Nigerian FinTech Cowrywise Obtains SEC Fund Management License • Techpoint Africa

Nigerian wealth management startup Cowrywise Financial Technology Limited “Cowrywise” has obtained an asset management license from the Securities and Exchange Commission (SEC).

The license, known as the “Fund / Portfolio Management License”, gives companies the right to manage funds and investment portfolios on behalf of individual investors. According to the SEC, only companies with such a license can develop and operate a product that pools investor funds.

Co-founded by Razaq Ahmed and Edward Popoola in 2017, Cowrywise entered the digital wealth management space with the aim of giving more Nigerians access to a range of investment and savings products.

However, the SEC had yet to set regulations for fintech companies playing in the investment space. Startups have been tasked with protecting investor funds.

Not being a fund manager himself, Cowrywise has entered into a partnership with an SEC regulated entity, Meristem Trustees Limited.

The company’s plan to protect investors was to put in place a trustee who will act as the custodian of investors’ funds. According to the startup, this SEC-regulated trustee ensured that Cowrywise properly invested client savings on its platform.

In 2018, the company launched various retail investment programs, and it says it now has up to 21 mutual funds with different risk categories, and up to three hundred thousand people are now using Cowrywise in 2021. .

According to Ahmed, CEO of Cowrywise, the SEC license not only validates the company’s work, but it will help improve investor confidence and deepen partnerships with other fund managers.

“We can now decide to create our own mutual funds, partner with other fund and portfolio managers to digitize their operations and extend their reach to new investors,” Ahmed said.

A public API

Ahmed says the company’s plan is to capture 10 million investors for the first time by 2025 in regulated investments, and an important step for the future is to digitize the country’s investment infrastructure.

Per Ahmed, the company will launch its public application programming interface that other financial technology companies and traditional money managers can access to launch their own wealth management products or digitize their operations.

“We want to help fund managers around the world access our services and open up more investment options to better serve our clients in Nigeria,” says Ahmed.

“Our investment API simplifies regulatory, compliance and technical barriers. We’ve been developing this for some time and the SEC license removes the regulatory hurdles to launching such a product, ”he says.

Recall that in January 2021, Cowrywise, supported by Y Combinator, raised $ 3 million of pre-series A, led by Quona Capital which brought its total funding to $ 3.5 million since its launch in 2017.

A closer look at the SEC license

In Ahmed’s view, the latest move demonstrates the SEC’s interest in embracing the rise of fintech companies and giving their departments the much-needed regulatory support.

Cowrywise’s fund / portfolio manager license comes barely a week after the SEC issued a sub-broker’s license to Chaka, a startup that has helped people trade stocks in companies like Amazon, MTN, and Airtel.

However, the SEC fund manager license requirements are more capital intensive.

The registration process involves four fees that cost a total of 800,000 ($ 2,000). These include filing / application fees, processing fees, registration fees, and sponsored individual fees.

According to the SEC website, each fund manager must have at least three sponsored individuals, including one acting as a regulatory compliance officer.

The commission requires a minimum paid-up capital of 150 million yen ($ 365,000). This capital can be either in bank balances, in tangible fixed assets or in investment in listed securities.

The company would also be required to guarantee a current loyalty insurance obligation covering at least 20% of the minimum paid-up capital – 30 million yen ($ 73,000).

Interestingly, the January 2021 SEC rule amendment states that fund managers must pay an annual regulatory fee of 0.25% of their total funds going to retail investors. They will also pay a 0.01% fee on their funds that target high net worth individuals (HNIs).

Another section of this rule also states that fund managers may only develop or operate a product when the commission gives it prior approval or has no objection to that product.

Failure to follow this rule could result in a fine of 500,000 ($ 1,200) and an additional 10,000 ($ 24) for each day the violation continues.

Given Cowrywise’s position as a constantly innovative fintech company, it is not clear if this rule would be adjusted specifically for fintech companies.

Meanwhile, the Commission has already given fintech startups without defined regulations until the third quarter of 2021 to join its incubation program, an initiative very similar to the regulatory sandbox of the Central Bank of Nigeria (CBN).