With more consumers and businesses relying on fintech, the potential for unauthorized or mismanaged investments rises. This underscores the need for robust regulatory frameworks to protect users and enhance market stability.
The Securities and Exchange Commission (SEC) of Nigeria has announced its plans to crack down on fraudulent activities within the country’s rapidly growing fintech sector to protect investors and maintain market integrity. Speaking at the Nigeria Fintech Week, held from October 8-10, SEC’s Director-General Emomotimi Agama emphasized the importance of safeguarding the public interest while fostering innovation within the sector.
He highlighted the potential risks that unregulated fintech operations pose, such as unauthorized data use and unverified fundraising efforts.“We cannot afford to leave this growing sector unchecked. Large amounts of investment data could be misused without consent, and companies are increasingly raising public funds without adequate regulatory control,” Agama said.
The regulatory body aims to enforce “smart regulations” tailored to the fintech landscape, aimed at curbing fund mismanagement and ensuring legal compliance across the industry. Both public and private fintech companies engaging in fundraising activities would need to comply with the SEC’s standards.
This move by Nigeria’s SEC reflects a broader trend towards increased scrutiny within the fintech sector, as regulators worldwide seek to balance technological advancement with investor protections and consumer rights. To ensure a balanced approach, the SEC plans to introduce a three-pronged strategy focused on regulatory compliance, bolstering stakeholder confidence, and validating investor protections.
Fintech fraud is a significant concern in Nigeria, underscoring the importance of the SEC’s recent regulatory measures. Wema Bank’s suspension of several fintech partners highlights Nigeria's ongoing challenges in tackling fraud within its financial system. In a similar move, Fidelity Bank imposed restrictions on fund transfers to neobanks like Kuda Bank, OPay, Moniepoint, and PalmPay in 2023, aiming to curb financial misconduct and protect customer funds. These actions underscore the financial sector's proactive efforts to tighten security and reduce the risk of illicit activities in the growing digital payments landscape.
According to the Financial Institutions Training Centre’s (FITC) Q2 2024 Fraud and Forgeries report, in Q2 2024, Nigerian banks reported losses of ₦42.6 billion (over $55 million) due to various types of fraud—a sharp increase of 637% compared to the previous year. Most of this was attributed to miscellaneous fraud types, along with withdrawals and computer/web fraud related to fintechs. To this end, banks including Wema Bank and Fidelity Bank suspended several fintech partners. This rise in fraud highlights the urgency for stricter regulations to mitigate risks associated with fintech operations and protect investors.
According to Fintech Global, Nigeria’s fintech market accounted for 42% of the total investment made in African fintech in Q3 2023, and it continues to attract significant global interest. However, with such rapid growth comes the risk of financial mismanagement and investor fraud. The SEC’s focus on "smart regulation" aims to address these issues by implementing tailored regulations that promote innovation while ensuring compliance and investor protection.
Hikmatu Bilali
