The finance industry is experiencing a remarkable transformation courtesy of fintech, leading to a wave of opportunities. However, along with these promising prospects come a host of regulatory and policy challenges that must be addressed.
Similar to global trends, Nigeria has also witnessed a significant fintech revolution over the past decade, witnessing an exponential surge in the adoption of digital platforms for financial transactions.
While the progress in the industry is commendable, a recent report by the CBN sheds light on the critical regulatory obstacles encountered in the Nigerian fintech ecosystem.
Transition challenges
The adoption of FinTech presents transition challenges that require vigilant policymaking to build resilient and inclusive economies capable of harnessing the full benefits of this emerging trend.
The CBN noted that because of this rapid change, regulators must adjust to meet up with the speed of change and evolving market dynamics.
Blurred international borders
Another challenge the Bank mentioned in regulating FinTech is its borderless nature. FinTech providers offer services on a global scale, making it challenging for public authorities to monitor transactions effectively.
The global nature of FinTech calls for enhanced international cooperation to address regulatory gaps effectively.
Disintermediation
The CBN added that the FinTech space has disrupted the traditional financial value chain by eliminating intermediaries.
This convergence of finance, technology, telecommunications, and infrastructure challenges regulatory assumptions and requires collaboration among various regulatory bodies.
Speed of adoption
The rapid adoption of FinTech puts pressure on regulators to respond quickly, sometimes without a complete understanding of the evolving landscape.
CBN noted that policymakers must strike a delicate balance between supporting innovation and mitigating risks to financial integrity and stability.
Other challenges the apex mentioned are the lack of reliable information in the FinTech markets due to their dynamic and fragmented nature; legal and regulatory risks where most FinTech activities are not adequately covered by existing legislation; lack of coordination as efforts to adapt legal and regulatory frameworks often span multiple government departments; and consumer protection.
It also added that oversight and risk management; cyber risks, data transparency; competition between traditional financial institutions and FinTech; AML/CFT risks related to money laundering, terrorist financing, and evading sanctions; third-party reliance: contagion where large losses affecting a single FinTech firm could have a domino effect on the entire sector; and increased inequality.
While FinTech promises to improve financial inclusion, it also risks exacerbating inequality by leaving behind populations with limited access to digital services.
The report from the CBN emphasizes that while there is no universal approach to regulation, it is crucial to adapt to the ever-changing landscape of the industry.
This requires agility, international cooperation, and a thorough understanding of the complex issues at hand. As the FinTech journey progresses, regulators must stay vigilant in order to ensure a stable, secure, and inclusive financial future.
