Legal and Regulatory Framework for Setting Up a Fintech Startup in Ghana.
Ghana is an epitome of technological growth and has one of the fastest-growing financial technology (Fintech) ecosystems in Africa. As everything becomes increasingly interconnected, the way we conduct commercial and recreational activities is completely changing.
In Ghana, Financial Technology (Fintech) startups are on a path of growth with enormous opportunities.
The growing mobile and smartphone usage provides an excellent opportunity for the promotion of financial inclusion by Fintechs, to people without access to traditional financial services.
Regulation of Fintechs in Ghana
The financial technology (Fintech) ecosystem in Ghana is regulated by the Bank of Ghana. The key legislation that governs payment service providers, dedicated electronic money issuers, their affiliates and agents is the Payment Systems and Services Act, 2019 (Act 987).
The Act requires companies seeking to carry out payment service business or issue electronic money to be duly licensed by the Regulator.
Licensing Requirements
i. Company Profile
In order to operate as a fintech startup in Ghana, the first step is for the company to be duly incorporated under the laws of Ghana at the Registrar Generals Department (RGD).
An overview of the company, it’s company incorporation documents and summary of services to be offered must be submitted to the Regulator as part of the licensing process.
ii. Governance
The company must provide information about the shareholders, their respective percentage holding in the company, nationality, copies of share certificates and attestation from a notary public confirming foreign ultimate beneficial owners with 10% or more of the total share ownership or voting rights.
The profile of the Directors and key management personnel as prescribed under the Payment Systems and Services Act, 2019 (Act 987) as well as an organizational chart must also be provided. The Payment Systems and Services Act, 2019 requires that businesses seeking to operating as a Payment Service Providers must have a minimum of three (3) directors.
iii. Business Plan
A comprehensive business plan covering the business overview, market analysis, products and services to be offered, the company’s on-boarding process, proposed fees to be charged and a five -year projection for the business must also be submitted by the founders as part of the application process.
iv. Systems and Technology
The following Information, Communication and Technology (ICT) systems must be employed:
- ICT policy framework
- Security and control (including transaction monitoring tool, fraud monitoring and detection tool and at least two factor authentication)
- Business continuity program
- Data Protection Certificate
- ISO 27001 certification and compliance where applicable
- PCI DSS Certification and compliance where applicable
- EV-SSI tools where applicable
- Network and Vulnerability assessment/penetration test
- ICT risk assessment and mitigation measures
v. Enterprise Risk Management
The company is required to submit its risk and mitigation measures which cover all operational, market liquidity, fraud, legal, credit and funding risk where applicable, Business Impact Assessment (BIA) and an Anti-Money Laundering (AML)/Combating the Financing of Terrorism (CFT) policy.
vi. Consumer Protection Policy
The Company must also submit its consumer protection policy which should be guided by the Consumer Recourse Mechanism Guideline for Financial Service Providers Act 2017 (Act 987).
License Categories and Permissible Activities for Payment Service Providers and Fintechs in Ghana
There are different categories of licenses for payment service providers and fintechs, based on their nature of business and permissible activities.
1. Electronic Money Issuer:
The permissible activities under this licence category includes Issuance of electronic money, recruitment and management of agents, creation and management of wallet. Wallet based domestic money transfers including transfers to and from bank accounts, cash in and cash out transactions, investment, savings, credit products only in partnership with banks, insurance and pension products only with authorised insurance and pension companies.
2. Payment Service Provider (PSP) Scheme
The activities permitted under this category of license are routing of payment transactions, authorisation, and settlement requests from merchants, acquiring and issuing banks.
3. Payment Service Provider (PSP) - Enhanced License
The PSP (Enhanced License) allows for the Aggregation of merchant services, processing services, provision of hardware and software, printing and personalisation of EMV Cards, Inward International remittances services, merchant acquiring, POS deployment, and Payment aggregation.
4. Payment Service Provider (PSP) - Medium License
Payment Gateway and Portals/Payment aggregation which is connected to Enhanced PSP. Training and support of merchants. Printing of non-cash payment instrument, development of market platforms, payment application/solutions for Credit, Savings and Investment products in partnership with Banks.
5. Payment Service Provider (PSP) - Standard License
A payment application solution/ development, merchant development platform, a payment solution.
6. Payment and Financial Technology Service Provider (PFTSP)
The permitted services under the PFTSP license include Digital product development, delivery and support services for Payment, Savings, Insurance, Investment, Credit scoring predictive analytics, AML/CFT centralized platform, Fraud management services, Know Your Customer (KYC) and Customer Due Diligence (CDD) authentication services.
Conclusion
Startup businesses seeking to operate within the Ghanaian fintech industry must comply with the legal and regulatory framework governing the industry to prevent regulatory sanctions and reputational damage which may impact their revenue.
O-Laryea Law provides free consultation to fintech startups, entrepreneurs and investors in Ghana. We can assist with legal and regulatory guidance to enable you succeed in the fintech industry in Ghana.
Term Sheet for Private Equity Investments
What is a Term Sheet
A term sheet is a document which provides a summary of agreed terms and conditions in a proposed investment transaction. It contains the key elements of the transaction and facilitates the drafting of final comprehensive legal documents.
Legal Effect
Term sheets are generally non-binding and may be subject to the confirmation of satisfactory completion of due diligence or negotiation of additional conditions. However, some clauses in the term sheets such as exclusivity period and confidentiality clauses are legally binding.
Term Sheet Provisions
The contents of a term sheet may vary based on factors such as the kind of investment transaction and the stage of investment. The clauses in a term sheet can be broadly categorised into funding, corporate governance and exit provisions.
- Funding
Funding provisions provide details about the investment. These usually include information about the investor and the company, total funds being invested and a description of the type of securities being issued, for example, common shares or preference shares. Details on share price and number of shares being issued are also captured under the funding provisions.
- Corporate Governance
Under corporate governance, terms relating to voting rights, board composition and information rights are detailed. The voting rights outline the rights of the investor to vote on corporate matters whiles board composition specifies the arrangements on nominating directors of the company. Information rights indicates the extent of the company’s information disclosure requirements to the investors.
- Other Provisions
Other provisions that may be included in a private equity investment term sheet are:
Pre-emptive right which refers to the right of existing shareholders to be offered the first option to purchase shares in the event of a proposed sale, transfer or disposal of shares in the company.
Tag-along-rights which refers to the right of minority shareholders to sell their shares in the company on the same proportional conditions.
Fintech License in Ghana
A company that intends to operate as a Dedicated Electronic Money Issuer (DEMI), Payment Service Provider (PSP) or a Payment and Financial Technology Service Provider (PFTSP) in Ghana must be licensed by the Bank of Ghana.
License Categories
There are six (6) license categories. Each license category specifies the permissible activities that can be undertaken.
The license categories and related permissible activities are as follows:
1. Dedicated Electronic Money Issuer
Permissible activities:
- Recruitment and management of agents
- Creation and management of wallet
- P2P On Net / Off Net
- Cash-In and Cash-Out
- Wallet based domestic money transfers including transfers to and from bank
accounts
- Investment, savings, credit, insurance and pension products (ONLY in
partnership with banks and duly regulated institutions)
- Mobile money merchant acquiring
- Termination of Inbound International Money Transfer
2. Payment Service Provider - Scheme
Permissible activities:
- Domestic Card Brand Associations e.g. Gh-Link
- Switching & routing of payment transactions and instructions
3. Payment Service Provider – Enhanced
Permissible activities:
- All permissible activities for PSP-medium license
- Marketplace for financial services offered by duty regulated financial service
providers
- Merchant acquiring and merchant aggregation
- Payment processing
- Printing and personalization of EMV Cards
- Inward International remittances services
- Providing 3rd party payment gateways services
- Limited use closed loop virtual cards (funded via refunds, rewards & user’s
other accounts)
4. Payment Service Provider- Medium
Permissible activities:
- Connection to an Enhanced PSP to offer the following services
- All permissible activities for PSP-standard license
- Payment aggregation which is connected to Enhanced PSP
- Biller/Merchant Aggregation
- POS Deployment
- Printing of non-cash payment instruments eg. cheques
- Mobile payment Apps (with liability shift on PSP Enhanced)
5. Payment Service Provider- Standard
Permissible activities:
- Connection to an Enhanced PSP to offer Mobile payment Apps service.
This Category of license is reserved for Ghanaians and wholly owned Ghanaian
entities.
6. Payment and Financial Technology Service Provider (PFTSP)
Permissible activities:
- Digital Product development, delivery and support services
- Credit scoring predictive analytics
- AML/CFT centralised platform
- Fraud Management services
- Know your Customer(KYC) and Customer Due Diligence (CDD) authentication
services
- Connection to DEMIs, PSPs, Banks and Financial Institutions
Incorporation of Non-Government Organisation (NGO) in Ghana
Non-Governmental Organizations (NGO) or Non-Profit Organizations (NPO) are incorporated in Ghana as Companies Limited by Guarantee. These companies are set up to fulfil non-commercial or charitable purposes.
Following its incorporation as a Company Limited by Guarantee, an NGO / NPO is required to register with the Non-Profit Organization Secretariat in Ghana.
Start-up business - compliance to sector-specific laws.
It is important for a start-up business to identify the regulatory bodies that are relevant to its business operations and ensure strict compliance to sector-specific regulations.
Sector Specific Laws
Sector-specific laws are laws that govern business operations within particular industries. Examples of some industries with sector specific laws in Ghana are Banking, Insurance, Telecommunications, Gaming and Mining.
Sector-specific laws may prescribe the requirements for obtaining a licence within the industry, transfer of shares as well as specify percentage of shares that can be held by foreign investors within the industry.