The Central Bank of Nigeria (CBN) has secured a court order to freeze the accounts of some fintech companies for 180 days. The Federal High Court in Abuja granted the prayer of the apex bank to put the financial activities of the investment firms on hold pending the conclusion of its investigation into their alleged forex misconduct.
The companies include Rise Vest Technologies Limited, Bamboo Systems Technology Limited, Bamboo Systems Technology Limited OPNS, Chaka Technologies Limited, CTL/Business Expenses, and Trove Technologies Limited.
The court document reveals that the financial regulator is investigating ‘illegal foreign exchange transactions’ by the affected companies, which is weakening the naira.
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In the motion ex parte marked FCH/ABJ/CS/822/2021 and filed at the High Court on August 4, CBN through its counsel Michael Kaase Aondoakaa, submitted that “the investigation being carried out concerns what has been discovered to be serious infractions by the defendants/respondents in connection with some foreign exchange transactions, and non-documentation by the defendants/respondents in violation of the extant laws and regulations, particularly the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act and the Central Bank of Nigeria foreign exchange manual.
“That more specifically, there is a grave allegation that the defendants/respondents are engaged in illegal foreign exchange transactions, accessing/procuring of foreign exchange via their banks from the Nigerian foreign exchange market via several bureau de change, international money transfer operators and have transferred cash deposit of more than S10,000.00 (Ten thousand dollars) to various accounts overseas contrary to provisions of extant laws and regulations and also traded in foreign securities and cryptocurrencies in contravention to CBN Circular referenced TED/FEM/FPC/GEN/01/012 and BSD/DIR/PUB/LAB/014/001, dated February 5, 2021, and July 01, 2015.
“It is evident that Rise Vest Technologies Limited, Bamboo Systems Technology Limited, Chaka Technologies Limited and Trove Technologies Limited are complicit in operating without a license as asset management companies and utilizing FX sourced from the Nigerian FX market for purchasing foreign bonds/shares in contravention of CBN’s directive.”
In his ruling, Ahmed Mohammed said: “Having listened to senior counsel to the applicant, on the motion ex parte filed in August, it is granted as prayed.”
He added that anyone who feels aggrieved about the freezing order is entitled to approach the court within the period to seek redress while the matter was adjourned to February 20, 2022, for hearing.
In response to this development, one of the affected fintech firms, Risevest, said its operation will not in any way be affected by the court order.
“With regard to the latest news about us and our FX dealings, you can be sure that your investments and funds are safely managed, that funding and withdrawals will continue to be processed as normal, and that all our US operations remain intact.
“We will work with regulators, as we always have to ensure that all issues raised are properly addressed. However, this does not affect our users’ investments, which are managed by regulated third parties in all jurisdictions in which we operate,” Rise said in a statement.
Chaka, an asset management firm, which recently secured license from Nigeria’s Securities and Exchange Commission (SEC), was among the affected companies, increasing the concern that the development has ignited.
There is increasing concern that regulatory decisions of watch dogs in the Nigerian tech ecosystem is killing innovation and spooking investors. A reference point is the proposed National Information Technology Development Agency (NITDA) bill that has been heavily criticized that it would spell doom for startups if it becomes law.
The Nigerian fintech industry has witnessed unprecedented growth, defying the strains of the pandemic, offering the country hope of economic growth in the near future. It is believed that the bountiful future prospects of the fintech industry is being threatened by regulations.
A six-month embargo on the companies’ account for alleged offenses has been criticized as harsh and unprogressive, as it follows the pattern the CBN displayed against End SARS protesters, whose bank accounts were frozen for months on unfounded allegations of terrorism.
While regulation is necessary to stabilize Nigeria’s young fintech sector, the regulators have been urged to adopt solution-based approaches in handling regulatory issues involving the companies, especially innovative startups.