What authorizations are required to launch a fintech in French-speaking Africa?

what authorizations must be obtained before starting a business? what steps need to be taken?

Are you an entrepreneur in French-speaking Africa? Want to launch a fintech business but don’t know where to start? You know that certain fintechs are subject to prior authorizations, but you don’t know whether this will be the case for you?

Recognize yourself? Then you’ve come to the right place! In this article, we try to give you a few pointers to help you make sense of this regulatory millefeuille.

First of all, you need to understand that the rules will be completely different depending on the business you want to develop.

In this article, we take a look at the rules applicable to starting up a business in :

1. Issuance and distribution of electronic money, Mobile Money;
2. Mobile banking, deposits and withdrawals ;
3. The fast money transfer business ;
4. Activities in Assurtech ;
5. The provision and management of Cryptoassets; and
6. Crowdfunding and Crowdlending.

1. Issuance and distribution of electronic money, Mobile Money

First of all, it should be noted that this activity is formally regulated by the regulatory and supervisory authorities of French-speaking African countries.particularly in the West African Monetary Union (WAMU)), the Economic and Monetary Community of Central Africa (CEMAC) as well as in Burundi, Comoros, Djibouti and Madagascar.

What approval is generally required to issue e-money?

To be able to issue and distribute e-money, FinTechs must independently apply for an individual license as ane-money institution from the regulatory authority, usually the central bank and/or any other authority specified in the regulations.

To obtain approval as an electronic money institution, the following essential requirements must be met, which may be strengthened from one jurisdiction to another:

• legal incorporation of the establishment in the form of a public limited company (Sociétés Anonymes), private limited company (Sociétés à Responsabilité Limitée Plururipersonnelles), mutual insurance company (Mutuelles), cooperative or economic interest group (Groupement d’Intérêt Economique);
• theestablishment of the registered office in the target jurisdiction and the exclusive limitation of the corporate purpose to the activity of issuing electronic money;
• Aminimum share capital that complies with regulatory thresholds (e.g. 300 million FCFA in the UMOA zone);
• the immediate domiciliation of funds representing the consideration for electronic money in a bank account dedicated exclusively to this purpose in the target jurisdiction;
• supply of draft contract(s) for the opening of account(s) for the segregation of funds received in exchange for electronic money in circulation;
• the provision of a draft contract for the use of services offered to customers, and the implementation of a complaints management system for customers and stakeholders;
• the provision of business forecasts and financial projections for at least three (3) years, based on pessimistic, modest and optimistic sensitivity assumptions;
• compliance with regulatory requirements relating to the technical specifications of electronic money issuance solutions for (i) ensure high platform availability, (ii) preserve message integrity, (iii) maintain the confidentiality of information, (iv) guarantee the authenticity of transactions and (v) ensure non-repudiation of transactions;
• implementation of a proven business continuity system;
• implementinga risk management strategy;
• technical and operational measures to facilitate interoperability with other payment systems;
• providing proof of the existence of an audit trail enabling transactions to be traced from the origin of the payment order to its settlement;
• compliance of the approval file with the templates and any procedures defined by the central banks.

It’s very complicated for a startup to succeed in meeting these requirements from the outset. This is why, in order to operate in this field, FinTechs generally need to form partnerships, as technical operators in relation to authorized issuing institutions (banking, payment and microfinance institutions) as issuers and distributors of electronic currencies.

In order to act as a technical operator, a partnership agreement must be signed with an approved issuing establishment. This collaboration must be limited to the technical processing or distribution of electronic money, under the responsibility of the issuer. In this case, the technical partner’s communications or any other action aimed at the public must indicate the issuing establishment. The responsibility for issuing electronic money cannot be outsourced to a technical operator.

Are there any other obligations for payment institutions when launching a new product?

At the regulatory level, banks and payment institutions are generally required to inform the Central Bank before they start issuing e-money or marketing any new e-money-related services to the general public. In the UMOA, for example, this timeframe is two months.

This enables regulators to sufficiently analyze the compliance of services to be deployed and make recommendations.

The information pack relating to the launch of this new project must essentially include :

• a detailed presentation of the project ;
• customer complaint management procedures;
• the measures taken to comply with the provisions relating to the fight against money laundering and the financing of terrorism;
• a document describing the players involved;
• the operational processes of the product or service offered;
• Risk mapping and precautionary measures inherent in the use of the product or service offered;
• a draft contract for the use of the product(s) or service(s) offered;
• any other draft partnership contract indicated in the file, including the price scale for the services proposed.

2. Mobile Banking, Deposits, Withdrawals :

The following activities in French-speaking Africa generally require a formal banking license application to the regulatory and supervisory authorities:

• digital banking (neo-banking),
• online banking (traditional bank with partial digital transformation),
• savings deposits and withdrawals.

3. Fast money transfer :

In most French-speaking African countries, the fast money transfer business falls under the regulations applicable to the management and provision of means of payment and/or the receipt of funds from the public.

In order to carry out these operations, FinTechs must generally apply for a banking license as an authorized service provider.

In the absence of such approval, fintechs can work with approved institutions as agents. This mandate must, however, be validated by the supervisory authorities (Central Bank and/or government bodies acting as supervisory bodies).

4. InsurTech” insurance:

This sector is marked by the absence of a regulatory and legal framework specific to digital innovation in insurance operations, the vast majority of which are currently in French-speaking Africa. However, several regulators have begun to reflect on the subject. Among the initiatives identified, work is in progress on a draft regulation on electronic insurance at the level of the Inter-African Conference on Insurance Markets (CIMA)..

Given these regulatory realities, FinTechs or Start-ups operating in French-speaking Africa should comply with the regulations and traditional Insurance Codes in force when applying for a license to operate. In addition, they should be sure to justify to the regulator the benefits of the 100% digital business model they have adopted, enabling them to innovate their insurance product offering.

5. Provision and management of crypto-assets (crypto-currency) :

Crypto-currencies are currently the subject of intense debate among regulators in French-speaking Africa. The latter are stepping up their efforts to raise awareness among economic agents of the potential risks involved in using crypto-currencies. So.., the management of crypto-assets is not subject to the current regulatory framework, unlike the formal banking activity of credit or payment.

Consequently, it is strongly recommended for crypto-currency players to seek formal advice from regulatory and supervisory Authorities on their projects, business models and products in order to avoid possible sanctions for carrying out illegal activities or for money laundering and terrorist financing risks.

6. Crowdfunding and Crowdlending :

The absence of specific regulations on participatory financing does not favor the popularization of this activity in French-speaking Africa. However, banking and capital market regulators are at an advanced stage of reflection, with a view to proposing an appropriate legal framework. However, some countries, such as Morocco and Tunisia, have already made good progress in this area.

In any case, it is recommended at this stage that promoters of participatory financing or crowdfunding platforms in French-speaking Africa contact the regulatory and supervisory authorities to request an opinion and formal authorization (Central Bank and/or government bodies acting as supervisory bodies).

In conclusion, the regulatory framework applicable to fintechs is still under construction, and is likely to undergo a number of changes in the near future. The above descriptions are only intended to give an overview of the rules that are mostly applicable in West Africa. It is essential to check the applicable national and regional regulations for each country concerned.

🔜 Once incorporated, fintech is subject to regulatory obligations in terms of cybersecurity, personal data protection and anti-money laundering. For more information on these elements, please consult this article.

🚨The items listed above do not constitute legal advice. For legal advice on your situation or project, we recommend that you contact a lawyer.

Author information: this article was written by Kadder Ismaël TOURE, a specialist in participatory finance. The opinions expressed in this article are based on the author’s personal research.