Payments innovations such as New Payment Methods (“NPMs”) include e-money, stored value and prepaid cards, have brought new payment models and players to the payments industry who are beyond the traditional reach of banking regulations and therefore beyond the regulators’ control. In Australia and Asia more widely risk-based approaches to payments regulation demonstrate a commitment to encouraging innovation. How this is actually undertaken in practice differs between countries as a result of different local contexts. This article outlines the risk-based approaches to the regulation of NPMs in Australia, Singapore and the Philippines. This discussion shows regulators can and do play an enabling role in payments innovations.
In Australia, payments legislation was clarified in 2006 in order to limit the responsibility of the Reserve Bank of Australia (“RBA”) and the Australian Prudential Regulatory Authority (“APRA”) for NPMs so as to not burden both the issuer of the NPMs and the regulators with regulation in the nascent stages of development of the NPMs (learn more). However, all issuers of NPM are subject to the licensing, conduct and disclosure provisions of the Corporations Act administered by the Australian Securities and Investment Commission (“ASIC”). ASIC does provide licencing exemptions (known as ‘reliefs’) for certain NPMs, such as low value instruments, gift vouchers, prepaid phone cards, loyalty schemes and electronic road toll devices – however these reliefs emphasise the need for good and adequate disclosure to consumers with respect to the:
In Singapore, the regulator responsible for payments systems, the Monetary Authority of Singapore (“MAS”), wanted to create competition and innovation in the market space for NPMs. MAS adopted an approach that provides an automatic exemption for smaller players from regulation under the Payment Systems (Oversight) Act 2006. However, when a NPM, which is not a single purpose instrument, reaches a significant level of operations (determined by the total amount of stored value), an approved bank has to be fully liable for the stored value; MAS regulates the approved bank through its prudential regulation (learn more).
In terms of consumer protection, MAS directs consumers to further reading on how NPMs work and the implications for end-users in a Money Sense article (‘Introduction to Stored Value Facilities: Making sense of stored value facilities used to pay for goods or services rendered’ ) and operators and issuers of the stored value are referred to MAS’ ‘Guidelines on Stored Value Facilities’. To address Anti-Money Laundering/Countering the Financing of Terrorism(“AML/CFT”) concerns the holder of the stored value is required to comply with more stringent Know Your Customer (“KYC”) measures for any NPM that enables the user to store more than SGD1000 on the facility, (see PSOA-N02: Notice to Holders of Stored Value Facilities on Prevention of Money Laundering and Countering the Financing of Terrorism). For load limits less the SGD1000 no face-to-face KYC is required and “simplified due diligence” can be performed when the risks of money laundering and terrorist financing are assessed to be low.
The central bank of the Philippines, Bangko Sentral ng Pilipinas, (“BSP”) set out to make it clear that the stored value in emoney/mobile money facilities did not represent a traditional “bank deposit”. BSP wanted to avoid imposing prudential regulation on the non-bank players operating these types of NPMs. BSP developed a separate licensing arrangement where, among other requirements, 100 million pesos in paid up capital was required for start-up. This enabled non-banks to issue and operate significant NPMs but confined the market space to serious players. BSP also put in place a comprehensive consumer protection framework focusing on ensuring there were adequate disclosure requirements in place, appropriate redress mechanisms to address consumer complaints and procedures to ensure the clear identification of users for KYC purposes (see BSP Circular 649, 2009).
In January 2011, for e-money the BSP adopted a tiered approach for KYC further recognising the need for less regulation when less risk is present – it allowed for a customer to be described as presenting low, normal or high risk and reduced, average or enhanced due diligence would subsequently be applicable to that customer (See BSP Circular 706). In addition, for information required to set-up an account the BSP separated the information required into that needed upon account opening and that which could be obtained later, within 90 days. This change allowed agents to do account opening on a non-face-to-face basis.
The objective of the BSP is to make it as easy as possible for customers to register for e-money services to bring the huge remittance flows which the Philippines sees into payment systems which are legitimate, safe and more cost effective.
Industry players need to keep an open dialogue with regulators in order to ensure the continuing relevance of regulations for payments innovations. To this end, Australia’s payment system regulator, the RBA, has been undertaking a Strategic Review of Innovation in the Payments System since July 2010 and it is now in the finishing stages of that review. This process has involved extensive consultation with the industry players. The outcome of this review may see changes in how payments innovations are enabled by the RBA. For more details on this review and related issues see Inertia and Coordination Problems in Payment Networks, Remarks by Malcolm Edey, Assistant Governor (Financial System), RBA, to a panel session on Public Policy and Innovation at the Federal Reserve Bank of Kansas City Payments Conference, Kansas City, 31 March 2012.