Banks and Other Financial Institutions Act 2020 and Impact on Fintech Companies in Nigeria

This covers to the Banks and Other Financial Institution Act (2020) which repealed the extant BOFIA 1991 (as amended). It also includes some notable provisions of the act that impact on fintech companies in Nigeria. Some of such provisions include the definition of certain fintech companies as “Other Financial Institutions” (OFIs), licensing requirements, regulatory and supervisory power of the CBN over OFIs, risk-based capital requirements, restriction on certain use of names, Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT).

 

Requirements

• All or intending OFIs must be duly incorporated in Nigeria
• Must obtain a licence from the Central Bank of Nigeria (CBN)
• Section 63 (1) of the Act empowers the CBN to issue a notice requiring OFIs to maintain capital of such amount not less than the paid-up share capital requirement as may be designated by the CBN through the various guidelines issued by the CBN
• Section 43 of the Act provides that no person with the object to offer payments and other financial services shall be registered by the Corporate Affairs Commission (CAC) with the word “fintech” or any of the derivatives either in English language or any other language included in the description or title under which the person is carrying on business in Nigeria without the consent of the Board of the CBN
• Section 66 of the Act requires OFIs to adopt policies showing commitments to comply with the AML, CFT and under subsisting laws and to implement internal control measures to prevent transactions that facilitates criminal activities, money laundering and terrorism

For more information- https://www.cbn.gov.ng/Out/2021/CCD/BOFIA%202020.pdf

*Banks and OFIs Other Financial Institutions

 

 

Regulatory Framework for Non-Bank Acquiring in Nigeria

The scope of this framework, objectives, requirements, licence, conflict, participants which include Non-Bank Acquirer, Settlement/Sponsor Bank, Merchant’s Deposit Money Bank, Card Schemes, Other Payment Schemes, and, Nigeria Central Switch (NCS), as well as the roles and responsibilities of participants are covered under this section.

 

Requirements

• The Non-Bank Acquirer shall maintain merchant agreements that meet the respective scheme’s minimum requirements for disclosure, and clearly define obligations of acquirer, merchant and other parties. Furthermore, it shall have appropriate merchant agreement(s) in place with each merchant, prior to provision of transaction acquiring services
• The Non-Bank Acquirer shall maintain minimum standards in accordance with the Guidelines on Electronic Payment Channels in Nigeria and risk controls to monitor merchant activity. A fraud monitoring/behavioral management solution shall be put in place
• The application for approval by the entity intending to provide Non-Bank acquiring shall be sponsored by at least one acquiring Bank, where settlements shall be domiciled.
• Non-Bank acquirers shall develop and provide an appropriate governance structure, to manage the risk inherent in the acquiring service
• There shall be documented and approved policies in place; which support the risk management function and highlight the acquiring programme strategy, including targeted merchant segments, various entities/agents involved, their responsibilities, likely risks and mitigation procedures
• Non-Bank Acquirers shall comply with all applicable security standards, and shall ensure all merchants who store, transmit and use sensitive card data are Payment Card Industry Data Security Standard, PCI DSS- certified
• Non-Bank Acquirers shall perform due diligence before on-boarding new merchants as stated in the CBN Know Your Customer (KYC) Policy Document and Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) requirements
• Non-Bank Acquirers shall undertake measures to prevent the use of their networks for purposes associated with money laundering, financial crimes and other illicit activities.
• Non-Bank Acquirers shall not acquire transactions of merchants that are neither registered nor operating in Nigeria
• Non-Bank Acquirers shall verify that merchants have obtained necessary approvals from appropriate regulatory agencies in respect of their area of trade or activities.
• Non-Bank Acquirers shall have a process to ensure adequate merchant agreements are effected
• For regulatory review and approval, the company shall be a CBN-licensed Switching Company or any other company as approved by the Bank. In addition, the following documentation shall be required:

1. Evidence of engagement with a card scheme
2. Due Diligence and Merchant Onboarding Process

iii.  Merchant Risk Monitoring Framework

1. Sponsorship letter from one (1) Settlement Bank
2. Draft merchant agreements
3. Details of its settlement arrangements

vii. Service Level Agreement (SLA) with Settlement Bank

viii. Business Continuity Plan

1. Any other document(s) as may be required by the Bank

For more information-

https://www.cbn.gov.ng/Out/2021/CCD/Regulatory%20Framework%20for%20Non-Bank%20Acquiring%20in%20Nigeria%202021.pdf

*Banks/Non-Bank Acquirers

 

Framework for Regulatory Sand Box Operations

This section covers categories of participants allowed under the framework, eligibility criteria, application and approval requirements.

Requirements

• Application begins with an invitation by the CBN on its website and advertised on local newspaper which will set out the minimum eligibility criteria to shortlist applicants who qualify for the sandbox

 

For more information-

https://www.cbn.gov.ng/Out/2021/CCD/FRAMEWORK%20FOR%20REGULATORY%20SANDBOX%20OPERATIONS.pdf

 

*Payment/CBN licensees

 

The CBN Regulatory Framework for Open Banking in Nigeria

Includes objectives, scope, data and service categories, Product Information and Service Touchpoints (PIST), Market Insight Transactions (MIT), Personal Information and Financial Transaction (PIFT), Profile, Analytics and Scoring Transaction (PAST), data and API access requirements, as well as roles and responsibilities of participants.

Requirements

• Tier 0 participant can only gain access to the data sharing framework on the sponsorship of either a Tier 2 or 3 participant. The sponsoring participant determines the onboarding requirements, conducts a comprehensive risk assessment of the Tier 0 participant and the assessment report duly signed by the Chief Risk Officer of the sponsoring participant, and upon onboarding registers the Tier 0 participant on the Open Banking Registry of the CBN within 3 working days.
• The admission into the CBN regulatory sandbox cohort shall be the primary requirement for Tier 1 participants, although the CBN may as it deemed fit and on a case-by-case basis stipulate further requirements. Tier 1 participants shall also be listed on the Open Banking Registry.
• Tier 2 and 3 participants are required to submit a Satisfactory Risk Assessment Report by at least two (2) partner participants. The report should address, the Know Your Partner (KYP) assessment in respect of business & governance, financial strength analysis, control environment assessment and risk management practices. The report is to be prepared by at least 2 partner institutions which shall include Tier 2 and Tier 3 institutions. The Tier 2 and 3 Participants shall hold a valid Licence from the CBN and be listed on the Open Banking Registry
• The Non-Bank Acquirer shall maintain minimum standards in accordance with the Guidelines on Electronic Payment Channels in Nigeria and risk controls to monitor merchant activity. A fraud monitoring/behavioral management solution shall be put in place
• The application for approval by the entity intending to provide Non-Bank acquiring shall be sponsored by at least one acquiring Bank, where settlements shall be domiciled.

 

For more information-

https://www.cbn.gov.ng/Out/2021/PSMD/Circular%20on%20the%20Regulatory%20Framework%20on%20Open%20Banking%20in%20Nigeria.pdf

 

Other Financial Institutions (OFIs)/Banks

 

• Circular on the New Licence Categorization for the Nigerian Payments System

This covers the payment systems licence category, permissible activities for each licensing category and other notable provisions of the circular.

 

Requirements

• Only MMOs are permitted to hold customer funds;
• Switching companies and MMOs can only operate under a holding company structure;
• Existing fintech companies that hold any of the licence categories or that intend to so hold are required to obtain a no-objection from the Payment Systems Management Department of the CBN;
• CBN approval is now required for collaborations between fintech companies, banks and other financial institutions in respect of products and services;
• Companies with new licensing application or with Approvals-in-Principle licence are required to immediately comply with the new licensing requirements while existing licensed payment companies are required to comply with the new licensing requirements no later than 30 June 2021;
• Payment service providers must now ensure that the object clauses in their MEMART reflect permissible activities under applicable license category

For more information-

https://www.cbn.gov.ng/Out/2020/CCD/Categorization%20of%20PSPs.pdf

 

Payment

Approved New License Categorization Requirements

Under this section, information on the different license categorization is covered ranging from eligibility to capital requirement, contact, documentary requirements, application and licensing fees as well as license validity across these categories- Switching and Processing Licence, Mobile Money Operators License, Payment Solution Services (Pss) Licence, Payment Terminal Service Provider (PTSP) Licence, Payment Solution Service Provider (PSSP) Licence and, Super-Agent Licence.

Requirements

Switching And Processing Licence

• Any corporate entity registered by the Corporate Affairs Commission (CAC), with Memorandum and Article of Association (MEMART)
• N2,000,000,000.00 (shareholders’ funds unimpaired by losses)
• Preceding 3-years audited financial statements of the company (If applicable)
• Escrow of refundable N2bn into CBN PSP Share Capital Deposit Account No. 1000014009

1000014009

1. Deposit for escrow must be in full (one lump sum)
2. It must be made in the name of the company applying for licence (not an individual or related company)

iii.  Escrowed funds are invested in treasury bills, subject to availability of treasury instruments, which would be refunded accordingly

Mobile Money Operator Licence

• Any corporate entity registered by the Corporate Affairs Commission (CAC), with Memorandum and Article of Association (MEMART)
• N2,000,000,000.00 (shareholders’ funds unimpaired by losses)
• Preceding 3-years audited financial statements of the company (If applicable)
• Escrow of refundable N2bn into CBN PSP Share Capital Deposit Account No. 1000014009
• Deposit for escrow must be in full (one lump sum)
• It must be made in the name of the company applying for license (not an individual or related company)
• Escrowed funds are invested in treasury bills, subject to availability of treasury instruments, which would be refunded accordingly

Payment Solution Services (Pss) Licence

• Any corporate entity registered by the Corporate Affairs Commission (CAC), with Memorandum and Article of Association (MEMART)
• N250,000,000.00 (shareholders’ funds unimpaired by losses)
• Preceding 3-years audited financial statements of the company (If applicable)
• Escrow of refundable N250m (for entities applying for the three (3) licences at a time: PSSP – N100m, PTSP – N100m, and Super Agent – N50m) into CBN PSP Share Capital Deposit Account No. 1000014009

Payment Terminal Service Provider (Ptsp) Licence

• Any corporate entity registered by the Corporate Affairs Commission (CAC), with Memorandum and Article of Association (MEMART)
• N100,000,000.00 (shareholders’ funds unimpaired by losses)
• Preceding 3-years audited financial statements of the company (If applicable)
• Escrow of refundable N100m into CBN PSP Share Capital Deposit Account No. 1000014009:

Deposit for escrow must be in full (one lump sum)

1. Deposit for escrow must be in full (one lump sum)
2. It must be made in the name of the company applying for licence (not an individual or related company)

• Escrowed funds are invested in treasury bills, subject to availability of treasury instruments, which would be refunded accordingly

Payment Solution Service Provider (Pssp)

• Any corporate entity registered by the Corporate Affairs Commission (CAC), with Memorandum and Article of Association (MEMART).
• N100,000,000.00 (shareholders’ funds unimpaired by losses)
• Preceding 3-years audited financial statements of the company (If applicable)
• Escrow of refundable N100m into CBN PSP Share Capital Deposit Account No. 1000014009

1. Deposit for escrow must be in full (one lump sum)
2. It must be made in the name of the company applying for licence (not an individual or related company)

iii.  Escrowed funds are invested in treasury bills, subject to availability of treasury instruments, which would be refunded accordingly.

Super-Agent License

• Any corporate entity registered by the Corporate Affairs Commission (CAC), with Memorandum and Article of Association (MEMART).
• N50,000,000.00 (shareholders’ funds unimpaired by losses)
• Preceding 3-years audited financial statements of the company (If applicable)
• Escrow of refundable N50m into CBN PSP Share Capital Deposit Account No. 1000014009

1. Deposit for escrow must be in full (one lump sum)
2. It must be made in the name of the company applying for licence (not an individual or related company)

iii.  Escrowed funds are invested in treasury bills, subject to availability of treasury instruments, which would be refunded accordingly.

For more information-

https://www.cbn.gov.ng/Out/2021/CCD/Approved%20New%20Licence%20Categorization%20Requirements%20Consolidated%20-%202021.pdf

 

*Any corporate entity registered by the Corporate Affairs Commission (CAC) with Memorandum and Article of Association (MEMART)

 

 

• Guidelines for Licensing and Regulation of Payment Service Banks (PSBS) in Nigeria

This section covers minimum capital requirement for PSBS, some permissible activities, licensing requirements, requirements for grants of Approval-In-Principle (AIP), requirements for granting of final licence, financial Requirements as well as some changes introduced by the revised guideline.

Requirements

• The minimum capital requirement, application and licensing fees for PSBs are as follows: Minimum capital ₦5,000,000,000.00 Non-refundable application Fee ₦500,000.00 Non-Refundable Licensing Fee ₦2,000,000.00 Change of name fee ₦1,000,000.00
• The CBN may vary these requirements from time to time

For more information see-

https://www.cbn.gov.ng/Out/2020/CCD/APPROVED%20REVIEWED%20GUIDELINES%20FOR%20LICENSING%20AND%20REGULATION%20OF%20PAYMENT%20SERVICE%20BANKS%20IN%20NIGERIA-27AUG2020.pdf

 

Payment Service Banks PSBs

Risk based Cybersecurity Framework and Guidelines for Deposit Money Banks and Payment Service Provider for October 2018

This covers cybersecurity governance and oversight, risk management control functions, metrics, monitoring and reporting in addition to compliance with statutory and regulatory requirements.

Requirements

• The Board and Senior Management of DMBs and PSPs shall ensure compliance with all relevant statutes and regulations such as the Nigerian Cybercrimes (Prohibition, Prevention etc.) Act, 2015 and all CBN directives to avoid breaches of legal, statutory, regulatory obligations related to cybersecurity and or any security requirements.
• The CBN shall monitor and enforce compliance with the provisions of the Guidelines.

For more information-

https://www.cbn.gov.ng/out/2018/bsd/risk%20based%20cybersecurity%20framework%20final.pdf

 

Payment

• Regulation for Bill Payments in Nigeria

This section covers objectives, scope, eligibility criteria, stakeholders, and operational procedure.

Requirements

• Any person or entity desirous of operating a bill payment platform shall apply to the CBN for a license or be integrated to a duly licensed PSP.

The CBN shall monitor and enforce compliance with the provisions of the Guidelines

Payment

Guidelines On International Money Transfer Services in Nigeria

Details of the objectives, scope, licensing requirements, overseas partnership requirements, operations of International Money Transfer Services, Inward Money Transfer Services and Charges            .

Requirements

• No person or institution shall provide international money transfer services unless such person/institution has been duly licensed by the CBN.

For more information-

https://www.cbn.gov.ng/Out/2014/BPSD/Guidelines%20on%20International%20Money%20Transfer%20Services%20in%20Nigeria%20Approved%20d.pdf

 

*Payment

 

• Guidelines for Card Issuance and Usage in Nigeria

This takes a look at stipulated guidelines and covers the objectives, scope, minimum standards, general requirements, transaction processing, specific requirements for stored value card (individual & Corporate)      , specific requirements for prepaid card (Individual & Corporate), specific requirements for debit card, specific requirements for credit and charge card (Individual & Corporate), submission of statutory returns.

Requirements

• Only banks licensed by the CBN with clearing capacity shall issue payment cards to consumers and corporations in Nigeria. Banks without clearing capacity can issue in conjunction with those with clearing capacity. However, where a partnership exists, the parties shall document service level agreements, delineating their responsibilities for the issuance of the cards. A copy of the Service Level Agreement shall be submitted to the Central Bank of Nigeria.

For more information-

https://www.cbn.gov.ng/out/2014/bpsd/approved%20guidelines%20for%20card%20issuance%20and%20usage%20in%20nigeria%20.pdf

 

Banking

Regulation on Instant (Inter-Bank) Electronic Funds Transfer Services in Nigeria

This section covers stakeholders, rights and responsibilities of stakeholders to instant EFT, rights and responsibilities of the customer, types of transaction and limitations on Instant EFT Amount.

Requirements

• The limitations on Instant EFT values shall be set by customer, Sending and Receiving Entities based on individual entity’s’ risk appetite subject to the single Instant EFT limit per transaction as stipulated by the CBN.

For more information-

https://www.cbn.gov.ng/Out/2018/BPSD/Regulation%20on%20Instant%20Payment.pdf

 

Banks/Other Financial Institutions (OFIs)

Regulatory Framework for the use of Unstructured Supplementary Service Data (USSD) for Financial Services in Nigeria

Under this framework, information as regards objectives, participants in the USSD ecosystem, eligibility for unique short code, risk mitigation consideration and service level agreement are detailed.

Requirements

• Money Operators are eligible after meeting the necessary requirements of the National Communications Commission (NCC) for the issuance of same.
• CBN licensed entities other than Mobile Money Operators to whom a letter of no objection/introduction from the CBN is given are elig

For more information-

https://www.cbn.gov.ng/out/2018/bpsd/ussd%20regulatory%20framework.pdf

 

Banks, Other Financial Institutions (OFIs), & Payment Service Providers (PSPs)

Regulation for Direct Debit Scheme in Nigeria

This covers objectives, types of direct debit transactions, participants of the direct debit scheme, responsibilities of the participants, control mechanism for participation in the scheme and consumer protection.

Requirements

• The participants of the Direct Debit Scheme according to the regulation are:

(i)   Biller

(ii)  Biller’s bank

(iii) Payer

(iv) Payer’s bank

(v)  Payment Service Provider Money Operators are eligible after meeting the necessary requirements of the National Communications Commission (NCC) for the issuance of same.

For more information-

https://www.cbn.gov.ng/out/2018/bpsd/regulation%20for%20direct%20debit%20scheme%20in%20nigeria%202018%20(revised).pdf

 

Banks & Payment Service Providers (PSPs)

Regulation On Electronic Payments and Collections for Public and Private Sectors in Nigeria

This details the objective, CBN’s regulatory function, stakeholders and their responsibilities, sanctions and other stakeholders.

Requirements

• All financial institutions, Payments Service Providers and other entities licensed and regulated by the CBN.

For more information-

https://www.cbn.gov.ng/Out/2019/PSMD/Regulation%20on%20Electronic%20Payments%20and%20Collections.pdf

 

Banks, Mobile Money Operators (MMOs) & Payment Service Providers (PSPs)

Guidelines On Transaction Switching in Nigeria

This covers license of Switching Companies, Parties to Transaction Switching, rights and responsibilities of Switching Companies, rights and responsibilities of Member Institutions, rights and responsibilities of Nigerian Central Switch, Interface Specification Requirements, Security Requirement, some important points to note and agreements to be entered into by Switching Companies.

Requirements

• For a switching company to operate in Nigeria, it shall obtain a Switching license from the CBN.

For more information-

https://www.cbn.gov.ng/out/2016/bpsd/approved%20guidelines%20on%20transaction%20switching%20in%20nigeria.pdf

 

*Payment

• Guidelines On Operations of Electronic Payment Channels in Nigeria

This includes guidelines on Automated Teller Machines (ATM) Operations, Point of Sale (POS) Card Acceptance Services, Mobile Point of Sale (MPOS) Acceptance Services and WEB Acceptance Services.

Requirements

• These are the security standards to be complied with as applicable

(i) PCI DSS- Payment Card Industry Data Security Standard

(ii) PA DSS- Payment Application Data Security Standard

(iii) Triple DES- Data Encryption Standards should be the benchmark for all data transmitted and authenticated between each party.

(iv) 2FA- Second Factor Authentication

For more information-

https://www.cbn.gov.ng/out/2016/bpsd/approved%20guidelines%20on%20operations%20of%20electronic%20payment%20channels%20in%20nigeria.pdf

 

Banks & Payments Terminal Service Providers (PTSPs)

Regulatory Framework for Mobile Money Services in Nigeria

This covers the scope and the Participants in the Mobile Money System regulated by the Central Bank of Nigeria (CBN); and the Nigerian Communications Commission (NCC)

Requirements

• Participants are:

(i) Regulators

(ii) Mobile Money Operators

(iii)Infrastructure providers

(iv) Other Service Providers

(v) Consumers

(vi) Mobile Money Agents

For more information-

https://www.cbn.gov.ng/out/2015/bpsd/regulatory%20framework%20for%20mobile%20money%20services%20in%20nigeria.pdf

 

Mobile Money Operators (MMOs)

Guidelines for the Regulation of Agent Banking and Agent Banking Relationship in Nigeria

This details the objectives, application and approval of requirements, documentary requirements, establishment of Agent Banking Relationship, Relocation, Transfer and Closure of Agent Premises, Money Laundering and submission of Statutory Returns.

Requirements

• Any financial institution that wishes to engage in agent banking shall submit an application for approval to the CBN. The application shall clearly state the extent of agent banking activities and responsibilities of the relevant parties.

For more information-

https://www.cbn.gov.ng/Out/2013/CCD/GUIDELINES%20FOR%20THE%20REGULATION%20OF%20AGENT%20BANKING%20AND%20AGENT%20BANKING%20RELATIONSHIPS%20IN%20NIGERIA.pdf

 

Banks

Guideline on International Mobile Money Remittance Services in Nigeria

This provides an overview of the objectives, authority to provide International Mobile Money Remittance Services in Nigeria, Business Rules requirements, Cessation of Mobile Payment Services, Statutory Returns and Annual Reporting.

Requirements

• Institutions seeking to offer International Mobile Money Remittance Services in Nigeria shall apply and obtain a valid approval from the CBN’

For more information-

https://www.CBN.gov.ng/Out/2015/TED/Guidelines%20on%20International%20Mobile%20Money%20Remittance%20Service%20in%20Nigeria.pdf

 

 

Compiled by TONBOFA Law Practice

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