Cowrywise, a Nigerian fintech, has obtained a license from SEC to digitize investments in the country
Cowrywise has obtained a license from SEC to digitize investments in the country
Cowrywise Financial Technology Limited ("Cowrywise"), a Nigerian wealth management startup, has obtained an asset management license from the Securities and Exchange Commission (SEC).
The license, dubbed the "Fund/Portfolio Management Licence," authorizes businesses to manage funds and investment portfolios on behalf of retail investors. According to the SEC, only companies with this license are permitted to develop and operate products that pool investor funds.
Cowrywise was founded in 2017 by Razaq Ahmed and Edward Popoola with the goal of increasing Nigerians' access to a range of investment and savings products.
The SEC, on the other hand, had not yet defined regulations for fintech firms operating in the investment space. Startups were left to shoulder the responsibility of safeguarding investor funds.
Cowrywise, which is not a fund manager, formed a partnership with Meristem Trustees Limited, an SEC-registered entity.
The company's strategy for investor protection was to establish a trustee who would act as a guardian for investor funds. According to the startup, this SEC-regulated trustee supervised Cowrywise's platform's investment of customer savings.
Cowrywise launched various retail investment schemes in 2018, and the company reports that it now has up to 21 mutual funds with varying risk profiles and that up to 300,000 people will use the platform by 2021.
According to Ahmed, Cowrywise's CEO, the SEC license validates the company's work and will help the company increase investor confidence and deepen its relationships with other fund managers.
“We now have the option of creating our own mutual funds and collaborating with other fund and portfolio managers to help them digitize their operations and expand their reach to first-time investors,” Ahmed explains. b
A Public API
Ahmed notes that the company's goal is to attract 10 million first-time investors to regulated investments by 2025, and that a critical step forward will be to digitize the country's investment infrastructure.
According to Ahmed, the company will launch a public Application Programming Interface (API) that will enable other fintech companies and traditional fund managers to either launch their own wealth management products or digitally transform their operations.
“We want to make our services more accessible to fund managers worldwide and expand investment options to better serve our customers in Nigeria,” Ahmed explains.
“Our investment API eliminates regulatory, compliance, and technical stumbling blocks. We've been working on this for some time, and the SEC license removes regulatory barriers to commercialization,” he says.
Cowrywise raised $3 million in pre-Series A funding led by Quona Capital in January 2021, bringing its total funding to $3.5 million since its 2017 launch.
A closer look at SEC’s licence
According to Ahmed, this latest move demonstrates the SEC's interest in embracing the rise of fintech companies and providing much-needed regulatory support for their services.
Cowrywise's Fund/Portfolio Manager license comes less than a week after the SEC granted a sub-broker license to Chaka, a startup that assisted individuals in trading stocks from Amazon, MTN, and Airtel.
The requirements for the SEC's fund manager license, on the other hand, are more capital intensive.
The registration process entails four fees totaling $800,000 ($2000). There are several types of fees. There is a filing/application fee, a processing fee, a registration fee, and a fee for sponsored individuals.
According to the SEC's website, each fund manager must be sponsored by at least three individuals, one of whom must serve as a regulatory compliance officer.
A minimum paid-up capital of $150 million ($365k) is required by the commission. This capital may be held in bank accounts, fixed assets, or quoted securities.
Moreover, the company would be required to obtain a current Fidelity Insurance Bond in an amount equal to at least 20% of the minimum paid-up capital — $30 million ($73k).
Interestingly, the SEC's January 2021 rule amendment requires fund managers to pay annual regulatory fees equal to 0.25 percent of their total retail funds. Additionally, they will pay a 0.01 percent fee on funds targeted at High Net Worth Individuals (HNIs).
Also, another section of this rule states that fund managers may develop or operate any product only with the commission's prior approval or without objection.
Violations of this rule may result in a fine of 500k ($1200) and an additional ten thousand dollars ($24) for each day the violation continues.
Given Cowrywise's status as a perpetually innovative fintech company, it is unclear whether this rule would be tailored specifically for fintech firms.
Meanwhile, the Commission has already extended the deadline for fintech startups without defined regulations to join its incubation program until Q3 2021, a move that is strikingly similar to the Central Bank of Nigeria's (CBN) regulatory sandbox.
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