Nigerian regulators have declared open season on business. It’s already causing chaos

It’s regulatory season in Nigeria. Early in December, the central bank governor, Yemi Cardoso, fired a warning shot during a speech at a bankers’ dinner in Lagos.

“Recent developments in the payment services landscape have raised concerns regarding the use of technology and the existing licensing and regulatory framework,” Cardoso warned at the bankers’ dinner. “Any intentional or unintended non-compliance will be subject to sanctions, as operators have the responsibility to ensure that they are licensed for the activities they undertake.”

Cardoso added that the apex bank planned to review Nigeria’s existing licensing framework for payment services.

Days after that warning, the central bank mandated all financial institutions to collect ID cards before creating financial accounts. Under a 2013 central bank rule designed to support financial inclusion, Nigerians without identity cards could open lite-versions of bank accounts or digital wallets, which could only receive N50,000 ($63) at once and have a maximum balance of N300,000 ($380). The second salvo was the Nigerian Inter-Bank Settlement System (NIBSS) taking a shot at fintechs that were not licenced to collect deposits but were nevertheless listed as deposit institutions on mobile money transfer apps. Central banks and commercial banks in Nigeria jointly own NIBSS.

The results of the two announcements have been mixed. The CBN’s announcement that it will mandate all account holders to submit identification was widely supported by financial institutions. The move is expected to help stem rising fraud in the sector. But even that is doubtful as a significant proportion of cyber fraud cases involve users who had identity cards that passed the smell test.

“Most of the fraud that we see is the virtual account space, which is more difficult to tackle,” Esigie Aguele, co-founder and CEO of VerifyMe Nigeria, told TechCabal. “The government could be doing more to institutionalise fraud reporting instead of leaving it to just one agency,” he added.

The second regulatory action from NIBBS had mixed reactions. For one, the memo fell short of specifying what companies had broken the rules and were collecting deposits when they shouldn’t have. This left ample room for misinformation to spread on social media. It forced leading fintechs to reassure their customers via email and social media.

“It’s been a chaotic day with customers panicking,” a communications director at a leading fintech told TechCabal. “I wish regulators understand that these things affect human lives.”

The announcement was well-received by financial sector professionals who feel an overhaul of the fintech space is overdue. “Read the 4th paragraph in Governor speech at CIBN conference… fintech doing more than what they are licensed to do,” one bank executive who leads the digital solutions unit of his bank told TechCabal. Nigerian banks both offer services that fintechs depend on, as well as operate directly competing digital products. NIBSS is also co-owned by Nigerian banks and the central bank.

Then, two days before Christmas, the central bank announced that it was removing a two-year restriction that blocked banks from processing crypto-related transactions. The announcement seemed to open the door for a regulated crypto industry in Nigeria, and startups like Yellowcard, a pan-African crypto exchange, promised to “immediately” apply to be licenced under the new regulatory regime.

However, hopes for looser crypto policies were moderated early in the new year as the central bank clarified that it was not yet comfortable with the crypto industry. On January 2, 2024, the bank released guidelines that retained a ban on banks holding or trading in virtual assets and limited cryptocurrency accounts to only deposits made in local currency, with withdrawals limited to two every quarter.

The case of the commercial banks whose boards and management got the axe has been brewing since December after a report by a special investigator claimed the banks were fraudulently acquired. The central bank said Keystone Bank, Polaris Bank, and Union Bank committed infractions ranging from “regulatory non-compliance to corporate governance failure.”

“CBN [is] signalling that compliance is going to be a big deal going forward,” Tola Onayemi, CEO of Norebase, a compliance-tech startup, said on X, formerly Twitter.

Regulation across board

Financial regulators are not the only ones asserting themselves. Nigeria’s Corporate Affairs Commission (CAC), responsible for registering businesses, planned to enforce a rule forcing private companies with foreign shareholders to have a minimum of N100 million (roughly $126,600) as paid-up capital. Paid-in capital is the amount the owners of a company have paid in exchange for shares in the company

Before now, Nigerian companies with foreign shareholding only needed to put up N10 million (about $12,660) as paid-up capital. Part of the fees the CAC charges for company registration depends on the amount of paid-in-capital the company has received, a private wealth management lawyer told TechCabal. By increasing the minimum 10-fold, the CAC will increase its revenue from registering new companies.

The CAC notice refers to a 2022 rule, the Revised Handbook on Expatriate Quota, which was issued by Nigeria’s Interior Ministry. At face value, the rule only applies to companies that need a business permit and a Combined Expatriate Residence Permit and Aliens Card (CERPAC) to operate in Nigeria. But this broader application of the rule by the CAC means that even Nigerian founders who do not need a business permit or a residence permit (because they are Nigerian) will be forced to increase the paid-up capital to regain compliance.

In a private group chat for tech founders and investors, seen by TechCabal, one entrepreneur wondered why the CAC appealed to a rule from another agency instead of the Company and Allied Matters Act (CAMA), a revised version of which was passed in 2022 to regulate corporate registrations in Nigeria. The CAMA is the same law that establishes the Corporate Affairs Commission.

The commission reversed course less than 48 hours later. In a statement published on December 22, 2023, it asked the public to disregard the notice given two days prior. “Our initial notice was based on the Federal Ministry of Interior Handbook on Expatriate Quota Administration 2022 Revised Edition. We shall issue an amended notice with regards to the above in due course,” the later statement said. The reaction on social media was furious.

“There are things that make business so inhospitable in Nigeria, yet we just find a way to move on. The fact that CAC could issue two conflicting statements within 48 hours, with no advance warning was triggering,” Subomi Plumptre, an executive at Volition Cap, a Lagos-based asset management firm, wrote on X, formerly Twitter.

At any rate, the message of the last 30 days is clear. Africa’s biggest recipient of venture capital funding has entered regulatory waters.