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The SEC vs Chaka saga may signal regulation for Nigeria's investment-tech startups

No startup likes to be called out in public, especially when it isn’t clear they have done something wrong. But Chaka CEO, Tosin Osibodu wants to look on the bright side.

Investment-tech startups in Nigeria provide users with investment opportunities by partnering with brokerage firms licensed and recognised by the Securities and Exchange Commission (SEC), the regulator overseeing capital markets in Nigeria. Chaka is one of such startups.

However, the SEC has taken exceptions to Chaka's services on the basis of her having not registered her partnership with brokerage firm, Citi Investments Capital Limited. Hence, on the 19th of December 2020, the regulator published a statement that effectively bars the firm from offering its core services in Nigeria.

The SEC statement deemed Chaka to have been operating “outside the regulatory purview of the Commission and without requisite registration, as stipulated by the Investment and Securities Act 2007.”

To explain its order for Chaka to stop advertising to users, the SEC described the order as a reflection of its mission to prevent “unscrupulous actors” from harming the investing public.

In the draft document containing proposed rules of engagement between fintechs and brokers, as published by the Nigeria Stock Exchange, however, there is no mention of any mandate for fintechs acting in collaborations with a broker to register the collaboration.

Meanwhile, in Chaka's case, the aforementioned broker appears to be responsible for ensuring that the collaboration always operates in the best interest of users.

This therefore why Tosin Osibodu, Chaka’s CEO, says that the SEC’s statement came as a surprise to the firm, reiterating his belief that Chaka has always had good communication with the SEC and at the Central Securities Clearing System (CSCS).

He also believes that Chaka contributed to the surge that saw Nigeria’s stock market rise by 45.7% in 2020 to top Bloomberg’s list of the world’s 93 best-performing equity indexes.

Having already issued a clarification to its users and stakeholders to assure them of the safety of their investments following SEC’s order, Chaka and Osibodu hope issue is resolved soon. He however fears that events like this could negatively impact consumer trust in financial markets.

Ongoing suggestions insinuate that SEC’s intention is to directly regulate Chaka, considering it to be an influencer of users' interaction with the Nigerian capital market. And those suggestions may be reasonable, seeing that even though users who buy and sell stocks on Chaka deposit their funds directly to SEC-licensed dealing members, in providing the technology that grants users that access,  the startup can assertively be said to participate in defining user behaviour in capital markets.

Keeping up-to-date on the aftermath of the SEC ban, Osibodu discloses that conversations have begun on how to create adequate regulations to govern Nigeria's emerging investment-tech industry.

Image Source; Benzinga

Impressively, Osibodu is choosing to look on the bright side, seeing the saga as an opportunity for all stakeholders in the investment-tech community to clarify and agree on the proper rules of engagement going forward.

SEC’s tribunal on the matter reconvenes on the 15th of January, with Chaka hopeful that a resolution will be reached on or before that date, so that the firm, her users, her stakeholders, and the industry at large can move on from it.

Nigeria In Focus:

Population: 206.6 million (Compared to South Africa's 59.6 million)

GDP: $504.57 billion (Compared to South Africa's $369.85 billion)

GDP Per Capita: $2,465 (Compared to South Africa's $6,193)