According to a McKinsey report, it’s estimated that in 2020,between $4 billion and $6 billion was raked in from fintech startups on the continent, with the prediction that this will shoot up to $230 billion in 2025. When money like this is flowing around, regulations need to be carefully managed, but what will this look like, and is there a one-size-fits-all solution that will still allow innovative products to flourish?
Benjamin Arunda, the chairman of the Africa Blockchain Council, believes fintech regulation in Africa is taking shape at just the right pace. “Leading markets such as Nigeria, Kenya, South Africa and Egypt have seen a great rise in startups and venture funding. This has coincided with increased internet penetration and the adoption of emerging technologies, with crypto and mobile money being the key drivers. In Kenya, the Central Bank stepped in to regulate the digital lending industry,” he said. “Regulators are moving at the right pace – they can't regulate faster than they are doing; they must follow innovation and adoption trends. Many regulators were focused on consumer protection, but right now they are also keen to enhance adoption and ensure stakeholder participation across countries.”
“The fintech sector is agile in its nature,” said Eva Gachoki, a fintech and digital finance law practitioner and Legal and Compliance Advisor to the Africa Fintech Network. “Policy makers, regulators and market players ought to work together to create regulations and policies around fintech – the concept of round tables of the various players, additionally seeking the contributions and feedback of consumers and involved stakeholders.” She believes this will inform a pre-emptive and proactive approach towards the creation of regulations within the fintech sector.
“Inclusive regulatory systems will also entail regulatory bodies incorporating measures that embrace the agility of fintech, such as regtech solutions, sandboxes, talent and outsourced technology,” Gachoki added.
She also believes in the jurisdictional tailoring of regulations. “Regulations that apply to a certain jurisdiction may not apply in another. We have seen copy–paste type of regulations, jurisdictional wise, but what can be employed in the European environment may not be applicable in the African environment.” Gachoki says although regulators and policy makers can collaborate across borders, imposing a similar set of regulations on both environments is likely to be counter-productive for one of the environments.
Jean-Philippe Mian, a legal practitioner in Côte d’Ivoire noted that the phenomenal development of fintechs globally has raised a number of questions about risks that could be associated with them. “The main risks induced by the development of fintechs are operational risk, money laundering and terrorist financing, regulatory non-compliance and credit risk. This explains the dilemmas faced by regulators when it comes to supervising these new players. Given that they could be considered derivatives of financial activity, the body best suited to regulate them in West Africa, specifically in the WAMU zone, would be the Central Bank. However, the challenge for central banks is to strike the right balance between the need to improve quality and access to innovative products and services and to mitigate the related risks with a view to preserving the stability of the financial system.”
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