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  The first half of the year 2021 has been a regulatory nightmare for many FinTechs in Nigeria. On Friday, February 5, the CBN issued a circular that effectively banned local banks from processing transactions related to cryptocurrencies. Several crypto startups were affected.
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And in April, the Securities and Exchange Commission put out a statement that apparently barred investment platforms from offering Nigerians foreign stocks that weren’t listed with local exchanges. FinTechs have also been prevented from verifying their users with their Bank Verification Number (BVN). Back in December, the CBN barred payment processors like Flutterwave and Paystack from receiving diaspora remittances. These moves by regulators have caused trepidation amongst players in the FinTech space. Many fear that they’re just one new regulation away from ceasing to exist.

An Industry On The Edge?

According to the EY FinTech Survey for 2020, about 18% of FinTechs believed that compliance with regulations was their biggest challenge. This was more than any other concern, including having sufficient capital and liquidity (14%) and good customer outcomes (13%). It’s easy to see why they would be so concerned. When the prohibition around trading apps came along, there was a palpable fear that it would cull Nigeria’s nascent crypto market. Similar fears were expressed of stock trading apps when the SEC took a negative stance against them. Although many of these startups appear to have survived (for now), the recent regulations have caused some difficulty. For instance, several WealthTech companies have to find an alternative to the BVN for verifying new users. Founders have expressed their frustration with the system in ways both mild and less restrained. Take Odunayo Eweniyi, for instance. The COO at PiggyVest twitted this after the CBN’s move against cryptocurrencies: ”Every day, young people in Nigeria wake up to try to survive and thrive. Every day, the system does its best to beat us down.” She also said, half-jokingly, that the country’s FinTechs needed a “support group” to help them through the troubles they were facing.
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On days in which new restrictive regulations are announced, the reaction has often been despair.

Regulators Have Their Reasons

However, regulators say they’re simply enforcing rules and protecting the interest of the broader Nigerian public. Both the CBN and the SEC insist that their recent actions were backed by pre-existing laws. The former has cited security concerns as well. Following its actions against crypto transactions, the CBN emphasized the dangers inherent in an unregulated ‘phenomenon’ like cryptocurrency. ”The question that one may need to ask therefore is, why any entity would disguise its transactions if they were legal.” The statement read. “It is on the basis of this opacity that cryptocurrencies have become well-suited for conducting many illegal activities including money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion.” It pointed to several countries, including China, which has taken action against cryptos and banned their citizen from trading these items. The SEC has also said that the stock trading and crowdfunding platforms it targeted had not registered with it. Some have since done so; there’s a deadline for the latter set for June 30.

Clashing Intentions

The government doesn’t want ecosystems to develop outside its powers to regulate. But FinTech startups think the government has intentions other than what it makes public. Tomiwa Lasebikan, CPO at BuyCoins, points out that “only 1.1% of cryptocurrencies are used for illicit activity”; he speculates that money laundered in fiat in Nigeria exceeds this amount. Indeed, one report says that laundering via fiat exceeds is a staggering 800 times what is laundered as crypto. This punches a hole in the CBN’s apparent concern. A plausible explanation for monetary authorities’ stance is that they’re concerned about international transfers via cryptos being out of their reach. If they can’t regulate it, they’ll lose access to funds coming into the country from the diaspora. It’s also possible that they see greater access to international assets as problematic for the Nigerian economy, hence the SEC’s disapproval of Nigerians having greater access to foreign stocks. If people are dumping their naira for dollars and investing abroad, the local economy (and currency) may suffer for it. Or so the reasoning goes.

Getting On The Same Page

A solution to these clashes may be found in both sides sustaining constant communication with each other. Startups ought to study the regulatory environment more closely before launching out with new products. And the regulators—of which there are at least a dozen –will do well to understand the startups’ intentions, and see them as partners in moving Nigeria towards a brighter future. Featured Image Source: ITChronicles
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This article was first published on 3rd June 2021


Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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