Winter’s Come For Nigerian Fintechs As Industry Watchdogs Bite Hard

Back-to-back blows in a matter of days have left more than a few Nigerian fintech companies reeling.

In playing their regulatory roles, the Securities and Exchange Commission (SEC) and the nation’s apex bank, the Central Bank of Nigeria (CBN), have in the past week used their separate capacities to “punish” a number of companies in the digital financial services industry; companies that are deemed to have been found wanting in some type of way.

A spanner in the works

On Thursday, December 17, the Investments and Securities Tribunal, (IST) “made interim Orders restraining a fintech company, Chaka Technologies Limited, and its promoters from advertising or offering for sale shares, stock, or other securities of companies or other entities.” This information was published on the SEC website on the morning of Saturday, December 19.

As the statement from SEC Nigeria reads, “the interim Orders, which apply to all Chaka platforms, were granted pursuant to an application by the Securities and Exchange Commission. In the application, the Commission – through its solicitor, Dr. Chuka Agbu SAN – informed the Tribunal that the Defendants were engaged in investment activities, including providing a platform for the purchase of shares in foreign companies such as Google, Amazon, and Alibaba.

It goes further: “The Commission also stated that the said activities were carried out by the Defendants outside the regulatory purview of the Commission and without requisite registration, as stipulated by the Investment and Securities Act 2007. As disclosed in the processes filed by the Commission, the objective of the proceedings is to ensure that all investment activities and market players are duly regulated by the Commission, in line with the requirements of the law.”

In essence, SEC Nigeria has moved to rein in Chaka in line with its stated intention of “encouraging innovation within the market space while also ensuring that all market activities are brought within the regulatory purview and conducted within the ambit of the law and extant regulations.”

More fintech blues

On the other hand, the CBN announced on the eve of Christmas that it had revoked the Operating Licences of eight (8) Payment Service Providers for non-performance, inability to meet capital requirements, and failure to fulfil or comply with the conditions subject to which their licences were granted etc., as published in the attached Federal Republic of Nigeria Official Gazette No. 196, Vol. 107, dated 4th December 2020.

The CBN’s hammer fell on seven (7) payment service providers and one (1) switch service provider. Per a document seen by WeeTracker, the companies affected are; Easifuel Limited, Transaction Processing System (TPS), Grand Towers Limited, Paymaster Limited, E-Revenue Gateway Limited, Eartholeum Network Limited, Globasure Limited, and 3Line Card Management Limited.

Where things are at

The company in question, Chaka, was co-founded in 2019 by Tosin Osibodu and it is among a growing crop of wealth management(wealthtech)/investment startups in Nigeria.

The local wealthtech scene has seen increased activity in recent times with the emergence of several startups democratising investments in local and global stock/ capital markets, as well as incentivised savings. PiggyVest, Cowrywise, Rise, Bamboo, Chaka, Overwood, and Trove, among many others, are some of the active startups in the space.

On its part, Chaka describes itself as “a financial technology company lowering access barriers between African and global capital markets.” The company claims to provide a regulatory-compliant platform for African individuals and businesses to invest and trade in global capital markets. The startup boasts access to 3,000+ assets in 40+ countries including the US, China, UK, and more.

In January 2020, Chaka claimed 5,000 active users and USD 200 K processed in trade volumes during the first 4 months of its launch. Chaka makes money by charging brokerage fees for the service provided, and its credibility is supported by the fact that it has raised just over USD 200 K in seed funding from investors like Microtraction, Future Africa Fund, Seedstars, and Golden Palm Investments.

So, that order from the SEC was sort of a bizarre shocker. In fact, Chaka’s co-Founder/CEO, Osibodu, revealed in a video explaining the situation that the company was taken by surprise just like everyone else as there had been no prior communication from the authorities.

In response to the recently published SEC statement, Osibodu has reiterated that Chaka’s legal and operations teams are working to accelerate a resolution. He also went on to assure the users on the platform that their funds are safe.

“Your investments were placed by a duly licensed entity and remain safe through Citi Investments (using the Chaka platform), and will continue to be custodied by an SEC-regulated broker,” Osibodu wrote in an update.

In his follow-up video message, Osibodu rebutted talks that Chaka was marketing, offering, or soliciting securities while reiterating that Chaka is not an investment platform but a technology platform in partnership with Citi Investments; a regulated broker.

Chaka also claims that all local equities on its platform are offered through Citi Investment Capital Ltd, which is SEC-compliant, and all global equities are offered through a US brokerage firm that is regulated by the US FINRA and the US SEC. It maintains that the current situation is a misunderstanding that would have been easily resolved had they been notified prior.

But for now, things will likely remain in limbo for a while despite the effort being made to resolve the issue, and that’s because further proceedings before the Tribunal have been adjourned to January 15, 2021. And maybe Chaka will get a favourable ruling.

As for the eight other fintech companies that have fallen to the CBN’s axe, there’s hardly any hope for such a reprieve.

Featured Image Courtesy: Cointelegraph