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CUSTODIAL ARRANGEMENT IN NON-BANK LED MOBILE MONEY OPERATORS' SETTLEMENT ACCOUNT IN NIGERIA: A WAGER OR SECURITY?

Authors:
  • SRJ Legal

Abstract

Guidelines on Mobile Money Services in Nigeria, 2019, that forms part of Central Bank of Nigeria’s (“CBN”) Regulatory Framework for Mobile Money Services in Nigeria, 2021 (the “Revised Mobile Money Services Framework 2021”), stipulates that a settlement account in a non-bank led mobile money operations should be a custodial arrangement and no more (a “Settlement Account”). The Revised Mobile Money Services Framework 2021, accords with Nigerian Deposit Insurance Corporation’s (“NDIC”) Framework for the Establishment of Pass-Through Deposit Insurance for Subscribers of Mobile Money Operators in Nigeria’s (“NDIC’s Pass-Through Deposit Insurance”) requirement that a Settlement Account should be in the form of bare trust in favour customers. NDIC’s Pass-Through Deposit Insurance and Revised Regulatory Framework, 2021, recognize that a Settlement Account operated by a non-bank mobile money operator (“MMO”) in a CBN-regulated deposit-taking institution should be a nominee account operated on behalf of MMO’s customers with no right of set-off or traditional debit transactions. A Settlement Account is for settling customers’ related transactions only. In our transactional practice in Nigeria’s financial technology (FinTech) industry, Settlement Accounts are exposed to high operational risks in view of the tendencies of Nigerian Police and other law enforcements agents to apply to a Court of law for injunctive reliefs (post-no-debit order) on a Settlement Account upon complaints related to or arising from unauthorized debits or fraud arising from agency banking services. In this article, we aim to evaluate benefits of custodial arrangement in respect of Settlement Accounts vis-à-vis the associated risks with the recommendation that settlement banks’ fiduciary duty to MMO require it to delay or object to any injunctive reliefs issued by a Nigerian court on a Settlement Account.
1
CUSTODIAL ARRANGEMENT IN NON-BANK LED MOBILE MONEY
OPERATORS’ SETTLEMENT ACCOUNT IN NIGERIA: A WAGER OR
SECURITY?
*Osita Enwe
1
Introduction
A Settlement Account of a non-bank led mobile money operator in Nigeria is by its
nature a custodial agreement. In our view, regulatory frameworks for Settlement
Accounts in Nigeria include Central Bank of Nigeria’s (“CBN”) Regulatory
Framework for Mobile Money Services in Nigeria, 2021 (Revised Mobile Money
Services Framework 2021”); CBN’s Guidelines on Mobile Money Services in
Nigeria, 2021; CBN’s Regulation for the Operation of Indirect Participants in the
Payments System, 2019; Banks and Other Financial Institutions Act, 2020; and
Nigerian Deposit Insurance Corporation’s Framework for the Establishment of
Pass-Through Deposit Insurance for Subscribers of Mobile Money Operators in
Nigeria (“NDIC’s Pass-Through Deposit Insurance”).
Given CBN’s financial inclusion agenda
2
, mobile money services (“MMS”) that
ride on availability of mobile telephone network and internet broadband services,
is a veritable tool for promoting digital financial services and financial inclusion in
Nigeria.
On 9th October, 2021, voice call and internet broadband services offered by MTN
Nigeria, a leading telecommunication services provider, failed for over 3 hours. Its
impact on digital banking and other digital services is yet to be fairly evaluated at
the time we published this article.
Banks and Other Financial Institutions Act 2020, strictly include mobile money
operators (MMOs) as financial institutions
3
supervised by CBN through its other
financial institution supervision department (OFISD).
MMOs being under the supervision of OFISD is congruent with prohibition of
Nigeria’s mobile network operators and its subsidiaries from direct participation in
MMS, under the Revised Mobile Money Services Framework 2021.
4
1
Copyright to this work belongs to Osita Enwe, the author, who is a Managing Associate at SRJ, a Nigerian law
firm. He will be glad to receive your feedback: oenwe@srjlegal.com
2
National Financial Inclusion Strategy (Revised), 2018, <
https://www.cbn.gov.ng/out/2019/ccd/national%20financial%20inclusion%20strategy.pdf>, access on 2/10/2021
3
Sections 57 & 58 of Banking and Other Financial Institutions Act, 2020, p. 57.
Electronic copy available at: https://ssrn.com/abstract=3939822
2
In any case, the Regulatory Framework for MMS envisaged 2 models of MMS in
Nigeria, namely, bank-led model and, non-bank led model that should operate a
Settlement Acccount.
Mobile money services non-bank led Settlement Account (the Settlement
Account”) allows an MMO to settle its customers transactions in real time by
leveraging on NIBSS (Nigerian Inter-bank Settlement System) infrastructure and
the CBN’s Real Time Gross Settlement (RTGS)
5
.
Both systems introduced prompt settlement of credit or debits (that excludes
cheque truncation) in Nigeria’s financial services.
Mobile money operators are required to appoint deposit-taking institutions as
settlement banks under a settlement agreement
6
and to notify CBN
7
.
Settlement Accounts are typically used to settle MMOs obligations arising from
mobile money transactions provided that the MMO maintains separate accounts for
any other business activities and a Settlement Account:
(a) shall not be interest bearing;
(b) no right of set-off;
(c) debit transactions into the account shall only be for settlement related
transactions; and;
(d) no bank charge of any form shall apply to the account provided the
settlement bank may change settlement fees and, it shall not be used, in any
way, as collateral for negotiation of loans
8
.
In E-Settlement Limited v. Nigerian Police Force & 2 Others
9
, E-Settlement
10
filed
an application praying the Upper Area Court to vacate its order that directed
4
Reg. 5.0, Guidelines on Mobile Money Services in Nigeria, 2021, p.15 <
https://www.cbn.gov.ng/Out/2021/CCD/Framework%20and%20Guidelines%20on%20Mobile%20Money%20Servi
ces%20in%20Nigeria%20-%20July%202021.pdf>, accessed on 1/10/2021.
5
Reg. 9.0, Regulatory Framework for Mobile Money Services in Nigeria, 2021, p.9 <
https://www.cbn.gov.ng/Out/2021/CCD/Framework%20and%20Guidelines%20on%20Mobile%20Money%20Servi
ces%20in%20Nigeria%20-%20July%202021.pdf>, accessed on 1/10/2021.
6
Reg. 3.3, Regulation for the Operation of Indirect Participants in the Payments System, 2019, p.4, <
https://www.cbn.gov.ng/Out/2019/PSMD/Circular%20and%20Regulation%20for%20the%20Operation%20of%20I
ndirect%20Participants%20in%20the%20Payment%20System%20(002).pdf>, accessed on 10.10.2021.
7
Reg. 9.0 (a), Guidelines on Mobile Money Services in Nigeria, 2021, Op. Cit.
8
Reg. 9.0 (c), Ibid.
9
Pending before Upper Area Court, federal capital territory, Abuja, with Motion number MT/111/2021.
10
E-Settlement is the trade owners of PayCentre, a leading agency banking application in Nigeria
Electronic copy available at: https://ssrn.com/abstract=3939822
3
Fidelity Bank Plc to place a post-no-debit order (PND) on its Settlement Account,
on the ground that the court lacked jurisdiction to make the said order.
This is part of the threats that Settlement Accounts are subjected to in Nigeria, in
spite of its custodial nature a matter that is yet to be tested directly before
competent Courts.
Settlement Account: Custodial Arrangement or Wager
A custodial agreement may be described as a situation where a person holds an
asset or property on behalf of another, the actual owner, in fact or in law.
Generally, bare trusteeship is a simple trust, where the beneficiaries have an
immediate and absolute right to both the capital and income of the trust. The
property is held in the name of the trustee, but the trustee has no discretion over the
assets held in trust. The trustee of a bare trust is a mere nominee, in whose name
the property is held
11
.
Bare trusts could result when a property is left on trust and the trustee has no
discretion or contingencies. The trustee’s only duty is to hold the property for the
beneficiary. A simple example is a stockbroker who holds the shares on behalf of
another
12
.
A nominee arrangement applies to both bare trusteeship and custodial arrangement.
Under the Settlement Account regime, the MMO who is a trustee has no discretion
over funds in Settlement Accounts given that its purpose is for settling its debit or
credit transactions, for its customers.
To our mind, income does not results from a Settlement Account because it is a
non-interest yielding account, unless insurance sum payable to MMOs customers,
in respect of savings wallet services customer
13
or mobile money agents
14
(agent-
bankers pursuant to CBNs Guidelines for the Regulation of Agent Banking and
Agent Banking Relationships in Nigeria, 2016) on the liquidation of the MMO
could amount to an income.
In the event of an MMO being distressed, NDIC jumps into the scene and by itself
or through DMB, pays insurance sum to affected MMOs customers. An MMO
11
Glossary, Bare Trust, Thomson Reuters Practical law, < https://uk.practicallaw.thomsonreuters.com/0-107-
6471?transitionType=Default&contextData=(sc.Default)&firstPage=true>, accessed on 2/10/2021
12
Ibid.
13
Reg. 17.0, Regulatory Framework for Mobile Money Services in Nigeria, 2021, p. 14, Op. Cit.
14
Reg. 4.5, Framework for the Establishment of Pass-Through Deposit Insurance for Subscribers of Mobile Money
Operators in Nigeria, 2015 p.6 < https://ndic.gov.ng/wp-content/uploads/2020/08/FRAMEWORK-FOR-THE-
ESTABLISHMENT-OF-PASS-THROUGH-DEPOSIT-INSURANCE-FOR-SUBSCRIBERS-OF-Mc v v
vOBILE-MONEY-OPERATORS-IN-NIGERIA.pdf>, accessed on 2/10/2021
Electronic copy available at: https://ssrn.com/abstract=3939822
4
customer is insured up to a maximum of 500, 000.00 per account with MMO or
applicable coverage for depositors under the NDIC Act.
15
Indeed, Settlement Account is a security and not a wager or speculation. It is aimed
at increasing customers confidence in mobile money services and to promote
wallet savings account. A personal savings service that is at an early stage in
Nigeria.
Nigerias agency banking model is predominately cash-out or fund transfer
services. Wallet savings account is nearly unknown except for merchant related
wallet services that include the lotteries industry and other digital services.
Regulators that include CBN and NDIC and other stakeholders need to educate
Nigerian judges, legal practitioners, law enforcement agents and the public on the
sensitivity of a Settlement Account so as to reduce or remove frequent attempts to
obstruct mobile money services or operations. This could form part of CBNs
financial literacy campaigns.
Conclusion
The distinctiveness of a Settlement Account results from its regulatory framework
and operations. CBNs Three Tiered Know-Your-Customer (KYC) Requirement,
2013, do to apply to a Settlement Account.
In fact, a Settlement Account is like a commercial banks account with the Central
Bank of Nigeria for the purposes of RTGS (Real Time Gross Settlement) of
customers transactions.
Similarly, no law enforcement agent or a judicial body will or can validly attempt
to place a post-no-debit order or in any manner lawfully obstruct its operations
and, a Settlement Account cannot be any different.
We note that in practice, other FinTech companies operate Settlement Account,
with the implicit approval of the CBN. These include the white-labelling
arrangement in agency banking operations or other payment system services.
Nigerias fast-growing FinTech space would suffer a preventable setback if the
dangerous trend of placing post-no-debit orders is not promptly corrected by all
stakeholders and regulators.
15
Clause 7.0, Framework for the Establishment of Pass-Through Deposit Insurance for Subscribers of Mobile
Money Operators in Nigeria, p.7, < https://ndic.gov.ng/wp-content/uploads/2020/08/FRAMEWORK-FOR-THE-
ESTABLISHMENT-OF-PASS-THROUGH-DEPOSIT-INSURANCE-FOR-SUBSCRIBERS-OF-MOBILE-
MONEY-OPERATORS-IN-NIGERIA.pdf>, accessed on 01.10.2021.
Electronic copy available at: https://ssrn.com/abstract=3939822
5
Given the fiduciary and relational nature
16
of a settlement agreement in respect of a
Settlement Account, we hold the view that DMBs are liable to compensate any
MMO for losses arising from any post-no-debits orders on a Settlement Account.
17
Therefore, regulators, MMOs and all stakeholders need to close rank in educating
Nigerian legal practitioners, judges and, law enforcement agents on the dangers of
obstructing operations of Settlement Accounts in any manner. This approach will
assist in removing or reducing risks of losing the security-form of benefit of a
Settlement Account in Nigeria.
16
Relational nature of some contract for services are yet to be tested in Nigeria’s jurisprudence and, it is our clear
view that our High Courts will reach similar finding of fact just like the UK High Court in circumstances where
facts exists that contracts are relational. We opine that a settlement agreement is by its nature is relational.
17
O. Enwe, NIGERIAN BANK’S DUTY TO OPPOSE AN UNLAWFUL POST-NO-DEBIT (PND) ORDER IN NIGERIA
<https://srjlegal.com/nigerian-banks-duty-to-oppose-an-unlawful-post-no-debit-pnd-order-in-nigeria/>, accessed
on 10.10.2021
Electronic copy available at: https://ssrn.com/abstract=3939822
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