The need to build and grow wealth is a very pertinent one for many individuals and entities around the world. And in a country like Nigeria where the basket of investment opportunities in the financial market space is rather limited, fintech startups offering offshore investment opportunities have been perceived as a breath of fresh air.
Thanks to these startups, Nigerians are now able to actively trade or hold foreign equities. As a matter of fact, the number of Nigerians now trading foreign entities exceeds those investing in local collective investment schemes or mutual funds, according to the Securities and Exchange Commission. About 70% are said to be between the ages of 18 and 40, a demographic that has shunned the local stock market, whose total active investor base is less than a million.
Meanwhile, the advent of financial technology companies (Fintech) in the investment space has generated mixed reactions among the different stakeholders in the Nigerian financial market space as demand for foreign stocks by Nigerian investors has since surged. On the other side the apex regulator in the capital market, the Securities and Exchange Commission, had earlier this year announced tighter regulations on local brokers offering foreign stocks.
The apex regulator disclosed that all local brokers offering foreign stocks to the Nigerian investing public are all expected to be registered with it. In a recent interview with This Day an executive commissioner for operations of the SEC, Dayo Obisan, said:
“At least 400,000 Nigerians poured funds into foreign stocks through online brokers in the past 18 months, there is an increasing interest among the younger population, and this is of concern to the commission primarily because it creates an avenue for exploitation.
“The commission plans to actively monitor the local market in foreign stocks in furtherance of our mandate of ensuring investor protection and market transparency.”
By the way, SEC is not the only regulator that has recently been “clamping down” on these fintech startups. Just last month, the CBN obtained an exparte court order which temporarily froze the bank accounts of six fintech startups that facilitate the trading of foreign equities by Nigerians. As expected, this drew a lot of criticism from the general public. But some analysts also expressed support for the CBN.
Speaking to Business Elites Africa, an Equity Research Analyst at Atlass Portfolios, Olaide Baanu, opined that the regulatory intervention was important for tax purposes and for the protection of the investing public. He also added that allowing foreign stocks to be traded in the Nigerian investment space will be highly beneficial for the Nigerian financial market at large.
“If anything, it is important that they are regulated for tax purposes. You can’t be offering foreign stocks to the Nigerian public without proper registration. It will even be much better if the two regulators can partner and provide foreign stocks on the floor of the exchange,” Baanu said.
Following the latest row with the government, the affected fintech companies have reiterated they would continue to work hand in hand with the regulators to ensure continued compliance with all regulations guiding their operations. One of them, Trove Technologies, released a statement saying:
“Please be aware that we and will remain committed to being in compliance with all local laws and regulations and continue to maintain good standing with all existing compliance requirements and regulatory frameworks.”
Bamboo also said “We’re aware of the recent reports about us. Our legal and government relations teams are looking into it, but we thought it was important to let you know that your money remains safe with Bamboo and will always be readily accessible.”
It should be noted that according to the National Bureau of Statistics (NBS), Nigeria’s foreign capital inflow as at H1 2021 declined by 61 percent. In specific terms, the country’s foreign direct investments (FDIs) stood at $232.74 million as against $362.84 million recorded in the corresponding period of the previous year while foreign portfolio investments (FPIs) stood at $1.53 billion, way lower than the $4.69 billion recorded in H1 2020.
Given this dwindling foreign capital importation and other pressing economic challenges, some people have wondered whether Nigeria’s decision to over-regulate its fintech ecosystem is really what the country needs at this point.