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Fintech regulatory update – Nigeria Central Bank sandbox

On June 23, 2020 the Central Bank of Nigeria (CBN) released for review by stakeholders, a Draft Framework for Regulatory Sandbox Operations (the “Draft Framework”); aimed at establishing a controlled environment where disruptive technology in the financial services can be tested under the supervision of the CBN.

The first regulatory sandbox in the world was formally established in 2015 by the United Kingdom Financial Conduct Authority (FCA) and was reported as successful with 90% of the companies that participated in the first cohort going on to market and 40% receiving investments. Since then many countries including Estonia, Indonesia, HongKong and states in the United States have established regulatory sandboxes.

The concept of a regulatory sandbox was borne from a need by regulators to not stifle Fintech innovation with unsuitable archaic Financial Services regulations. Accordingly, the regulatory sandboxes were geared towards enabling selected Fintechs test their products without formal licences; whilst the regulators are able to better understand the product and develop suitable regulations.

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The Draft Framework is Nigerian government’s effort to encourage Fintech innovation whilst protecting consumer interests and is a welcome development. Below are highlights.

  1. Who is eligible to Participate in the Regulatory Sandbox? Financial Institutions already licensed by the CBN and all other companies looking to test innovative Fintech products.
  2. What kind of products will qualify? Products which are not already governed by existing regulations or prohibited by regulation. This means that products falling squarely within Mobile Money and Payment Service Bank regulations amongst other existing regulations would be unable to participate.
  3. How can a Fintech participate? Applicants are to apply through the CBN website once the CBN announces to the general public that it is taking applications. The admission process would be once a year.
  4. What is the admission criteria? Apart from documentary requirements such as corporate registration documents, applicants must show the usefulness and functionality of the product; and must have resources to support the testing.
  5. What would be the testing duration and product reach? The applicant is to advise on the duration required to test the product; the volume of consumers and the value of the product to be accessed during the testing period; subject to the CBN’s approval.
  6. What happens upon completion of the test? The Bank would decide whether to allow the product or solution to be introduced fully into the Nigerian market.
  7. Can the approval be revoked? At any time before the end of the testing period, the CBN retains the power to review and revoke the approval of any participant to partake in the Sandbox.


The sandbox is a step in the right direction by the CBN. The following points should however be considered in finalising the ‘Draft Framework.

  • The Draft Framework does not provide clear incentives for Fintechs to participate in the sandbox. For instance, will the grant of an approval or licence for the service be fast tracked for successful applicants?
  • The Draft Framework states that the Bank would advise innovators on how to align their products with existing laws and regulations. This should be clarified as it appears to defeat the concept of a regulatory sandbox which is for regulations to evolve to suit Fintech developments. For instance, the UK Financial Conduct Authority (FCA) provides for waivers or modifications of its rules to accommodate new technology.
  • It should be noted that other regulators such as the Securities and Exchange Commission and the Nigerian Communication Commission have indicated that they would establish regulatory sandboxes. The CBN should consider how an overlap between regulators would work. It would be tidier to have one regulator overseeing the regulatory sandbox for the Fintech space.

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