upscaling and ultimately may lead to their demise.

Overregulation as a Myth in Nigeria

Despite the various issues which show that FinTechs appear to be overregulated in Nigeria, there are various reasons why it is arguable that the nature of regulations of FinTechs is very necessary.

1. Consumer Protection: The regulation of FinTechs in Nigeria is necessary for the purpose of ensuring consumer protection. Many regulations put in place by the regulators such as customer due diligence requirements, FCCPC’s registration requirement, data compliance, etc. are designed to safeguard consumers in areas such as fraud, predatory lending practices and financial crimes, breach of data, etc.

The FCCPC’s registration requirement for digital money lenders was put in place to protect consumers from exploitative practices such as breach of data privacy, threats and intimidating tactics for loan recovery, etc.

Without FinTech regulations, consumers may be subject to arbitrary charges, data breaches and delayed or lack of resolution of legitimate complaints, etc.

The capital requirements and the strict licensing regime put in place by the CBN also ensure that only promoters that are financially capable are admitted into the Nigerian FinTech ecosystem. In doing so, the CBN ensures that consumers’ funds are protected while in the custody of licensed FinTech operators.

The SEC also requires the registration of players in the Nigerian capital market to enable it bring the players within its regulatory purview. SEC has consistently advised Nigerians against investing in unregistered investment schemes and issued notices notifying Nigerians of fraudulent/unregistered investment schemes.

The effort by the SEC is to ensure consumer protection by ensuring that Nigerians do not invest in fraudulent/unregistered investment schemes and thereby lose their funds. Despite the efforts of the SEC, many Nigerians invested and lost about 822 million USD in CBEX, a Ponzi Scheme which promised Nigerian investors high returns on their investments. Without regulation of FinTechs, there would be little to no consumer protection.

2. Stability and Security of the Financial System: The regulators issue regulations to address important issues that may affect the stability and security of the financial systems if left unregulated.

To ensure the security and stability of the financial system, the regulators such as the CBN have put in place the minimum standards that must be complied with for any FinTech company to operate in Nigeria. These minimum standards are put in place to safeguard the financial system and also protect consumers whose funds and data may be stolen by cybercriminals without the adoption of the minimum standards.

The CBN issued the Risk-Based Cybersecurity Framework and Guidelines for Other Financial Institutions, 2022 providing for the minimum cybersecurity measures to be taken to ensure their continued safe and secured operations. The CBN also requires compliance with Anti-money laundering requirements by promoters applying for financial licenses from the CBN.

These efforts by the CBN are to ensure that the financial system remains stable, reliable and secured for consumers and other players in the financial sector.

3. Supportive Regulatory Initiatives: The regulatory sandbox and the regulatory incubation programs operated by the CBN and SEC respectively tend to provide potential operators in the financial services sector with regulatory support to ensure that their innovative products are tested in a regulated environment fostering innovation while also ensuring compliance.

The CBN has also issued regulations which ensures that the provision of financial services is not restricted to the use of traditional bank account number through regulations that allow the creation and operation of e-wallets, opening of bank accounts with phone numbers, etc.

4. Continued Growth of the Fintech Sector: Despite the enormous regulatory challenges which FinTechs tend to face in Nigeria, they have continued to experience exponential growth. Nigeria is home to FinTech unicorns which include Flutterwave, Opay, Moniepoint, etc. This shows that when followed to the letter, the regulations do not necessarily inhibit the normal operation or growth of FinTechs or limit their profitability but instead provide them with a necessary framework for growth.

Conclusion

We have discussed the key areas where there appear to be strict and burdensome regulations of FinTechs in Nigeria in what could be regarded as overregulation. We have also considered some of the key issues which show that strict FinTech regulations are necessary especially for ensuring the stability and security of the financial system and the protection of consumers.

There are valid arguments on both sides which show that FinTech overregulation in Nigeria may be a reality and may also be a myth. Whether FinTechs are overregulated in Nigeria would depend on which angle one decides to look at it.

When viewed from the necessity of ensuring consumer protection, fraud prevention, KYC, anti-money laundering, the stability and security of the financial system, one could argue that FinTech overregulation in Nigeria is a myth.

However, when viewed from the rigid licensing and capital requirements, mandatory minimum standards, lack of discretion, etc, it may be argued that FinTech overregulation in Nigeria is a reality. It is important that the regulators maintain a balanced perspective when regulating, issuing guidelines and regulations to ensure that FinTech companies are not stifled from innovating and growing.

Please note that the contents of this article are for general guidance on the Subject Matter. It is NOT legal advice.
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What is Representative Office of a Foreign Bank?

Representative office of a foreign bank is defined as an approved Representative Office of a Foreign Bank in Nigeria acting as liaison office of the foreign bank licensed by the Central Bank of Nigeria, whose sole object is to market the products and services of its foreign parent as well as serve as liaison between its foreign parent and local banks, other financial institutions, private companies and the general public.

Scope and Applicability of the Guidelines

The Guidelines shall apply to the following institutions:

1. A bank licensed under any foreign law, whose registered office is outside Nigeria
2. Any financial institution licensed under foreign law, whose primary business includes the receipt of deposits, granting of loans and/or provision of current and savings accounts.
3. Any foreign-owned operating bank/financial holding company that is foreign-based, that owns controlling interest in one or more banks or institutions whose primary business includes the receipt of deposits, granting of loans and provision of current and savings accounts.

Permissible Activities of Approved Representative Offices

Representative offices of foreign banks in Nigeria can carry out the following activities in Nigeria:

1. Marketing the products and services of its foreign parent or an affiliate of the foreign parent licensed and domiciled outside Nigeria.
2. Carrying out research activities on behalf of the foreign parent.
3. Serving as liaison between the foreign parent and local banks, private institutions within Nigeria and other customers of the foreign parent based in Nigeria.
4. Connect banks and other financial institutions to its foreign parent.
5. Connect exporters in Nigeria with potential customers in jurisdictions where the parent company operates and assisting Nigerian exporters with finding new markets through its international offices, etc.

Non-permissible Activities of Approved Representative Offices

Representative offices of foreign banks in Nigeria are not allowed to carry out the following activities:

1. Provision of services designated in Nigeria as banking business.
2. Provision of any commercial or trading activity that may lead to the issuance of invoices for services rendered.
3. Acceptance of orders on behalf of the foreign parent.
4. Engage directly in any financial transaction except for transactions that are related to those permitted.

Licensing

The licensing of representative offices of foreign banks in Nigeria is done in two stages which are:

1. Approval-in-Principle (AIP); and
2. Final license or approval

The Requirements for Approval-in-Principle (AIP) of a Representative Office

Foreign banks and other financial institutions seeking to establish an approved representative office in Nigeria and obtain the approval-in-principle of the CBN shall submit a formal application to the Governor of the CBN and shall meet the requirements for approval-in-principle which include:

1. The home supervisory authority of the applicant bank or other financial institution must have a valid Memorandum of Understanding with the CBN.
2. No objection letter (or approval) from the home supervisory authority.
3. Evidence of payment of non-refundable application fee of N5,000,000 to the CBN.
4. Board resolution in support of the foreign parent’s decision to invest in the equity shares of the proposed representative office.
5. Evidence of name reservation with the Corporate Affairs Commission.
6. Detailed business plan or feasibility report
7. Schedule of services to be rendered
8. Sources of funding for the representative office’s operations and five years financial projection
9. Draft copy of the representative office’s Memorandum and Articles of Association
10. Draft Shareholders Agreement unless it is 100% owned by the foreign parent bank.

The Requirements for Final License or Approval of a Representative Office

The promoters of a proposed representative office in Nigeria are expected to apply for the grant of the final license to the CBN not later than three months after obtaining the approval-in-principle of the CBN. The requirements include:

1. Evidence of payment of non-refundable licensing fee of N10,000,000
2. Certified true copy of certificate of Incorporation of the business
3. Certified True Copy of Memorandum and Articles of Association
4. Certified True Copy of Form CAC 1.1
5. Evidence of location of the Office for the take-off of the business
6. Names, addresses and curricular vitae of Management staff
7. Schedule of changes, if any, in the Board and shareholding after the grant of the AIP.
8. Copies of letters of offer and acceptance of employment in respect of the management team.

The CBN will also conduct an inspection of the premises and facilities of the proposed representative as a requirement for the grant of final license.

Reporting Requirements of a Representative Office

A representative office has the following reporting requirements or obligations:

1. Informing the CBN forthwith of any incidents of fraud, theft or robbery.
2. Submitting a written confirmation by the Chief Representative that the Representative Office has complied with all the requirements in its approval document to the CBN.
3. Submitting a quarterly report which summarizes the activities undertaken by the representative office.
4. A certificate from a recognized audit firm affirming that during the year no income was earned or accrued to the Nigeria office. Such certificate shall be submitted not later than 28 February of each year.

Operational Requirements of a Representative Office

The operational requirements which apply to a representative office include:

1. A representative office shall use the parent’s name only in conjunction with the description “representative office” in its documents and correspondences, including office signage, letterheads and business cards.
2. A representative office shall inform the CBN of its proposed hours of business
3. No representative office shall be relocated or closed without the prior written approval of CBN
4. Notify the CBN in writing immediately or within seven days if there is any variation to the shareholding structure that changes the control and/or majority ownership in its parent foreign institutions.

Disclosure and Examination of a Representative Office

A representative office is obliged to display the following information in a conspicuous place on its premises:

1. The name, contact details and logo of the foreign bank it is representing
2. Its authorization to operate a representative office as issued by the CBN
3. An authenticated copy of the consent letter from the home country supervisory authority.
4. An authenticated copy of the foreign bank’s valid license to conduct banking business
5. A list of the services offered by the representative office.

The representative office is to be examined periodically and risk-based on issues which are not limited to the following:

1. A review of the activities conducted
2. A general assessment of its management and supervision
3. A review of whether the office is complying with applicable laws and regulations.

A brief examination report shall be prepared highlighting any significant supervisory concerns.

Conclusion

The Guidelines provide a clear regulatory overview to what representative offices are, the requirements for the licensing of a representative office in Nigeria, the activities that can be undertaken by a representative office while also highlighting the obligations that are to be met by the representative office. The Guidelines, when issued, will streamline the activities of representative offices whilst giving the CBN more regulatory overview of their activities.