Category: Publications

22 Oct 2024
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Navigating the Deduction of Tax at Source (Withholding) Regulations, 2024

Withholding tax represents an advance payment on income tax liability deducted from source. This tax obligation constitutes a source of Government revenue while minimising the risk of tax evasion on the part of a taxpayer by shifting the responsibility of tax deduction from the income recipient to the payer.

The Deduction of Tax at Source (Withholding) Regulations, 2024 seek to establish rules governing the deduction of tax from payments made to taxable persons as identified by the various laws governing taxation in Nigeria, namely, the Capital Gains Tax Act, the Companies Income Tax Act, Petroleum Profits Tax Act, and the Personal Income Tax Act.

This represents a key step towards strengthening fiscal governance by easing tax compliance by relevant parties.

 

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05 Apr 2024
Copyright Act 2022
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AN OVERVIEW OF THE CHANGES INTRODUCED BY THE COPYRIGHT ACT 2022

Introduction

Over the years, Nigeria’s copyright regime has been fraught with numerous challenges ranging from enforcement of existing laws to the application of outdated provisions to modern-day situations. Despite the challenges, copyright remains an important part of intellectual property rights and as such the positive aspects that an effective copyright regime will have on the growth of the creative economy can no longer be ignored.

In view of the urgent need to review the existing copyright law, Former President Muhammadu Buhari assented to the Copyright Bill 2022 on March 17, 2023 thus giving rise to the Copyright Act 2022.

A cursory overview of Section 1 of the Act shows that it seeks to address the aforementioned challenges by protecting intellectual property rights and ensuring the following:

  1. That authors are rewarded and recognised for their work;
  2. To guarantee access to creative works by providing appropriate limitations and exceptions;
  3. To aid Nigeria’s compliance with international copyright treaties and conventions; and
  4. To improve the administrative, regulatory and enforcement capacity of the Nigerian Copyright commission.

 

Changes introduced by the Copyright Act 2022

 

  • Rights in pre-existing material or data in a compilation

Section 2(5) of the Act states that copyright in a compilation does not confer any exclusive rights in pre-existing material or data. This was not previously stated in the former Act.

  • Recognition given to wired and wireless means of publicly distributing copyrighted material

The Copyright Act now recognises wired and wireless means of publicly distributing copyrighted material. This brings the Act in line with current realities of digital distribution. An example of this can be found in Section 9(i) where owners of copyright in literary or musical work have the exclusive right to make the work available and accessible to the public via wired or wireless means.

  • Objection to false attribution

The Act introduces an additional moral right for authors. By virtue of Section 14(2) a person has the right to object to false attribution of work.

  • Determination of distribution of remuneration for any broadcast of the sound recording by the Copyright Commission

Section 15 of the Act provides for the right of a performer and a copyright owner to equitable remuneration for broadcasting of sound recordings that had been published for commercial purposes. Distribution of remuneration is expected to be governed by the terms of agreement existing between users of the sound recording on one hand and the performer and the copyright owner on the other hand. However, the Act now permits the Copyright Commission to determine distribution of remuneration in the absence of any agreement to that effect.

  • Right to share in proceeds of sale

Section 17 of the Act now expressly provides for the right of authors of artistic works, manuscripts of literary works or of musical compositions to share in proceeds of sale by public auction or through a dealer after the first transfer by the author. This gives authors of copyrighted works in Nigeria to now benefit from resales.

  • Reduction in duration of copyright in works of government, state authorities and international bodies

Section 19(1)(b) has reduced the duration of copyright in works of government, state authorities and international bodies from seventy (70) years to fifty (50) years from publication or creation.

  • Duration of copyright in audiovisual works, photographs and sound recordings that have not been made public

Section 19(1)(c) and (d) of the Act sets the duration of copyright in audiovisual works, photographs and sound recordings that have not been made public to fifty (50) years after creation.

  • Factors to consider in determining fair dealing

The Act now clearly states factors to consider in determining fair dealing in respect of literary or musical works, artistic works, audiovisual works, sound recordings and broadcasts. Fair dealing covers purposes such as:

  • Private use;
  • Parody, satire, pastiche, or caricature;
  • Non-commercial research and private study;
  • Criticism, review or the reporting of current events.

 

By virtue of Section 20(1), the following factors have to be considered in determining if use of a work amounts to fair dealing:

  • Purpose and character of its usage,
  • Nature of the work,
  • Amount and substantiality of the portion used in relation to the work as a whole, and
  • Effect of the use upon the potential market or value of the work.

 

  • Special exceptions for blind, visually impaired, or otherwise print disabled persons

The Act in Section 26 promotes accessibility of copyrighted works by introducing special exceptions to copyright for blind, visually impaired, or otherwise print-disabled persons. An authorised entity is permitted to make or procure an accessible format copy of a work or subject matter and supply the copy to beneficiary persons by any means, including non-profit lending, or electronic communication by wire or wireless means without first obtaining the permission of the owner of the copyright. It must be noted that such exception is not for commercial purposes and the accessible format is for the exclusive use of the beneficiary.

  • Grant of compulsory licence for public interest or rectification of abuse of dominant market position

Section 35 of the Act now provides for the grant of compulsory licences by the Copyright Commission for public interest or the rectification of abuse of dominant market position. The Commission would take into consideration certain factors including the use of the work which shall be non-exclusive and non-assignable and shall be exclusively for the Nigerian domestic market. A proposed user must have made reasonable effort yet failed to obtain permission from the owner of copyright on reasonable commercial terms and conditions.

The authorisation granted by the Commission can be withdrawn once the circumstances that gave rise to the grant no longer exist. The need for an attempt to be made to secure the permission of the copyright owner may be dispensed with in the event of national emergency or other circumstances of extreme urgency. Dissatisfied parties can apply to the Federal High Court for a review.

  • Disputes arising from exercise of rights under the Act are now arbitrable

By virtue of Section 37(7) any disputes arising from the exercise of rights under the Act are now a subject of arbitration and such disputes may be resolved by any means agreed to by the parties to the dispute.

  • Increase in fines and terms of imprisonment

Throughout the Act, the penalties attached to various forms of infringement have been increased to reflect current fiscal realities. Terms of imprisonment ascribed to copyright infringement have also been amended.

  • Penalisation of circumvention of technological protection measures

Circumvention of technological protection measures protecting access to copyrighted work has now been penalised by Section 50 of the Act. This includes manufacturing, importing, selling, offering for sale any technology, product, service, device, or part for the purpose of circumvention of copyright protection.

The Act defines a technological protection measure as “a technology, device, product or component incorporated into the work which is designed to effectively prevent or inhibit the infringement of any copyright or related right”.

  • Notice for restriction on importation of infringing goods to be given to the Director-General of the Copyright Commission

By virtue of Section 53, copyright owners are now to give notice to the Director-General of the Commission who will then notify the Nigerian Customs Service. Under the old Act, notice was given directly to the Nigerian Customs Service.

  • Provisions relating to online content

One of the notable changes introduced by the Act are its provisions relating to online content as contained in Part VII. The Act now covers notice to take down which gives copyright owners the right to issue notice of infringement to relevant service providers requesting them to take down or disable access to any infringing content or link to the content, hosted on its system or network.

The Act sets out a procedure to be followed by service providers for the suspension of accounts found to be repeat infringers. Misrepresentation of infringement ascribes liability in damages for injuries suffered by the person as a result of the service provider relying on such misrepresentation.

The Commission has the power to block or disable access to any content, link or website hosted on a system or network, which it reasonably believes to infringe copyright.

  • Changes to Performers’ rights

The Act has introduced a number of changes to performers’ rights. Section 63 of the Act now gives performers the exclusive right to control acts of:

  • fixation of unfixed performance;
  • distribution of such fixation or copies to the public by sale or other transfer of ownership; and
  • renting of fixation and making available the fixed performance to the public via wired or wireless means.

Duration of copyright in performance is set at fifty (50) years from the end of the year when the performance was first fixed.[1]

A performance is protected if on the date of the performance, at least one of the performers is a citizen of or is habitually resident in Nigeria, or the performance takes place or is first fixed in Nigeria or in a country that is a party to an international treaty/agreement to which Nigeria is also a party.[2]

Section 65 of the Act now provides for a presumed consent on the part of a performer to rebroadcast their performance, fix and reproduce the performance for broadcasting purposes.

  • Expansion of the powers of the Copyright Commission to include dispute settlement

By virtue of Section 78(1)(c) of the Act, the Copyright Commission now has the power to investigate and redress cases of infringement and settle disputes that have not been specifically reserved for settlement.

  • Amendment to the membership of the Governing Board of the Nigerian Copyright Commission

Section 79 of the Act replaces the representative of the Ministry of Education with a representative of Federal Ministry responsible for Culture.

Tenures of the Chairman and other members of the Board who are not ex-officio members is now expressly provided under Section 80 of the Act as follows:

  • For a term of four (4) years in the first instance and may be re-appointed for a further term of four years and no more; and
  • On such terms and conditions as may be specified in their letters of appointment.

 

  • Dispute Resolution Panel

Section 90 of the Act gives the Commission the power to constitute a Dispute Resolution Panel to resolve any dispute arising from royalty payments, licence terms, any matter in respect of which a determination by the Commission is required under the Act.

  • Power to make regulations

The Act has given the Commission the power to make regulations with the consent of the Minister.[3] Prior to this, it was the Minister who made regulations.[4]

  • Execution against the property of the Commission

Under the old Act, there was a blanket restriction on execution against the property of the Commission in any action or suit against the Commission. However, Section 100 of the Act now requires that at least three (3) months’ notice of intention to execute or attach property must be given to the Commission before execution.

  • Amendments to the Interpretation Section

The Act has also introduced amendments to the interpretation section, namely:

  • The definition of cinematograph is now subsumed by audiovisual work.
  • Broadcasting authority is now broadcasting organization.
  • Collective work has been added to mean “a collection of literary or artistic works, which by reason of the selection and arrangement of their contents, constitute intellectual creations and as such protected without prejudice to the copyright in each of the works forming part of such collection”.
  • The definition of “communication to the public” has been expanded to reflect modern technology by being defined as “making a work or a performance available to the public by wire or wireless means in such a way that members of the public may access the work or performance from a place and at a time individually chosen by them”.
  • The term “copy” now includes digital forms.

The definition of service provider has been included among the terms defined and it refers to “a provider of online services or network access, including operators of such facilities, and any entity offering the transmission, routing, or providing of connections for digital online communications, between or among points specified by a user, of material of the user’s choosing, without modification to the content of the material as sent or received”.

Conclusion

From the foregoing, it can be noted that part of the key reforms introduced by the Copyright Act 2022 seek to address issues brought about by the potentials of technological advancement.

The emergence of various digital platforms has played a significant role in copyright infringement, however, the Copyright Act 2022 exemplifies a commitment towards fostering an enabling environment for creative work in Nigeria. It is hoped that these reforms will be accompanied by much needed efforts in enforcement.

 

Footnote:

[1] Section 70 of the Act.

[2] Section 64 of the Act.

[3] Section 97 of the Act.

[4] Section 45, Copyright Act, Cap C28 Laws of the Federation of Nigeria 2004

08 Nov 2023
The Diaspora Guide to Buying Property in Nigeria
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The Diaspora Guide to Buying Property in Nigeria

The prospect of buying property back home can be exciting but for the inexperienced purchaser it can also be daunting. Property ownership can be a valuable investment by providing a local source of income. However, careful planning is needed.

For more information, view our publication titled “The Diaspora Guide to Buying Property in Nigeria”:

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17 May 2022
Restrictive Covenants in Employment Contracts
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Restrictive Covenants in Employment Contracts

Restrictive covenants or non-compete clauses have their origins in the master-servant relationship.

The earliest mention of restrictive covenants in employment contracts was in 1414 in the Dyer’s Case[1] where the court held that the covenant restricting an apprentice from engaging in his trade in the same city as his master was contrary to public policy.

However, in view of changing times, restrictive covenants are now a common feature in employment contracts with employers resorting to them to protect their business from competing former employees.

 

Considerations for Employers and Employees on the Enforceability of Restrictive Covenants

The English courts reconsidered their long-standing stance on the rejection of restrictive covenants in the case of Mitchel v. Reynolds [2] . In the case they held that a restraint of trade can be enforced if it is reasonable.

Nigerian courts have held a similar view. In Koumoulis v. Leventis Motors Ltd [3], the Supreme Court considered what amounted to reasonableness in relation to a restrictive covenant and found a restrictive covenant to be reasonable if it provides adequate protection to the covenantee:

“If the covenant affords adequate protection to the covenantee, the requirement that it must be reasonable in the interest of the parties is satisfied as the court will not enquire into the adequacy of the consideration for the covenant. And depending on how the covenant is framed, an employer can lawfully prohibit the employee from setting up on his own, or accepting a position with one of the employer’s competitors, so as to be likely to destroy the employer’s trade connection by a misuse of his acquaintance with the employer’s customers or clients.”[4]

Therefore, the protection provided to an employer under a restrictive covenant must not be wider than necessary for a restrictive covenant to be enforceable.[5]

The purpose of restrictive covenants is not to hamper a former employee’s career or business prospects but rather to ensure the protection of an existing interest. The interest sought to be protected by such a covenant often includes the protection of proprietary information and trade relationship with clients or customers.

Prior to the enactment of Nigeria’s competition law, the time frame of the restriction was generally as stipulated by the terms of a contract. However, this is no longer the case as Section 68(1)(e) of the Federal Competition and Consumer Protection Act 2018 now limits the time frame to two (2) years:

“68(1) Nothing in this Act prohibits —

…

(e) a contract of service or a contract for the provision of services in so far as it contains provisions by which a person, not being a body corporate, agrees to accept restrictions as to the work, whether as an employee or otherwise, in which that person may engage during or after the termination of the contract and this period shall not be more than two years…”

From the foregoing, it is clear that parties to contracts containing restrictive covenants are required to ensure that the restriction does not surpass two (2) years.

 

Implication of Refusal to Sign Contract Containing Restrictive Covenant

A prospective or existing employee may be reluctant to sign a contract containing a non-compete clause. An employer cannot mandate a prospective employee to sign such a contract against their will in view of the legal ramifications. However, such employer can choose to rescind an offer of employment or terminate an existing employment under such circumstances, provided the restrictive covenant passes the test of reasonableness.

At this juncture, it is important to also consider the implication of situations where a prospective or existing employee is being or has been forced to sign a contract containing a restrictive covenant and the enforceability of such contract.

The Court of Appeal in the case of Oraka v. Oraka & Anor [6] considered the effect of an agreement entered into under duress and held such agreement is not binding and enforceable:

“Let me quickly in agreeing with the Appellant state a very trite position of the law. It is that, agreement entered into between parties are binding where the agreement is made voluntarily without any compulsion, misrepresentation and fraud. The reverse is also correct; an agreement entered between parties will not be binding and enforceable when the agreement is made under duress, fraud and misrepresentation.” [7]

However, the Court of Appeal in Sadiq v. Balarabe [8] also made it clear that signing a contract under duress is not the same as signing it under desperation and as such a person signing a contract under desperation may still be bound by the contractual terms:

“Signing an agreement out of desperation or fear of losing one’s job and not out of duress or compulsion, in my humble view does not exempt the party from being bound by the agreement.” [9]

 

Conclusion: Negotiation of Restrictive Covenants

The importance of the discussion on restrictive covenants is due to their post-termination effects. In view of this, it becomes necessary to consider the option of negotiating restrictions particularly at the initial stages of engagement.

Issues such as the scope of restrictions or the compensation to be given to an employee or a prospective employee in exchange for acceptance may be the subject of negotiations. Parties would be expected to weigh the relative advantages that negotiations can bring.

However, negotiation often comes with risks and it involves being in a position of strength in relation to pre-existing factors. An employee or prospective employee occupying a high-level role with more experience may have more leverage in negotiations compared to one with less experience. Hence, understanding the job description would assist in determining an employee or prospective employee’s position and the reasonableness of a restrictive covenant.

 

Footnotes:

[1] (1414) 2 Hen. V, fol. 5, pl. 26

[2] (1711) 1 PWms 181

[3] (1973) LPELR-1710(SC)

[4] per Udo Udoma, JSC

[5] Vee Gee (Nigeria) Limited v Contact (Overseas) Limited [1992] 9 NWLR (Pt. 266) 503.

[6] (2019) LPELR-47675(CA)

[7] per Ebiowei Tobi, JCA (Pp 35 – 36 Paras E – B)

[8] (2020) LPELR-52114(CA)

[9] per Amina Audi Wambai, J.C.A

 

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04 Feb 2022
The Pan-African Payment and Settlement System (PAPSS) as a Catalyst to Intra-African Trade
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THE PAN-AFRICAN PAYMENT AND SETTLEMENT SYSTEM (PAPSS) AS A CATALYST TO INTRA-AFRICAN TRADE

In recognition of the importance of bolstering intra-African trade, the Afreximbank developed and introduced the Pan-African Payment and Settlement System (PAPSS) in partnership with the West African Monetary Institute (WAMI). It was formally launched in Accra on 13th January 2022.

The PAPSS facilitates cross-border transactions by providing a financial infrastructure to address currency exchange challenges thus allowing payments to be made instantly in local currencies. Therefore, cross-border payments are made and received in the traders’ respective local currencies.

Prior to the introduction of the PAPSS, payment settlements in intra-Africa trade involved the presence of multiple currencies namely, the local currencies of traders involved in the transaction and a third currency, such as the US Dollar (USD) or Euro, to act as an intermediary settlement currency. This approach affected transaction times, increased transaction expenses and exposed small and medium-sized enterprises (SMEs) to risks and hardships in sourcing for foreign exchange.

 

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24 Jan 2022
Central Bank of Nigeria Guidelines on e-Invoicing for Import and Export in Nigeria
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CENTRAL BANK OF NIGERIA GUIDELINES ON E-INVOICING FOR IMPORT AND EXPORT IN NIGERIA

The Central Bank of Nigeria (CBN) on January 21, 2022 released guidelines to govern e-invoicing for import and export in Nigeria. The purpose of these Guidelines is to ascertain the accurate value of imports and exports in Nigeria.

As part of the aim of to achieve value accuracy, a Global Price Verification Mechanism guided by a benchmark price will be used. This benchmark price reflects the spot market price at the time of consummation of invoicing in the market where the goods are traded.

From February 1, 2022, all import and export operations will require the submission of an e-invoice that is authenticated by the Authorised Dealer Banks (ADBs) on the Nigeria Single Window Portal’s Trade Monitoring System (TRMS).

 

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26 Oct 2021
FAQ: REGULATORY GUIDELINES ON THE ENAIRA
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FAQ: REGULATORY GUIDELINES ON THE ENAIRA

The Central Bank of Nigeria (CBN) has, among its principal objects, the responsibility of issuing legal tender in Nigeria. The eNaira is a Central Bank Digital Currency (CBDC) intended to be legal tender that has parity with the Naira. In view of this, the CBN recently released the Regulatory Guidelines on the eNaira.

 

Q: What is the difference between a Central Bank Digital Currency (CBDC) and other cryptocurrencies such as Bitcoin?

The major difference between CBDCs and other cryptocurrencies such as Bitcoin lies in the issue of control and decision-making. CBDCs are controlled by a specific entity, hence they are centralized while cryptocurrencies such as Bitcoin are decentralized.

 

Q: What is the difference between a Central Bank Digital Currency (CBDC) and stablecoins?

The purpose of a CBDC is to be legal tender. It is a digital representation of legal tender. On the other hand, the value of stablecoins is pegged to another asset.

 

Q: Who are the participants in the eNaira project?

The Guidelines identify the following as participants in the eNaira project:

  • Central Bank of Nigeria (CBN)
  • Financial Institutions
  • Merchants
  • Ministries, Departments and Agencies (MDAs)
  • Consumers

 

Q: Who is responsible for administering the eNaira?

The Guidelines state that the CBN is the authority responsible for administering, minting and issuing the eNaira through the Digital Currency Management System (DCMS).

 

Q: Are there different eNaira Wallet types?

The Guidelines identify five (5) types of eNaira wallets. They are as follows:

  1. eNaira Stock Wallet: This wallet stores all minted eNaira. It belongs only to the CBN.
  2. eNaira Treasury Wallets: These wallets are maintained by Financial Institutions to store eNaira received from the CBN. A Financial Institution is only allowed to maintain one (1) treasury wallet. Although not mandated to, Financial Institutions may create and fund sub-treasury wallets for branches tied to them.
  3. eNaira Branch Wallets: These wallets can be created and funded by a Financial Institution for its branches. However, it is important to note that the Guidelines fail to make a clear distinction between Branch Wallets and sub-treasury wallets.
  4. eNaira Merchant Speed Wallets: These wallets are used to transact eNaira payments for goods and services.
  5. eNaira Speed Wallets: These wallets are for end users to transact on the eNaira platform.

 

Q: What changes should Financial Institutions make to their systems to accommodate the eNaira?

By virtue of Paragraph 3.5 of the Guidelines, Financial Institutions are mandated to integrate their backend systems to the DCMS to facilitate the transfer of eNaira between bank accounts and eNaira wallets. Financial Institutions are to make the eNaira wallet feature available on their digital bank channels.

 

Q: What AML/CFT measures are Financial Institutions supposed to adopt?

Paragraph 10.0 of the Guidelines mandates Financial Institutions to comply with the Money Laundering (Prohibition) Act 2011 (as amended), the Terrorism (Prevention) Act 2011 (as amended) and all subsisting anti-money laundering laws and regulations as may be issued by the CBN from time to time.

 

Q: How are Financial Institutions expected to handle risk management?

Financial Institutions are expected to adopt appropriate risk management practices. The Guidelines specify that Financial Institutions are to adopt measures including the following:

  • An Enterprise risk management framework
  • Appropriate governance structures
  • Documented and approved policies
  • Secured information technology infrastructure

 

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27 Aug 2021
corporate governance
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OVERVIEW OF THE NATIONAL INSURANCE COMMISSION CORPORATE GOVERNANCE GUIDELINES FOR INSURANCE AND REINSURANCE COMPANIES IN NIGERIA 2021

The National Insurance Commission, being the body saddled with the responsibility of regulating the insurance sector in Nigeria, issued the Corporate Governance Guidelines for Insurance and Reinsurance Companies in Nigeria 2021.

The Financial Reporting Council of Nigeria issued the Nigerian Code of Corporate Governance (NCCG) 2018 in line with its object to ensure good corporate governance practices in the public and private sectors of the Nigerian economy.[1] This raises questions as to the status of the Guidelines in relation to the NCCG 2018.

Paragraph 1.0 (iv), (v), and (vi) of the Guidelines resolve this issue by stating that the Guidelines are to assist in the implementation of the NCCG 2018 and shall be read and interpreted in conjunction with the NCCG 2018. Thus, Insurance and Reinsurance companies are expected to comply with both the NCCG 2018 and the new Guidelines. Non-compliance with the NCCG 2018 and the Guidelines attracts a penalty of a fine or imprisonment or both.[2]

 

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Footnotes:

[1] Section 11(c) Financial Reporting Council of Nigeria Act, 2011

[2] Section 49(5) National Insurance Commission Act 1997

12 Aug 2021
Corporate Governance
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CORPORATE GOVERNANCE IN PAYMENT SERVICE HOLDING COMPANIES UNDER THE GUIDELINES FOR LICENSING AND REGULATION OF PAYMENTS SERVICE HOLDING COMPANIES IN NIGERIA

The Central Bank of Nigeria (CBN) recently required companies intending to offer Switching and Processing services and Mobile Money Services to establish a Payments Service Holding Company. To this end, the CBN released the Guidelines for Licensing and Regulation of Payments Service Holding Companies in Nigeria. The Payments Service Holding Company holds equity in subsidiary companies and as such provides them with support needed to overcome adverse financial situations.

 

What is a Payment Service Holding Company (PSHC)?

The Guidelines define a Payment Service Holding Company (PSHC) as a company whose principal object clause includes the business of a holding company set up for the purposes of making and managing equity investment in a minimum of two (2) companies.[1] These companies are subsidiaries of the PSHC and are Payment Service Providers (PSP) across the following identified categories:

  1. Mobile Money Operations;
  2. Switching and Processing;
  3. Payment Solution Services.

The Guidelines go further to state the purpose of a PSHC. By virtue of Paragraph 2.2.1 of the Guidelines, a PSHC is non-operating and exists for the purpose of carrying out investment in approved subsidiaries and as such it is not to have any involvement in the day-to-day management of its subsidiaries.

 

Are there specific requirements on the constitution of the Board of Directors of a PSHC under the Guidelines?

Under the Guidelines, a PSHC shall have between five (5) and ten (10) people on its Board of Directors. However, this number can also be determined by applicable Central Bank of Nigeria (CBN) Corporate Governance Guidelines.[2]

A PSHC is mandated to ensure that at least one individual with experience in the business of the PSHC’s subsidiary companies is included on the Board of Directors.

 

How are appointments to the Board of Directors of a PSHC to be handled?

With respect to Board appointments, Paragraph 4.0(b) of the Guidelines requires that appointment to the Board and management positions be in line with the requirements of Assessment Criteria for Approved Persons’ Regime for Financial Institutions, or any other applicable regulation as issued by the CBN from time to time.

The Guidelines go further to state that Regulations governing the disqualification of Board and management applicable to Other Financial Institutions (OFIs) are also applicable to PSHCs.

 

Is a PSHC expected to have risk management practices?

Yes, a PSHC is expected to have risk management practices and must demonstrate that it has a competent and independent Board of Directors with requisite capacity to provide oversight on internal controls and risk management practices.

 

What other guidelines are PSHCs expected to comply with?

A PSHC must register with the Corporate Affairs Commission (CAC) and its activities are licensed, supervised and regulated by the CBN.

A PSHC must comply with the provisions of applicable CBN Corporate Governance Guidelines and the Securities and Exchange Commission (SEC) Corporate Governance Guidelines for publicly quoted companies and listed entities in Nigeria, where applicable.

In addition to this, a PSHC must make its audited financial statements available on its website.

 

Ownership and Control in a PSHC

In the event whereby there is a shareholding of 5 percent and above in a PSHC or any change in ownership which results in the change and control of the PSHC, the Guidelines under Paragraph 4.1(a) require that the approval of the CBN must first be sought and obtained. If shares are acquired through the secondary market, the PSHC must apply for approval from the CBN within seven (7) days of the acquisition.

The following agreements cannot be entered into without the prior written approval of the CBN:

  1. Sale, disposal or transfer howsoever of the whole or any part of the business of the PSHC;
  2. Issuance of new shares;
  3. Amalgamation or merger or takeover of the PSHC with any other person;
  4. Reconstruction of the PSHC; or
  5. Employment of a management agent or agreement to be management by or to transfer its business to any such agent.[3]

 

Should a PSHC lose control in any of its two (2) subsidiaries (in the case of a PSHC with more than two (2) subsidiaries) or in either of its subsidiaries (in the case of a PSHC with only two (2) subsidiaries) for a period exceeding six (6) consecutive months, the PSHC must return its licence to the CBN for cancellation and as such ceases to be a PSHC.

The PSHC shall subsequently divest from its subsidiary or subsidiaries within six (6) months or any other timeframe as specified by the CBN. Such subsidiary or subsidiaries can continue operations as an independent entity.

 

Can a subsidiary acquire shares in its parent PSHC?

No, subsidiaries are not permitted to acquire shares in the parent PSHC. In the same vein, they are also not permitted to acquire shares of other subsidiaries of their parent PSHC.

 

Remarks

The Central Bank of Nigeria in its circular dated 3rd of August 2021 required relevant stakeholders to ensure strict compliance with the Guidelines in line with its duty to promote a credible payments system. Adherence to the corporate governance guidelines would contribute to improved business performance and continuity.

 

 

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Footnotes:

[1] Paragraph 2.1 of the Guidelines

[2] Paragraph 2.2.2 of the Guidelines

[3] Paragraph 4.2 of the Guidelines

09 Jul 2021
regulatory incubation
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AN OVERVIEW OF THE SECURITIES AND EXCHANGE COMMISSION REGULATORY INCUBATION GUIDELINES

The Securities and Exchange Commission (SEC) recently released the SEC Regulatory Incubation Guidelines for Specific Category of Fintech Entrepreneurs. Through its Regulatory Incubation (RI) Program, the SEC seeks to provide an environment for Fintechs to operate under limited provisions for a specified period. Regulatory Incubation makes it possible for regulators to create new rules or amend existing ones to better accommodate new business models.

 

Pre-Qualification Requirement

The Guidelines provide for a set of requirements that applicants to the RI Program must meet in order to participate. A cursory look at the pre-qualification requirements reveals that importance is placed on the innovation, usefulness and safety of the fintech product or service sought to be provided. The requirements can be summarized as follows:

  1. Innovative technology shall be used to offer a new type of product or service, or add innovation to an existing product or service;
  2. The activity in question shall be a financial service within the scope of the activities regulated by the SEC;
  3. The Applicant shall be ready to start with live customers and operate within the purview of the SEC Regulatory Framework;
  4. The Applicant shall undertake to apply for registration as soon as the SEC provides Rules;
  5. The product or service in question shall be one that addresses a problem or brings potential benefits to consumers or industry;
  6. The product must be safe for investors;
  7. The Applicant shall complete the Fintech Assessment Form and discuss the proposal with the SEC.

 

What requirements must an Applicant fulfil in respect of Regulatory Incubation Operations?

The Guidelines specify certain requirements an Applicant to the RI Program must meet in respect of Regulatory Incubation Operations namely:

  1. Possession of relevant skills in financial services and/or technology
  2. Undertaking to act with integrity, due care and diligence and provide referee information
  3. Undertaking to provide clients with full information and regular feedback
  4. Undertaking to provide full disclosure to the SEC on the business through an incubation implementation plan
  5. Undertaking to provide procedure for holding and controlling client assets
  6. Undertaking to comply with relevant laws and regulations
  7. Operating a Nigeria office
  8. Undertaking to comply with AML/CFT requirements
  9. Provision of monthly reports to the SEC.

 

What should be included in an Implementation Plan?

As earlier stated, an Applicant to the RI Program is to provide an Implementation Plan to the SEC as part of the application requirements. The Guidelines specify what is to be included in an Implementation Plan. They are as follows:

  1. Full description of the business and the proposed innovative Fintech product, service or business model including type of technology;
  2. The objectives and parameters for the incubation period;
  3. Implementation timeline and key milestones for testing;
  4. Target or existing customers;
  5. Risk Management Framework;
  6. Description of how the Fintech Operator intends to ensure customers understand the risks;
  7. Methodology of handling communications with customers before and during the incubation period;
  8. Description of steps to be taken at the expiration of the incubation period; and
  9. An exit plan if registration is not achieved.

 

Are there any restrictions Fintech operators under Regulatory Incubation must adhere to?

The Guidelines place certain restrictions on Fintech operators under Regulatory Incubation. Such operators are not permitted to conduct any other investment business except as presented to the SEC. They are also prohibited from financial promotions such as any notice, circular, letter or other written or electronic communication, guaranteeing returns. Fintech operators under Regulatory Incubation are not permitted to provide misleading or untrue information.

 

What conditions are Fintech Operators under Regulatory Incubation supposed to adhere to?

Fintech Operators under Regulatory Incubation are expected to have the capacity to onboard a maximum of 100 clients, however, this number can be increased upon the appraisal and approval of the SEC. In the case of Fintech operators that are already in operation, the Guidelines specify that they are to maintain their existing clients but cease onboarding new clients. Fintech operators are to ensure that their clients are fully informed of the product or service before onboarding.

Fintech Operators are to be under regulatory incubation only for a maximum period of one (1) year. At the end of this period, eligible Fintech Operators are expected to apply for registration or discontinue activity.

 

Can a Fintech Operator be removed from Regulatory Incubation?

The SEC reserves the right to terminate a Fintech Operator’s participation in the Regulation Incubation process in the following circumstances:

  1. The Fintech Operator is no longer meets the eligibility criteria
  2. A breach of any of the restrictions or conditions has occurred
  3. A breach of the law or guidelines has occurred
  4. The Fintech Operator deviates from the implementation plan presented to the SEC
  5. The Fintech Operator failed to take steps to apply for registration or submit notice of discontinuance at the end of the regulatory incubation process.

Applicants can also withdraw from the Regulatory Incubation process at any time by notifying the SEC.

 

 

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