Securing a license to deal in securities in Nigeria is akin to meandering through a bureaucratic obstacle course. The Securities and Exchange Commission (SEC), Nigeria’s gatekeeper of capital market integrity, holds the reins. Yet, ingenuity often emerges in the face of regulation, and nowhere is this more evident than in the world of Nigerian fintech startups.
Faced with the Central Bank of Nigeria’s (CBN) formidable regulatory framework, startups have long sought creative solutions to circumvent the system — some bordering on genius, others on folly. For instance, fintech companies often rely on microfinance licenses to conduct banking activities, effectively piggybacking on regulatory allowances. However, a new trend has taken the ingenuity up a notch: the use of cooperative societies’ licenses to operate investment platforms. It’s an approach that is gaining traction — and scrutiny.
A few months ago, while advising a client exploring options for community savings activities, I stumbled upon this peculiar licensing strategy. But what seemed like an innovative workaround has now caught the SEC’s attention, culminating in a regulatory clampdown that has put Risevest, one of Nigeria’s leading fintech startups, in the spotlight.
The SEC has issued a strongly-worded statement targeting entities leveraging cooperative society licenses for capital market activities. The regulator cited the activities of Stecs (Alausa) Multipurpose Cooperative Society, accusing it of engaging in unauthorized capital market operations. The notice extended to Risevest (Victoria Island) Cooperative Multipurpose Society Limited, warning the public against transacting with such entities. According to the SEC, these organizations are neither registered with the Commission nor authorized to promote investment schemes.
In its characteristic tone of investor protection, the SEC stated, “Transacting in the Nigerian capital market with unregistered and unregulated entities exposes investors to the risk of fraud and potential loss of investment.” The Commission pledged to continue combating illegal operators, emphasizing its commitment to safeguarding the integrity of Nigeria’s capital markets.
Risevest, backed by Ventures Platform and Techstars, has been a trailblazer in making global investment opportunities accessible to Nigerians. With a user base reportedly numbering 600,000, it has also made waves on the international stage, acquiring Kenya’s Hisa in a deal approved by the Kenyan Capital Markets Authority (CMA). But at home, the startup finds itself now, substantially, embroiled in controversy.
The SEC’s intervention suggests that the cooperative society workaround, while creative, strays into prohibited territory when deployed for public-facing investment schemes. Whether this constitutes regulatory overreach or a necessary correction depends on whom you ask.
Nigeria’s regulatory ecosystem for fintech remains a complex maze of overlapping jurisdictions. The SEC, CBN, and other bodies often find themselves at odds, leaving startups to play a high-stakes game of chess. For startups like Risevest, the challenge lies in balancing compliance with growth ambitions. It’s a tightrope walk that leaves little room for error, or its reputation tanks.
The SEC’s crackdown on cooperative society licenses sends a strong message: regulatory shortcuts will no longer be tolerated.
However, industry watchers are well aware of Nigerian regulators’ penchant for scrutinizing investment fintechs. In 2021, the Central Bank of Nigeria (CBN) froze the accounts of Chaka, Bamboo, Risevest, and Trove, accusing them of operating without proper licenses and engaging in illegal foreign exchange (FX) trading. The CBN further alleged that these activities were contributing to the weakening of the naira.
Fast forward to 2023, and the CBN reversed its stance, lifting restrictions on Chaka, Bamboo, AbokiFX, and several others. In an unexpected move, the bank also unfroze the accounts of over 440 individuals and companies. Notably, the CBN provided no explanation for its sudden U-turn on the 2021 crackdown.
As Nigeria’s fintech ecosystem continues to evolve, one thing is clear: the rules of the game are changing, and everyone — startups and regulators alike — must adapt. Perhaps, in this tug-of-war, the real winners will be the investors — if only they can navigate the maze unscathed.
