Senate Committee Urges Enhanced Regulation of Fintech Industry by CBN

The Senate Committee on Banking, Insurance and Other Financial Institutions has urged the Central Bank of Nigeria (CBN) to enhance its supervision of the fintech sector to address the increasing incidences of financial fraud affecting the country’s banking system.

Furthermore, the committee has recommended the implementation of stricter regulatory frameworks to combat the growing danger of Ponzi schemes, which have deceived a significant number of Nigerians over the past few years.

During an investigative hearing focused on the operations of Ponzi schemes in Nigeria, particularly relating to the recent Crypto Bullion Exchange (CBEX) incident, Committee Chairman Adetokunbo Abiru made this appeal.

The hearing was co-hosted by the Senate Committees on ICT and Cyber Security, Capital Market, along with Anti-Corruption and Financial Crimes.

Abiru, who represents the Lagos East Senatorial District, proposed a new legislation that would clearly place fintech activities under CBN’s supervision.

He pointed out that the existing Banks and Other Financial Institutions Act (BOFIA) 2020, which governs the banking sector, needs modifications to include technology-driven financial service providers.

"Strengthening the BOFIA framework, modernizing CBN’s supervisory capabilities, and ensuring effective collaboration with agencies such as the Securities and Exchange Commission (SEC), Nigerian Communications Commission, National Information Technology Development Agency, Corporate Affairs Commission, Federal Competition and Consumer Protection Commission, Office of the National Security Adviser, and the Federal Ministry of Finance is crucial," he stated.

Abiru's proposed adjustments aim to empower the CBN to classify suitable fintech and digital financial service providers as critical institutions, create a national registry for improved transparency and beneficial ownership reporting, enhance risk-based supervision tailored for tech-driven financial services, and uphold data sovereignty alongside systemic stability.

He expressed that while there have been proposals for establishing a new independent regulatory body solely for fintech oversight, doing so would likely lead to redundancy in existing functions, increase bureaucratic complexities, elevate administrative expenses, and fragment regulatory authority — an undesirable situation in a sector where cohesive coordination is vital.

"Questions have been raised about whether creating a stand-alone regulatory agency is a better approach for overseeing fintechs. However, after thorough analysis, it's clear that forming a completely new agency would overlap functions, heighten bureaucratic challenges, escalate administrative costs, and divide regulatory authority in an area where coherence is essential," he elaborated.

The fintech landscape in Nigeria has rapidly evolved over the last decade, largely propelled by greater mobile connectivity, an upsurge in digital payment adoption, and financial inclusion initiatives spearheaded by the CBN.

Nigeria is widely regarded as one of Africa’s prominent fintech hubs, attracting substantial investments and featuring a host of digital payment, lending, and investment platforms.

However, this swift growth has also highlighted significant regulatory oversights, especially as numerous digital platforms navigate uncertain spaces between traditional banking, capital market, and telecommunications regulations.

While the CBN enforces regulations on banks through BOFIA 2020, fintech companies frequently find themselves governed by multiple regulatory frameworks, exacerbating collaboration issues among regulatory bodies.

Recently, there has been an alarming rise in Ponzi schemes and unregulated digital investment platforms promising unrealistic returns, preying on unsuspecting individuals in Nigeria. Many of these operations exploit social media, cryptocurrency narratives, and digital payment gateways to lure in victims. The collapse of the Crypto Bullion Exchange (CBEX) platform has reignited concerns over consumer protection, inadequate oversight, and ineffective inter-agency coordination.

Historical instances, such as the MMM scheme in 2016, illustrate the substantial financial losses Nigerian citizens can incur when fraudulent activities proliferate without timely regulatory actions.

Despite ongoing warnings from governmental bodies like the SEC and CBN, regulatory enforcement has often fallen short of addressing the rapid emergence of such platforms.