Chaka becomes first startup in Nigeria to obtain a Securities and Exchange Commission License
Chaka becomes Nigeria's first startup to obtain a Securities and Exchange Commission (SEC) license for digital stock trading
After months of regulatory uncertainty, Chaka has been granted a license by Nigeria's Securities and Exchange Commission (SEC) to operate its digital stock trading platform.
Chaka is the first company to obtain the SEC's new digital sub-broker license, which was introduced in April. The SEC recognized sub-brokers who use digital platforms to serve multiple brokers as part of a significant amendment to its Consolidated Rules and Regulations.
TosinOsibodu, the startup's CEO, said during a conference call on Wednesday that the acquisition required "a tremendous amount of effort" and is the result of frequent engagement with the capital markets regulator.
On December 19th, 2020, the SEC issued a statement effectively prohibiting Chaka from offering its services in Nigeria. The SEC complained that Chaka operated "beyond the Commission's regulatory purview and without the necessary registration, as stipulated by the Investment and Securities Act 2007."
The SEC ordered Chaka to cease advertising to users, citing the need to protect the investing public from “unscrupulous actors.” Though the order was specific to Chaka, it was the first significant indication that regulation was on the way for the investment-technology sector.
Chaka Initiate Talks with the SEC
Chaka was able to take the initiative and initiate talks with the SEC following the December warning. With the license now in hand, Osibodu asserts that it demonstrates Chaka's commitment to regulatory compliance and provides market clarity.
“We've developed an excellent relationship [with SEC] that we believe will benefit the entire ecosystem going forward,” Osibodu said.
He added that the license also enables Chaka to assist other stockbroking firms interested in establishing a digital presence. “We want as many stockbrokers as possible to benefit from this benefit.”
Until now, Chaka operated through a partnership with Citi Investment Capital Ltd, a Lagos-based broker licensed by the Securities and Exchange Commission. With an official license, the startup is now directly supervised by the SEC.
Chaka's app features over 4,000 stocks from Nigerian and US-based publicly traded companies. The startup, founded in January 2019 by Osibodu with Olaolu Ajose as chief technology officer, bills itself as a "investment passport" that enables users to invest freely across borders.
Anyone with a smartphone equipped with an internet connection can download the app, register, and begin investing with as little as $2 or $1,000. Chaka is currently only available in Nigeria.
Osibodu did not specify how Chaka obtained the license in terms of fees or filings.
However, the SEC's recent amendment requires a minimum capital requirement of $10 million and a Fidelity Bond covering at least 20% of the minimum capital.
Moreover, four separate fees totaling 500,000 are required, as are a number of SEC forms, company documents, and other documentation about individuals associated with the company.
Also, digital sub-brokers must provide a detailed description of the technology upon which their infrastructure is built, including information about security, backup, and recovery processes.
They should have adequate Know Your Customer processes in place, as well as documented policies for risk management related to technology. Likewise, they are expected to demonstrate how they assess potential customers' capacity to transact via its platform, as well as provide clear explanations of the app's features, risks, responsibilities, obligations, and liabilities.
It is unclear whether this license officially authorizes Chaka (and other fintechs in the sector) to offer Nigerians stocks listed on foreign exchanges – such as Tesla and Google. In April, the Securities and Exchange Commission issued a warning that appeared to declare such offerings illegal.
Osibodu's evasive response was that Chaka is committed to the SEC's financial inclusion objectives in Nigeria, which include increasing retail investor participation in financial markets.
Courses and Certification
Fintech - Financial Technology Course and Certificate
Digital Communication Course and Certificate
Information Technology Fundamentals Course and Certificate
