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On August 3, 2021, the Central Bank of Nigeria (“CBN”), took another step in furtherance of its commitment towards the promotion of an efficient and credible payment system in the country; by issuing a new governing regime for Payments Service Holding Companies (“PSHCs”).
Introduced via a Circular referenced: PSM/DIR/CON/CWO/20/095, the new governing regime, titled: Guidelines for Licensing and Regulation of Payments Service Holding Companies in Nigeria (the “Guidelines”), seeks to prevent the commingling of activities, facilitate the management of risks within the payment service industry, and enable adequate regulatory oversight on the activities of licensed operators. The Guidelines will complement the CBN Circular on New Licence Categorisations for the Nigerian Payments System1 and other relevant subsidiary legislation made pursuant to the Central Bank of Nigeria Act (2007) and the Banks and Other Financial Institutions Act (2020), as well as other regulatory instruments issued, from time to time, by the CBN and other regulators in the Nigerian financial services sector.
The scope of the Guidelines covers regulated activities in the payments service industry, such as; Mobile Money Operations, Switching and Processing, and Payment Solution Services, and any other activity as may be subsequently approved by the CBN. The Guidelines focus on the structure, licensing, ownership and control, corporate governance issues, permissible & non-permissible activities, prudential requirements and shared services arrangements between PSHCs and their subsidiaries.
This article provides a synopsis of the key provisions of the Guidelines and analyses the likely impact on the development of payment services in the financial system, operations of licensed companies and the overall economy.
A PSHC shall:
Other key provisions in the Guidelines relate to filing requirements, and this requires a PSHC to make quarterly filings to the CBN, which shall include information on compliance with corporate governance guidelines, whistle blowing, assets and liabilities of the PSHC and its subsidiaries, risk management, internal control, and intra-group transactions.
The CBN has, in recent times, taken various measures aimed at developing workable and enabling frameworks for the development of the payments services, electronic and mobile banking architecture; in an overall effort at facilitating the attainment of the apex bank's financial inclusion goals. The CBN had late last year, released the New Licence Categorisations for the Nigerian Payments System, via a Circular dated December 9, 2020, which delineated payments system operations into four categories, namely: Payment Solution Services (PSS); Mobile Money Operators (MMO); Switching and Processing; and Regulatory Sandbox.
With the release of the Guidelines, operators in the payments services space who intend to operate more than one license category now have clear direction on how to do so. The Guidelines, therefore, set the tone for the consolidation of payment service providers operating under the different license categories.
In our view, the issuance of the Guidelines on the heels of the recent new regulatory regimes for Payment Service Banks and Mobile Money Services, completes the establishment of a clear legal and regulatory framework for a structured and streamlined Fintech Industry in Nigeria.
It is of interest to note that the Guidelines also permit PSHCs, with the approval of the CBN, to acquire entities such as financial and technology companies. This implies the possibility of vertical and horizontal acquisitions and mergers between banks and payment service providers. The introduction of the Guidelines, therefore, signals a positive outlook for the economy, as the Nigerian financial sector is expected to witness more consolidation, driven on the back of Fintech companies operating in the payments sector, going forward.
1 https://www.cbn.gov.ng/Out/2021/CCD/Approved%20New%20Licence%20Categorization%20Requirements%20Consolidated%20-%202021.pdf
2 It is not clear from the Guidelines whether these are limited to provision of payment solution services.
3 This would appear to prohibit secondment arrangements between the PSHC and its subsidiaries
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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