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AI ADOPTION IN NIGERIA: LEGAL CONSIDERATIONS FOR NIGERIAN BUSINESSES

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BY ADERONKE ALEX-ADEDIPE AND QASIM OGUNJIMI

AI ADOPTION IN NIGERIA LEGAL CONSIDERATIONS FOR NIGERIAN BUSINESSES

INTRODUCTION

As artificial intelligence (AI) continues to revolutionize industries worldwide, its adoption among Nigerian businesses is gaining significant momentum. In Nigeria, businesses across various sectors, including finance, healthcare, and digital services, are increasingly adopting AI technologies to improve operational efficiency, drive innovation, and gain a competitive edge in both local and global markets. While the benefits of AI adoption are vast and transformative, they also bring forth significant legal and governance challenges. The absence of comprehensive regulatory frameworks, concerns over data privacy and protection, and the need for ethical guidelines present challenges that Nigerian businesses must navigate carefully when adopting AI.
This newsletter highlights the legal considerations surrounding AI adoption; the importance of robust governance, accountability, and ethical practices for businesses in Nigeria and beyond.

Legal Considerations for AI Adoption
To effectively navigate the legal aspects of AI adoption, Nigerian businesses should consider these major factors;

1. Regulatory Compliance:

Despite the absence of specific AI regulations, various existing laws may indirectly influence AI deployment and use in Nigeria. Some of the provisions of these regulations are analysed below;

Data Protection: For example, the Nigerian Data Protection Act (NDPA) provides that a data subject shall not be subject to a decision based solely on automated processing of personal data except where there is human intervention, and the logic of the decision made is capable of being contested. The implication of this provision is that entities using AI to process personal data must ensure human oversight in their process. Additionally, the Nigeria Data Protection Commission (NDPC) has also issued a draft General Application and Implementation Directive (GAID), which requires data controllers or processors using emerging technologies, including AI, for personal data processing to consider the NDPA, public policy, and other regulatory instruments. When using emerging technologies, the GAID requires data controllers and processors pay particular attention to the various rights of data subjects and the implementation of privacy by design.

Consumer Protection: Similarly, the Federal Competition and Consumer Protection Act (FCCPA), which aims to prevent unfair trading practices and protect consumers, applies to businesses using AI in marketing or customer interactions. For instance, businesses employing AI-driven targeted marketing strategies must ensure that the algorithms do not engage in deceptive practices that mislead consumers about product features, pricing, or availability. Additionally, AI systems that automate customer service interactions must be designed to treat all customers equitably. If an AI system inadvertently discriminates against certain groups—whether through biased training data or algorithmic errors—it could lead to unfair treatment of consumers, violating the principles of the FCCPA. Thus, businesses must implement measures to identify and rectify biases within their AI systems to ensure compliance with FCCPA.

Digital Advisory: The Securities and Exchange Commission (SEC) Rules on Robo-Advisory Services (the “SEC Rules”) seeks to regulate digital advisory services- i.e the provision of investment advice using automated, algorithm-based tools which are client-facing, with little or no human adviser interaction in the advisory process. These rules mandate that Robo-Advisors (i.e a person who provides digital advisory services) implement measures to mitigate bias in their algorithms and ensure that clients are fully informed about the assumptions, limitations, and risks associated with the AI technologies used in providing advisory services.

In summary, while specific AI regulations are still forthcoming, businesses must comply with the NDPA, FCCPA and other applicable laws when developing and deploying AI technologies. Engaging legal counsel to navigate these complexities can significantly help in ensuring compliance and responsible AI adoption.

2. Contractual Framework: When integrating AI technologies into their system, businesses must establish clear contractual framework to govern their relationship with AI developers or service providers. This framework is essential for mitigating risks and protecting the interests of all parties involved. Some of the key components of the contracts include defining liability for any malfunctions or errors, and specifying ownership rights regarding data, algorithms, and any outputs generated by the AI systems. Additionally, businesses should outline performance expectations in service level agreements (SLAs), covering aspects such as accuracy, reliability, and compliance with applicable regulations.

3. Governance Framework: Implementing a comprehensive governance framework is essential for organizations adopting AI technologies, as it establishes the structures and processes needed to manage risks and ensure compliance with applicable laws and international best practices. This framework should include policies that outline the responsible use of AI, and processes to regularly evaluate the functionality and effectiveness of AI systems. Another component of this governance framework involves conducting regular risk assessments to identify vulnerabilities within AI systems and evaluate the potential impact of such vulnerabilities vis-a-vis compliance requirements.

4. Transparency and Explainability: Transparency is a fundamental principle that organizations must prioritize when adopting AI technologies, particularly as these systems increasingly influence decision-making processes. Businesses must ensure that their operations involving AI are clear and understandable to stakeholders, including consumers, regulators, and employees. For example, under the SEC Rules, Robo Advisers are required to disclose, in writing, to their clients; assumptions, limitations, and risks of the algorithms; circumstances under which the Robo Adviser may override the algorithms or temporarily halt the Robo Advisory Service; and any material adjustments to the algorithms

Conclusion
In conclusion, as Nigerian businesses increasingly embrace AI technologies, understanding the associated legal considerations is crucial for successful adoption. With focus on the legal considerations explored in this newsletter, businesses may leverage the benefits of AI while maintaining regulatory compliance, upholding ethical standards and safeguarding their reputations.

REGULATORY UPDATE: THE NIGERIA FOREIGN EXCHANGE (FX) CODE

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By Seun Timi-Koleolu and Qasim Ogunjimi

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Introduction

In light of ongoing challenges in the Nigerian foreign exchange market, including recent distortions driven by speculators and illicit traders, the need for a robust regulatory framework has become increasingly urgent. In view of this, the Central Bank of Nigeria (CBN) has introduced the Nigeria Foreign Exchange Code (the “FX Code”), effective October 14, 2024, to enhance the integrity and operational efficiency of the Nigerian Foreign Exchange Market (NFEM). This comprehensive framework establishes robust guidelines for licensed banks and financial institutions, including Bureau de Change (BDC) operators, International Money Transfer Operators (IMTOs), FinTechs and others organisations engaged in wholesale foreign exchange transactions (“Market Participants”).

The FX Code aligns with the principles set forth in the FX Global Code maintained by the Global Foreign Exchange Committee (GFXC) and aims to promote ethical conduct and best practices within Nigeria’s foreign exchange landscape.

At the core of the FX Code are six key principles: Ethics; Governance; Execution; Information Sharing; Risk Management and Compliance; and Confirmation and Settlement Processes. These principles not only ensure high standards of ethical conduct and operational excellence but also allow for a transparent, competitive, and fair market environment. The focus of this newsletter is to examine the compliance requirements outlined in the FX Code, emphasizing its six key principles.

COMPLIANCE REQUIREMENTS UNDER THE FX CODE

To ensure that Market Participants align with the FX Code, several compliance requirements have been established. These requirements are designed to promote accountability, transparency, and adherence to high ethical standards in the foreign exchange market. The key compliance obligations include:

  1. Self-Assessment and Reporting: Market Participants are required to conduct a thorough self-assessment of their adherence to the FX Code and submit a detailed compliance report to CBN by December 31, 2024. This assessment must evaluate their current practices against the standards set forth in the FX Code. This report should highlight their level of compliance, strengths and identify any areas requiring improvement.
  2. Implementation Plan: Alongside the self-assessment, each Market Participant is required to submit to CBN by December 31, 2024, a compliance implementation plan that has been approved by its Board of Directors. This plan should detail the strategies and steps the institution will take to achieve full compliance with the FX Code.
  3. Quarterly Reporting Mechanisms: Following the initial compliance assessments and plans, Market Participants must also provide ongoing updates to the CBN. They are obligated to submit quarterly reports on their level of compliance to the Financial Markets Department of CBN within 14 days after the end of each calendar quarter. This process ensures continuous monitoring and reinforces the commitment to uphold the principles of the FX Code.
  4. Other Compliance Requirements: In addition to the primary obligations outlined above, Market Participants are expected to adhere to several other compliance requirements, including but not limited to:
  • Training and Awareness: Conduct regular training sessions for employees to ensure their understanding of the FX Code and its principles.
  • Internal Controls: Establish robust internal control mechanisms to continuously monitor adherence to the FX Code and detect potential violations.
  • Record Keeping: Maintain accurate and comprehensive records of all transactions, communications, and compliance activities to demonstrate adherence during audits.
  • Risk Management Framework: Implement a framework to identify, assess, and mitigate risks associated with FX activities, including monitoring market conditions and counterparty exposure.
  • Governance Structures: Establish clear governance structures outlining roles and responsibilities related to compliance, including appointing compliance officers and ensuring Board oversight.
  1. Enforcement of the FX Code: Please note that the FX Code provides that CBN may take appropriate enforcement and other administrative action including monetary penalties as provided for under the CBN Act 2007 and Banks and Other Financial Institution Act 2020 against any Market Participant for failure to comply with the FX Code.

CONCLUSION

The introduction of the Nigeria Foreign Exchange Code marks a significant milestone in the ongoing effort to stabilize and enhance the Nigerian Foreign Exchange Market. It is important for all Market Participants to familiarize themselves with the provisions of the FX Code and actively work towards meeting its compliance requirements.

 

For further readings on the Nigerian foreign exchange market, you can refer to our previous articles

  1. KEEPING UP WITH FOREIGN EXCHANGE REGULATIONS: NEW CBN MEASURES FOR INTERNATIONAL MONEY TRANSFER OPERATORS (IMTOs)
  2. RECENT CBN REFORMS IN THE NIGERIA FOREIGN EXCHANGE MARKET