Nigeria’s Central Bank to Regulate New Fintech Products

• The Central Bank of Nigeria (CBN) has launched a new regulatory framework for sandbox operations in the country which aims to provide regulatory supervision for fintech innovations.
• The sandbox is a mechanism which firms use for the live testing of new technological products, services, distribution channels or business models.
• The CBN claims that the structure would reduce time-to-market for fintech products, however, concerns linger that this particular provision may prevent the prompt launch of disruptive products.

The Central Bank of Nigeria (CBN) has launched a new structure for regulatory sandbox operations in the country which aims to provide regulatory oversight for fintech innovations.

The sandbox is a structured mechanism for companies to perform live testing of new technological products, services, distribution channels or business models. This will be done in a controlled environment and being supervised by the CBN.

The CBN states that the sandbox will be available to current licensees such as financial institutions and fintech ventures as well as other companies including telecommunications companies who are seeking to test innovative financial products and services.

The tough regulatory barrier for emerging fintech companies in Nigeria has been a major discussion point. Some experts believe that strict regulations are intended to curb bad eggs in the industry, due to the volatile nature of finance.

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Sadly, both the good and the poor have been locked out by those laws. Genuine individuals and entrepreneurs with exciting ideas could not get their products/services started easily. Furthermore, financial fraud remains a pressing issue.

This is the reason why regulatory sandboxes are proposing to provide a safe testing ground for creative financial market solutions. It may, however, be supported either by regulators or private firms.

In November 2019 one of the first fintech industry innovation sandboxes was launched by Financial Service Innovators (FSI), backed by the Nigeria Inter-Bank Settlement System (NIBSS) and the CBN.

The sandbox gave developers access to the application programming interface ( API) of the NIBSS and that of other banks. A few months later, Ecobank launched its own sandbox, a pan-African initiative that spanned several African countries. Among other influential startups, the sandbox included the likes of Flutterwave and Africa’s Talking. Paga also launched its API for creative developers to explore and test some of their groundbreaking ideas.

Considering the sandbox is only available to incorporated companies, daily developers may not be able to access the sandbox. The CBN notes that the sandbox will accommodate any innovation not already protected by existing regulations.

Any innovation that seeks to:

• Improve the effectiveness of existing financial services
• Help financial institutions manage risks
• Address gaps in or open new opportunities for investments in Nigeria.
• The apex bank will also ensure that the operations of existing financial institutions and customers, in general, are not disrupted by new products. While CBN claims that the structure would reduce time-to-market for fintech products, this particular provision will impede the launch of disruptive products.

Although the CBN claims that the structure would reduce time-to-market for fintech products, this particular provision may prevent disruptive products from launching.