The Central Bank Governor, Olayemi Cardoso has cautioned operators in the Non-Bank Financial Institutions (NBFIs) and Other Financial Institutions (OFIs) sector to be wary of risks associated with innovations in the Fintechs which, he said pose major financial system stability risks.

He gave the caution on Monday in Abuja while declaring the 10th meeting of the College of Supervisors for Non-Bank Financial Institutions (NBFIs) and Other Financial Institutions (OFIs) of the West African Monetary Zone ( WAMZ).

While Cardoso applauded positive achievements recorded by the Supervisors for Non-Bank Financial Institutions (CSNBFI), especially with regards to the development of the model Act for Non-Bank Financial Institutions and Non-Bank Financial Holding Companies of the West African Monetary Zone which was approved in March 2024; and the establishment of the expert committee on harmonization practice, he advised them not lose sight of of monitoring trends in the sector.

Represented at the occasion by the Acting Director, Other Financial Institutions Department, Mr . Abayomi Arogundade, Cardoso said: “While we celebrate the milestones that the CSNBFI has achieved, I implore you not to rest on your oars.

There is still a lot to be done. We must continue to push forward the agenda of strengthening the anti-money laundering practices; deepening supervisory capacity on cybersecurity and fintech regulation; and the implementation of risk-based supervisory approach”.

“We reiterate the importance of monitoring trends, risks and innovations of NBFIs/OFIs as their increasing transaction volumes pose major financial system stability risks.

Fintech loans are one of the most commonly reported innovations. While overall this may appear small in relation to the size of credit by DMBs, some jurisdictions globally, have noted a growing trend in the volume of these loans. In many cases, fintech credit is provided via electronic platforms that connect lenders to borrowers – in which case the platform takes the role of a financial auxiliary.

In some cases, however, loans are taken on the balance sheet of these platforms (even if it is short-term), in which case the platforms are akin to new types of financial intermediaries.

These entities are typically fintech firms that offer applications, software, and other technologies to streamline mobile and online banking. In many jurisdictions, these digital firms have a banking license and are subject to prudential requirements or they may just be regulated as Fintech payment service firms. Innovations linked to crypto or stablecoin assets were also reported by some jurisdictions”, Cardoso cautioned.

In a welcome remark, the Director General, West African Monetary Institute ( WAMI) Dr. Olorunsola E. Olowofeso identified some of the emerging risks to the financial system to include, climate-related risks, internet disruption, cyber and social media threats arising from the digitization of financial services.

To strengthen the resilience of the financial sector, he urged member states to develop an adequate national cybersecurity strategy and appropriate regulatory and supervisory frameworks.

” This meeting is very important as it presents us another opportunity to review developments in the non-bank financial institutions sub-sector within the Zone for the second half of 2023 and the first quarter of 2024, assess the regulatory and supervisory challenges of Member States, and share experiences to mitigate emerging risks to the financial system of the WAMZ”.

“As we are all aware, Non-Bank Financial Institutions (NBFIs) play a pivotal role in the financial system by enhancing access to credit, offering inexpensive and reliable ways of making payments, and supporting economic growth. This underscores the need to strengthen the resilience of the NBFI sector to ensure a more stable provision of financing and reliable payment services”, he said.

Outgoing Chairman of the College of Supervisors for non-bank financial institutions Mr Yaw Sapong said the meeting was crucial as it enabled members, to stay abreast with developments within the subsector, discuss issues of supervisory concern, and share experiences.

“By coming together, we strengthen our collaborative efforts and enhance our ability to respond to both opportunities and challenges in our respective jurisdictions”.

“The role of nonbank financial institutions in our subregion cannot be overstated. They provide essential financial services to underserved segments of our population, including small and medium-sized enterprises (SMEs). This fosters economic growth and financial inclusion, thereby contributing significantly to the overall development of our economies”, he added.