Tag: fintech

12 Aug 2021
Corporate Governance
Publications GRF Dalley & Partners 0 comment

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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02 Jun 2021
Publications GRF Dalley & Partners 0 comment

Checklist of Requirements to Register as a Crowdfunding Intermediary in Nigeria

The Securities and Exchange Commission (SEC) requires all existing investment crowdfunding portals/digital commodities investment platforms to register with the Commission by the 30th of June 2021. Failure to comply would attract regulatory sanctions. Thus, such entities are expected to take note of the registration requirements and ensure that they comply with the eligibility criteria.

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02 Dec 2020
Publications GRF Dalley & Partners 0 comment

Notice for Takedown Schemes: Guarding Against Intellectual Property Infringement in Ecommerce

Introduction

With the improvement of technology and increase in cross-border transactions, there is a growing shift towards using ecommerce channels in conducting business activities. This brings along with it benefits such as appealing to a wider customer base without incurring the overhead costs involved in running and expanding brick-and-mortar businesses. Developments in fintech solutions have been instrumental to facilitating the adoption of ecommerce in Nigeria. The cost of integrating payment solutions to platforms has drastically reduced over the years and as such it has become more accessible to the general public who intend to use these solutions to receive payments for products and services sold through the internet. Ecommerce has particularly proved itself as a viable means of continuing sales during the COVID-19 pandemic where movement was limited.

Internet user penetration in Nigeria is estimated to be 46.6% in 2020 and is expected to be 65.3% by 2025.[1] With this, Nigerian ecommerce spending is estimated to be $12 billion as at 2020.[2] However, despite the benefits of ecommerce, it is accompanied by various challenges including intellectual property infringement. In this article, we will be examining intellectual property infringement and how it can be avoided in ecommerce through notice for takedown schemes.

 

Intellectual property infringement under various laws

Simply put, intellectual property infringement occurs when a person uses, produces or sells content, designs, methods, procedures, products, etc. without the permission of the owner. In Nigeria, the main laws governing intellectual property are as follows:

  1. Copyright Act, Cap. C28 Laws of the Federation of Nigeria 2004
  2. Trade Marks Act, Cap. T13 Laws of the Federation of Nigeria 2004
  3. Patents and Designs Act, Cap. P2 Laws of the Federation of Nigeria 2004

Under the Copyright Act, an infringement is said to occur when a person does any of the following without the licence or authorization of the copyright holder:

  1. Does or causes any other person to do an act that is controlled by copyright;
  2. Imports into Nigeria, otherwise than for his private or domestic use, any article in respect of which copyright is infringed;
  3. Exhibits in public any article in respect of which copyright is infringed;
  4. Distributes an article by way of trade, offer for sale, hire or otherwise or for any purpose prejudicial to the owner of the copyright;
  5. Makes or has in his possession, plates, master tapes, machines, equipment or contrivances used for the purpose of making infringed copies of the work;
  6. Permits a place of public entertainment or of business to be used for a performance in the public of the work, where the performance constitutes an infringement of the copyright in the work, unless the person permitting the place to be used is not aware, and had no reasonable ground for suspecting that the performance would be an infringement of the copyright;
  7. Performs or cause to be performed for the purposes of trade or business or as supporting facility to a trade or business or as supporting facility to a trade or business, any work in which copyright subsists.[3]

With regards to patents and designs, rights of a patentee or design owner are infringed if another person makes, imports, sells, or uses the product or applies the process without a licence from the patent owner.[4]

Under the Trade Marks Act, an infringement is said to occur when a person, who is neither the trademark owner nor a person authorised by the trademark owner, uses a mark that is identical with or similar to the trademark such that it is likely to deceive or cause confusion in the course of trade.[5]

Currently, the ways of handling intellectual property infringement in Nigeria range from measures such as cease and desist letters to litigation. However, at this juncture it would be proper to look into the possibility of adopting notice for takedown schemes.

 

Notice for takedown scheme in Nigeria as a means of resolving intellectual property infringement

The present intellectual property regime in Nigeria does not make provision for notice for takedown schemes. At best, it is left to the discretion of ecommerce service providers. However, the draft Copyright Bill 2015 contains provisions governing notice for takedown regarding content that is shared online.

Section 47(1) of the Bill provides thus:

“The owner of copyright in a work in respect of which copyright has been infringed, may issue notice of such infringement to the relevant service provider requesting the service provider to take down or disable access to any infringing content or link to such content, hosted on its systems or networks.”

The Bill defines a service provider as “a provider of online services or network access, or the operator of facilities therefor, and includes an 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”.[6] This provision would give copyright owners the right to notify service providers, such as e-commerce stores, internet service providers and content providers, of an ongoing intellectual property infringement. The notification is required to fulfill the following criteria:

  1. It must be in writing.
  2. It should be signed, either physically or electronically, by a person authorized to act on behalf of the copyright owner.
  3. The work claimed to have been infringed should be identified.
  4. The infringing material or activity should be identified in such a way as to enable the service provider locate the material.
  5. The contact information of the complaining party should be provided.
  6. The complaining party should make a statement that they believe, in good faith, that the use of the material is not authorized by the copyright owner, his agent or the law.
  7. The complaining party is to make a statement that the information in the notification is accurate and that the complaining party has authority to act on behalf of the copyright owner.[7]

In the same vein, a service provider has certain duties to fulfil upon receiving a notice of infringement. Section 48(1) of the Bill requires the service provider to notify the subscriber responsible for the alleged infringing content of the infringement notice.

The subscriber in question has 10 days to provide information justifying the continued keeping of the alleged infringing content. Although the Bill does not expressly specify criteria that the subscriber must satisfy, it can be deduced that a subscriber should show either of the following:

  1. The infringing material is different from the work alleged to be infringed on; or
  2. The subscriber has a licence to use the work alleged to be infringed on.

If the service provider is satisfied by the information provided the subscriber, they shall inform the complaining party of their decision not to take down the content.[8]

If the subscriber fails to provide justification, Section 48(2) of the Bill requires the service provider to take down or disable access to the infringing content or links to such content hosted on its systems or networks and subsequently notify the copyright owner.

From the foregoing, it can be seen that ecommerce service providers would be expected to accord sellers who utilize their platforms the right to fair hearing before taking any action to resolve the issue.

In a situation where the work alleged to be infringed on is in fact the infringing material, the subscriber can submit a written counter notice to the service provider. The counter notice will be submitted to the copyright owner who would be required to show that the subscriber was not authorized to make the content available.[9]

It must be noted that the notice for takedown scheme as provided in the Copyright Bill 2015 was not intended to be final. Any party who is dissatisfied with the decision of the service provider has the right to appeal the decision to the Nigerian Copyright Commission. Parties could further appeal to the Federal High Court.[10]

 

Application of notice for takedown scheme in patent infringement cases   

Copyright infringement is not synonymous with patent infringement and as such issues may arise in attempting to apply the foregoing provisions of the Copyright Bill, should the Bill receive Presidential assent. In spite of this, the spread of ecommerce necessitates stakeholders to extend the possibility of resolving patent infringement matters through notice for takedown schemes. Incorporating a notice for takedown framework to specifically address patent infringement issues can help to facilitate dispute resolution without going through lengthy court processes.

There arise certain challenges in adopting notice for takedown schemes in cases of patent infringement. While notice for takedown schemes relate to removing information that is stored in a system, resolving patent infringement issues requires the restriction of sales of the patented item. However, in the case of ecommerce it can be argued that a sale taking place on an ecommerce platform relies on the presence of the relevant advertising medium (content) on the ecommerce platform’s system and as such taking down the offending content from the servers would help to curtail the sale of the infringing item.

 

Conclusion

A reliable intellectual property regime is an important aspect of ensuring business success and promoting economic growth and investment. Intellectual property infringement has a negative effect on innovation and research and development efforts. In addition to this, the present justice dispensation in Nigeria is in need of important reforms to enable it deal with cases in a timely, efficient and effective manner.

The Copyright Bill 2015 was approved by the Federal Executive Council in 2017 and is currently awaiting review and passage into law by the National Assembly. Once the Bill is passed, it would become easier to implement the notice for take down scheme due to the presence of existing framework. By extension, this would form a blueprint for the application of a similar scheme to incidences of patent infringements.

 

 

For inquiries and further information, email us at inq@grfdalleyandpartners.com

 

Footnotes:

[1] https://www.statista.com/statistics/484918/internet-user-reach-nigeria/

[2] https://www.thisdaylive.com/index.php/2020/01/09/of-ecommerce-growth-and-digital-economy/

[3] Section 14 Copyright Act 2004

[4] Section 25 Patents and Designs Act 2004

[5] Section 5 Trade Marks Act 2004

[6] Section 47(3) Copyright Bill 2015

[7] Section 47(2) Copyright Bill 2015

[8] Section 48(3) Copyright Bill 2015

[9] Section 48(4) Copyright Bill 2015

[10] Section 81 Copyright Bill 2015

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