FinTechs are increasingly offering new value propositions and services in previously neglected sectors. As this push occurs, fintechs and aspiring founders are seeking specific legal guidance on how to navigate the various regulations (which usually have insufficient precedent for their application) that would enable their businesses to scale.
Particularly, Fintech companies are increasingly seeking regular updates and bespoke insights on regulatory developments and the corresponding impact on their businesses. Given governments’ focus on revenues, compliance (foreign technology, tax, data protection, AML/CFT, etc.) has become a big theme as entrepreneurs look to prevent sanctions and liabilities that may stall the growth of their companies.
In addition to the above, liaising with regulators as a service has gained prominence due to ambiguity in laws and varied regulatory stances of different regulators. Legal practitioners serve as a bridge between innovators and regulators. As a result, law firms have to play (and are playing) a more instrumental role in shaping policies, guidelines, and laws through timely contributions to exposure drafts, regular correspondence and engagement, use of interpretative guidance outlets, and attendance at interactive stakeholder events.
Finally, law firms, by virtue of their services, typically have a network of clients and longstanding relationships. Start-ups (including fintechs) recognise this and are keener to leverage the networking and partnership opportunities that may arise from introductions to other fintechs or business clients advised by a law firm. Governments and legislative authorities have been able to facilitate these connections which have resulted in fruitful relationships.
Growth through Legislation
Laws and regulations have a make-or-break role in the success of businesses and legislative bodies can be a major contributor to conceiving and growing innovative businesses. One of the ways to achieve this growth is through the creation of clearer licensing regimes for various fintech products and players. In some African countries such as Nigeria and Kenya, several regulators have shown that they are capable of and willing to give regulatory clarity to innovators who are eager to implement their ideas. This approach needs to be sustained and possibly evolve to proactive rule making. The provision of clearer licensing paths will enable start-ups to get their products to market in shorter times.
Generally, fintechs work with various regulators and sometimes have to contend with varying interpretations of regulations. To reduce this, regulators and other stakeholders can work to set up market taskforces that are made up of experts from different departments within their agencies i.e., (legal, IT, payments systems, financial stability, anti-money laundering, etc.) who will assess emerging domestic and international fintech innovations prior to selecting a regulatory approach. Further, there needs to be the creation of an inter-regulatory agency touchpoint made up of fintech regulators across various remits, including banking, consumer protection, telecommunications, investments, etc. This will ensure a unified approach toward fintech regulation in Africa.
The operation of fintech cuts across several sectors of many African economies’ regulated by the government such as data, banking, and securities. Additionally, stakeholder engagements continue to facilitate the growth in these sectors. Regulators may hold more sectoral stakeholder forums which will enable the exchange of knowledge and improve their understanding of fintech innovations and business models.
Countries such as Nigeria currently have a Start-up Bill in the Nigerian House of Assembly seeking to regulate the start-up space in the country. There are several welcoming provisions in the bill that boosts the growth of companies within the space. For instance, sections 33 to 40 of the Bill contain provisions that mandate several government agencies to support the growth of start-ups, by collaborating with the secretariat council to ensure that start-ups registered with them, will have their applications within the respective government agencies processed seamlessly and expeditiously. This is a welcome development as start-up-friendly laws and support from government agencies would allow fintech companies to scale up effectively.
Supporting Fintech Growth across Africa
Fintechs require legal services from the go but are usually unable to acquire quality legal services due to limited funds. To reduce this burden, law firms sometimes establish flexible or discounted payment plans for services provided to early-stage fintechs. Accelerator programmes are another avenue that could be deployed for the benefit of young, innovative companies. Under such programmes, participants’ pitches can be vetted from a legal point of view while also deploying much-needed legal advice. Ultimately, such programmes can be mutually beneficial for start-ups and legal service providers. The founders get to establish enduring relationships with a trusted adviser and the legal service provider has historical insight and deep knowledge of the business it is advising.
Collaboration with other law firms across the continent is also important as start-up clients look to expand from their operational bases. Law firms have to be able to seamlessly advise or facilitate advice on cross-border issues.
For fintech to be able to thrive as a major pillar of Africa’s economy there should be enabling factors and legislation one of them. However, when the laws are being formulated the relevant stakeholders such as start-up companies should be able to contribute to the discussion taking up advisory roles and public participation. Law firms can play a pivotal role in representing these companies whether they are start-ups or those that have been in existence for a long period.