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Liquidity In jurisdictions that have permitted e-money issuers, regulators have often required that 100% of the value of the e-money funds in circulation is maintained in liquid assets. (See the Philippines E-Money Issuer circular n as an example of this requirement http://www.bsp.gov.ph/downloads/Regulations/attachments/2009/c649.pdf ),
Restrictions on the use of e-money float In addition to a restriction on maintaining the entire balance of e-money funds in liquid form, most regulators also restrict the usage of funds and where they can be held. These rules also restrict e-money issuers from using funds or engaging in credit activities.
Diversification of e-money float holdings In Afghanistan, the regulator required e-money issuers that exceed a specific balance to diversify funds held by limiting exposure to a maximum of 25% to be held in any one financial institution. While this requirement is not listed in most jurisdictions it is practiced by several of the larger e-money operators such as M-Pesa’s Safaricom in Kenya.
Fund isolation through trusts or other instruments In order to ensure that customers’ funds are properly protected, most jurisdictions require funds to be held in a trust account that is administered by a bank or third-party trustee. In order to assist regulators with appropriate e-money trust deeds AFI has prepared a model trust deed (See http://www.afi-global.org/sites/default/files/publications/piwg_knowledge_product_e-money_trust_and_model_trust_deed.pdf )
The Bank of Tanzania (BOT) and, more recently, the Bank of Ghana (BOG) were the first to issue a regulation that allowed e-money issuers to distribute interest earned in pooled trust accounts to e-money account holders. The two central banks took different approaches to allow the distribution of interest to e-money account holders. While BOT regulation stated that the interest earned on the e-money trust account must benefit customers, they allowed the industry to come up with how this would be done. On the other hand, BOG stipulated that interest must be paid out to clients setting forth the required percentage of earned interest that must be distributed to customers.
1. Connecting to a global, regional or national remittance service provider (RSP): EMIs can serve as agents of a global RSP, such as Western Union or MoneyGram, providing access to a global network that assumes responsibility for currency conversion and settlement. Global RSPs typically operate through agents that are licensed locally. Alternatively, EMIs can connect to regional or national RSPs directly licensed in the target country, such as banks or other licensed RSPs. 2. Connecting to a mobile money transfer hub: HomeSend is an alternative designed specifically for mobile-enabled EMIs. In addition to addressing currency conversion and settlement for the EMI, HomeSend facilitates technological interoperability between different solutions. Like global RSPs, transfer hubs are typically not licensed locally and appoint licensed providers to serve as their agents. 3. Connecting to individual EMIs directly: As an alternative to working through a global RSP or hub, an EMI can agree to connect directly to another EMI. The sending provider must either obtain an RSP licenseor work with an existing RSP to perform the transactions. 4. Connecting to affiliate EMIs: Multinational EMIs, especially those that are subsidiaries of MNOs often have invested in and established separate EMI licenses in multiple countries
Challenges and issues: Digital Financial Services
CURRENT CHALLENGES &
ISSUES FOR DFS
JOHN V OWENS
NIGERIA CASE STUDY – A TALE OF TWO USE CASES
• Read the case study on page 4 in the AFI report http://www.afi-
• What is the level of interoperability in your market?
Some of the other important issues around non-bank e-money
issuers are around:
• Protection of e-money funds
• Whether e-money issues can pay or distribute interest
• Whether e-money accounts should be covered under deposit
• How to support e-money cross border remittances/payments
PROTECTION OF E-MONEY FUNDS
E-money fund safeguarding measures are in place to protect
customer funds and to ensure that funds are available when
customers need these funds.
These protections include regulations that govern e-money:
• Restrictions on the use of funds
• Diversification of funds
• Fund isolation through trusts or other mechanisms
DISTRIBUTION OF E-MONEY DIVIDENDS/INTEREST
While e-money has normally been considered as a non-deposit
taking service focused on payments, it is clear that an increasing
number of clients are holding funds in e-money accounts. In
markets where banks and other deposit taking institutions are
not able to reach all customers and with rising balances being
held in these accounts, some regulators are beginning to
consider allow e-money issuers to distribute interest earned in
trust accounts to individual e-money account holders.
CROSS-BORDER REMITTANCES & PAYMENTS
EMIs can facilitate the sending and/or receiving of cross- border payments in
a number of ways, including the following:
1. Connecting to a global, regional or national remittance service provider
2. Connecting to a mobile money transfer hub
3. Connecting to individual EMIs directly
4. Connecting to affiliate EMIs
OTHER AREAS OF RISK & NEW DEVELOPMENTS
• Use of agents & third-party intermediaries
• New alternative non-bank lenders including P2P and crowdfunding models
• Alternative data – privacy issues
• Development of global fintech guidelines for regulators
• Cryptocurrency & blockchain technologies
Using the current issues and challenges for
overseeing DFS in this section, please compare your
own market and list the most pressing issues and
challenges in your market.