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Charting the way

New guides for navigating the regulatory environment for fintech in Kenya, Nigeria, South Africa, India and Mexico.

Financial technology concept. Fintech. Crypto currency. Electronic money.

This blogpost is written by Sarah Ombija, Regulatory Researcher at the Cambridge Centre for Alternative Finance (CCAF) at Cambridge Judge Business School; Neha Kekre, Global Benchmarking Research Associate at CCAF; and Diego Montes Serralde, Global Benchmarking Research Intern at CCAF.

Fintech start-ups around the world are creating ripples in financial markets, driving change and challenging the status quo through the provision of novel financial products and services. They are fostering efficiency within the traditional and broader financial system, while also enabling the uplift of overall social well-being by financially including a significant population that was previously excluded.

However, fintechs face challenges when navigating the regulatory environment in many of the jurisdictions in which they operate due to uncertainty surrounding the requirements applicable to their business models. 

To help mitigate this challenge, the Cambridge Centre for Alternative Finance (CCAF) and Catalyst Fund ─ an inclusive fintech accelerator managed by BFA Global and supported by by the UK Foreign, Commonwealth and Development Office (FCDO), JPMorgan Chase & Co., and PayPal ─ have partnered together to create five comprehensive country guides to enable start-ups navigate fintech regulations in their countries of operation. 

These guides provide an overview of the key legal and regulatory requirements that may impact fintechs working in, or seeking to commence operations in, five selected markets: Kenya, Nigeria, South Africa, India and Mexico. These jurisdictions continue to set the pace, not only in the growth and scaling of fintech businesses, but also in shaping the regulatory environment for fintechs, as the guides illustrate. 

Country highlights

In the SSA region, Kenya, Nigeria, and South Africa are leading fintech centres currently hosting nearly 500 fintech firms. This provides immense opportunities for fintech to innovate in such markets where two-thirds of their population are still unbanked. 

  • Kenya is world renowned for its “test and learn” approach that was successfully deployed to the regulation of mobile money. This approach has been emulated across various SSA jurisdictions. Kenyan regulators have subsequently sought to offer greater certainty through the enactment of regulatory frameworks that cater to fintech, such as the National Payments Systems Act and accompanying regulations. They have also provided various avenues to support continued fintech innovation including the establishment of regulatory sandboxes and innovation offices.
  • Nigeria‘s financial regulators have also distinguished themselves in the SSA region, most recently through their enactment of regulatory frameworks for P2P lending activities, and equity crowdfunding. This is indeed timely as different types of credit offerings continue to attract significant interest from policymakers in the region.
  • South Africa‘s regulatory approach to fintech is also an example of positive regulatory practice. It has adopted a coordinated approach primarily through the Intergovernmental FinTech Working Group (IFWG), which brings together seven regulatory and policymaking authorities that have a remit or jurisdiction with respect to fintech. This helps to address the problem of regulatory co-ordination that is common in many fintech ecosystems where regulators often have overlapping jurisdictions.
  • India has been at the forefront of innovation regarding its provisioning of digital financial infrastructure as a public good. India Stack has played a crucial role in providing the minimum infrastructure for fintechs to start their business on payment rails with the support of the regulators and other regulated entities in the financial ecosystem. Continuous regulatory improvements to the existing framework are observable in the Indian market. With regard to more recent developments, an open banking framework was recently launched in India, and the passage of a data protection law is expected by the end of 2021.
  • Mexico is one of the few countries with a specific fintech law. The regulatory framework has propelled the growth of more than 700 fintech firms, addressing nearly 42 million unbanked people in the Mexican fintech market. The country deck will be of benefit to fintech firms targeting Mexico for expansion. 

The above are just a few key points that have been highlighted from the linked slide decks, with the regulatory regime set out as applicable to five key FinTech verticals:

  • Banking.
  • Credit.
  • Insurance.
  • Payments.
  • Investment.

The decks also offer guidance with respect to cross-sectoral legal and regulatory requirements in areas such as anti-money laundering (AML) / know your customer (KYC) laws, data protection, and consumer protection. All decks are available on the BFA global website.

This, for the first time, provides a practical guide that goes beyond a brief mention of the often challenging and unclear regulatory landscape in which fintechs operate. The decks map key laws and regulations against selected fintech verticals, summarising key legal and regulatory provisions in an easily accessible format. A further notable contribution is the aggregation of resources for fintech start-ups on where to obtain regulatory support and provision of recommendations on how to best engage with regulators in their respective jurisdictions.

These resources will make a difference by making it easier for fintechs to quickly access relevant information, thereby minimising related search costs. More importantly, they will be helpful for reducing uncertainty regarding the regulatory environment in the target jurisdictions.

It is hoped that the decks will be employed by fintechs that are already operating in, or wanting to enter, the five markets to easily and clearly inform themselves about the applicable regulatory requirements to ensure they remain compliant.