SEC To Tighten Oversight On Fintech

The Securities and Exchange Commission (SEC) is ramping up its regulatory efforts in the fintech sector to curb financial mismanagement and align operators with capital market standards.

The move, aimed at protecting investors’ funds, was announced by Director-General of SEC, Mr. Emomotimi Agama, during his keynote speech at the recent Nigeria Fintech Week.

Mr. Agama emphasised the need for stricter enforcement of existing regulations as a preventive measure against financial losses, particularly after the 2023 closure of seven Nigerian startups, which cost investors $79.15 million.

“The time has come for fintech operators to adhere to capital market rules when it comes to raising funds,” he stated.

The DG also stressed that companies raising public funds must meet SEC’s standards to avoid regulatory breaches, while private fundraisers must also comply with legal frameworks.

This intensified regulation aims to strike a balance between fostering innovation and enforcing investor protection.

“We cannot afford to leave this sector unchecked. Without proper control, large amounts of investment data could be misused, and companies could raise public funds without oversight,” Mr. Agama stated.

In line with this, SEC is pushing forward its ‘smart regulation’ regime — a regulatory framework tailored to the specific needs of fintech firms. Through FinPort, SEC’s innovation portal, new and existing fintech companies can better understand regulatory demands specific to their products. Smart regulation ensures that rules are adaptable and not a one-size-fits-all approach, which Mr. Agama explained would better accommodate fintech’s unique challenges.

The commission also unveiled a three-pronged strategy for regulating the fintech space, focusing on regulatory compliance, stakeholder confidence, and investor validation.

“We want to create an enabling environment for innovation, but not at the expense of security and consumer protection,” he remarked.

Despite these efforts, Mr. Ade Bajomo, president of the Fintech Association of Nigeria (FinTechNGR), raised concerns about declining investments in the sector, pointing to a drop in funding from $826 million in first half (H1) 2023 to $186 million in H1 2024. Mr. Bajomo stressed the need for a regulatory body that fosters a supportive environment for innovation to reverse this trend.

Both the SEC and FinTechNGR agree that regulations should promote sustainable growth while ensuring investors’ funds are adequately safeguarded, as fintech continues to evolve as a critical player in Africa’s economic development.

The SEC’s move to enforce tighter regulations in the fintech sector will significantly impact investor relations in this sector. With the SEC introducing stricter regulations, investors are likely to feel more secure about the safety of their funds. This enhanced protection can build greater trust and confidence in fintech companies, leading to potentially increased investment in the sector.

Also, Fintech firms will be required to adhere to capital market rules, ensuring more transparency in their financial activities and fundraising processes. This aligns with the principles of good investor relations, where clear and honest communication is essential. Investors can expect more reliable and accurate reporting from fintech companies.

Another impact is that the regulatory push will likely lead to better corporate governance practices among fintech operators. Startups and established firms will need to demonstrate strong management structures, further aligning with investors’ expectations for accountability and governance, which can attract long-term investments.

More so, in creating a structured and regulated environment, fintech companies can appeal to investors with a long-term outlook. Compliance with regulations reduces the risks associated with mismanagement or fraud, thus promoting sustainable growth that appeals to investors seeking stability.

Moreover, Fintech companies will need to engage more actively with their investors to ensure they understand the new regulatory requirements. This means better communication strategies, transparency in operations, and clear updates on compliance, all of which are crucial elements of strong investor relations.

Additionally, the regulatory oversight may shift some investors’ focus from the high-risk, high-reward nature of fintech startups to a more balanced perspective that includes assessing regulatory compliance and risk mitigation. This could lead to more measured, stable investment patterns, especially as more institutional investors enter the space.

SEC’s enforcement of regulations in fintech implies that investor relations in the sector will now require a stronger emphasis on transparency, governance, and consistent communication, ultimately creating a more structured and investor-friendly environment.