FinTech businesses have quite some complexities, both technical and financial. Not all African countries have the legal infrastructure and jurisprudential tradition to deal with that, but there's a pack of countries that are leading the way.
Hereafter is a brief overview of the Fintech legislative regimes (as of mid-2023) that exist in the so-called ‘Big Four’ African Fintech nations, i.e. Nigeria, South Africa, Kenya and Egypt.
Nigeria, the western powerhouse
A major development in Nigerian law was the enactment of the Nigerian Startup Act 2022 (“NSA 2022”), providing a much-needed framework for the regulation and development of Fintech start-ups in the country. Allied to this was the Regulatory Sandbox released by the Central Bank of Nigeria (CBN) in December 2022. According to the CBN, the Sandbox was released in order to, “enhance innovation, promote financial inclusion, and ensure consumer protection, while providing a platform for engagement with fintech companies in the payments space”.
Also in 2022, the country’s Securities Exchange Commission (SEC) issued its Rules on Issuance, Offering Platforms and Custody of Digital Assets (the “Rules”). This forms part of the SEC’s ongoing efforts to regulate digital and virtual assets in Nigeria, including cryptoassets. In June 2023, the CBN issued its guidelines regarding contactless payments in Nigeria. The Bank stipulated how the guidelines were “conceived to ensure that participants in contactless payments implement appropriate risk management measures, while keeping to best relevant standards.” It was also an effort to standardise operations in the payments system and enabling greater innovation in the Fintech space in Nigeria.
South Africa, the southern powerhouse
Fintech regulation in South Africa is overseen by the Intergovernmental Fintech Working Group (IFWG), a consortium of the country’s financial regulators. This consortium includes the South African Reserve Bank (SARB) (which also includes the prudential authority and monetary systems regulator), as well as the country’s Financial Sector Conduct Authority, Financial Intelligence Centre and National Credit Regulator. The primary purpose of the IFWG is to engage in public-private participatory (PPP) discussions and advise on South Africa’s Fintech regulatory environment[4]. The IFWG first released a Regulatory Sandbox (RSB) for Fintech ventures in April 2020, which was then updated in October 2022. According to the IFWG, “The RSB aims to provide innovators seeking to launch financial products and services in South Africa with a framework that allows for testing such new products and services in a controlled and live environment against existing regulation, with input and oversight from the relevant regulators.”
The regulation of crypto assets has been a primary focus of the Working Group, as well as strengthening AML laws. As already noted, South Africa does not have express legislation regarding crypto assets. However, in August 2022 the SARB urged financial institutions to deal with funds linked to digital assets. This was a response to a surge of South African banks indiscriminately blocking the accounts of clients with crypto assets.
The South African government is in the process of finalizing the Conduct of Financial Institutions (COFI) Bill, which will serve to consolidate the conduct standards of all financial institutions in the country. A cornerstone of the legislation is to ensure the fair treatment and protection of financial customers by financial institutions. The COFI Act, once enacted, should play an important role in providing a viable roadmap for Fintech regulation in South Africa. It forms part of what is referred to in South Africa as its ‘Twin Peaks’ regulatory framework, itself formulated under the Financial Sector Regulation Act of 2017. This framework is predicated on two entities, namely the Prudential Authority and the Financial Sector Conduct Authority. The former is to ensure the stability of the financial system (the ‘stability peak’), while the latter is responsible for market conduct and consumer protection (the ‘good conduct’ peak).
Kenya, the eastern powerhouse
The Central Bank of Kenya (CBK) is at the forefront of Fintech regulation in the East African country. The CBK oversees all Kenyan financial institutions and is tasked with ensuring that Fintech companies operate within a regulated framework. For example, all Fintech companies in Kenya must obtain a license from the CBK to operate. It is the CBK which oversees the country’s regulatory sandbox for all Fintech start-ups, affording the latter the ability to innovate whilst not hampered by excessive regulatory oversight. This is achieved in compliance to the country’s Financial Services Act of 2019. It is the Capital Markets Authority (CMA) that oversees Kenya’s capital markets and regulates all Fintech companies that offer investment products or services. The CMA is tasked with ensuring compliance to securities laws and the protection of investors.
Egypt, the norther powerhouse
The Central Bank of Egypt (CBE) established a Fintech regulatory sandbox in May 2019, along with a $57 million Fintech Fund. Part of the CBE’s drive was to facilitate the opening of 100,000 card terminals to enable acceptance for small and medium-sized enterprises (SMEs). What followed was a Fintech boom in Egypt in 2019-20. Islam Shawky, a co-founder of Egyptian Fintech startup Paymob that opened in 2016, believed that the Fintech boom was definitely a result of the central bank’s new regulations and far more assertive role in the Fintech market. Shawky further noted how the CBE’s sandbox central focus in the beginning was know your customer (KYC), since “Digital onboarding is essential to scalability, so the fact that this was their first focus shows how closely they’re working with the market”.
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