1. On 14th January 2021, the Central Bank of Nigeria (the "CBN") released the long-awaited final framework for regulatory sandbox operations in Nigeria (the "Framework"). This Framework comes barely 7 (seven) months after the CBN released an exposure draft framework for regulatory sandbox operations in Nigeria (the "Draft"), on 23rd June 2020. Just like in the Draft, the CBN in this Framework emphasises its commitment to building a financial services sector that actively promotes innovation, effective service delivery, healthy competition, and financial inclusion.
  2. In addition to its own regulatory sandbox (the "Sandbox"), the CBN is also involved in the Financial Industry Sandbox operated and managed by the Financial Service Innovators Association of Nigeria ("FSI"), under the supervision of the CBN and the Nigeria Interbank Settlement System ("NIBSS") (the "FSI Sandbox"). It is not clear why the CBN has not sought to merge both initiatives. Unlike the FSI Sandbox, a company that successfully passes through the Sandbox will at the end of the process be able to meet the relevant legal and regulatory requirements, and then be introduced into the market.
  3. Since the release of the Draft, there has been the concern that the objectives of the Sandbox indicate that it is only for FinTech companies in the payments space. This concern stems from the fact that the FinTech industry has expanded significantly beyond the payments space, yet the Framework does not address this reality. In fact, its second introductory paragraph provides that the Framework defines the establishment, rules, and operations of a Regulatory Sandbox for the Nigerian Payments System.
  4. In the Sandbox, companies will be allowed to conduct live tests of innovative products, services, delivery channels, or business models in a controlled environment, with regulatory oversight, subject to certain conditions and safeguards.This is most welcome, as it will enable the CBN to keep abreast of the latest developments in payment solutions and emerging technology in financial services, whilst simultaneously ensuring appropriate consumer protection. It is also expected to help address some of the suspicion and temper the existing tensions between innovators and regulators.
  5. Not all solutions or products will be eligible to enter the Sandbox. The Framework excludes products that are outrightly unlawful under the laws of the Federal Government of Nigeria. Such products will not qualify for the Sandbox trials. In addition, the Framework prescribes that the Sandbox cannot be used to circumvent existing laws and regulations, and as such, is unsuitable for a proposed product, service or solution which is already appropriately addressed under prevailing laws and regulations. It is not clear whether a solution that provides for a more efficient way to deliver a service that is already regulated will be excluded purely for this reason. 
  6. The provision of the Framework described in the preceding section has raised concerns that the Sandbox environment may be too stringent, as it ought to be a place that provides innovators the opportunity to test their creative minds and talents without the burden of regulatory compliance. This may have been a missed opportunity for the CBN to look more closely at technologies/innovations that they treat with suspicion, such as cryptocurrency. It appears, based on the wording of the Framework, that such technologies/innovation may not even be eligible for inclusion.
  7. FinTech companies eligible to be included in the Sandbox include existing CBN licensees (i.e. financial institutions with FinTech initiatives) and other local companies. Other local companies may include financial sector companies as well as technology and telecomms companies intending to test an innovative payments product or service which is deemed acceptable by the CBN. The Framework contains detailed information on how applications should be made, as well as the supporting documents to be provided. Only one cohort will be accepted in each year so it is expected that competition will be fierce. 
  8. The maximum testing period for any product in the Sandbox is 6 months. At the end of the period, the participant will provide a final report, following which the CBN will decide whether the product being tested should be introduced into the market. The CBN has also made some provisions for confidentiality in the Framework, aimed at data protection as well as the protection of innovators' intellectual property. The market awaits further details of when the CBN will begin to accept applications for the all-important first cohort.

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