1. Mobile Banking Services- Financial Regulatory Issues Retail Banking/Payments Innovation May 2011 Louise Malady

2. Overview Financial Regulatory Issues Regional and International Efforts Regulator’s Viewpoint Explaining the Business Model Regulatory Focus – Safety and Efficiency Emerging Themes in Regulation

3. 1a. Regional Efforts Developed Economies – focus on payment system efficiency Emerging and Frontier Economies – additional focus on the unbanked and underbanked

4. 1b. International Efforts Alliance for Financial Inclusion CGAP Technology Group GSMA Development Fund UK Dept for International Development Bill & Melinda Gates Foundation

5. 2a. Financial Regulator’s View See opportunities for inclusion See benefits for greater safety and efficiency in payment systems Post GFC - regulators are more conservative Concern when non-banks are proposing to be the issuers of the stored value

6. 2b. Regulatory Viewpoint Financial protection alongside financial inclusion Need to understand the business models Implications of different models End-users Market players Regulators

7. 3a. Business Model By player By function Transaction process by function sourced from: Alexandre, C., Mas, I. and Radcliffe, D. (Bill & Melinda Gates Foundation) August 2010Regulating New Banking Models that can Bring Financial Services to All

8. 3b. Regulations will Influence... How business models are structured How agents are used in the model How customers are able to register for accounts and do cash-in and cash-out transactions

9. 4a. Regulatory Focus - Safety Issuance and Management of the Float Operational/Security Risks AML/CFT and KYC The Role of Agents Consumer Protection

10. Issuance / Management of Float Fund Safeguarding Fund Isolation

11. Fund Safeguarding Funds must be available when required by the customer Maintain “unencumbered liquid assets” Examples – Philippines, Indonesia, Malaysia, Cambodia M-Pesa (Kenya) –interim agreement to store funds with a regulated bank

12. Fund Isolation Who owns the funds deposited with the bank? Is the stored value “pooled” and placed on deposit? Does the jurisdiction have trust account set-up (e.g. Singapore, Malaysia)

13. Operational/Security Risks Payments processing, clearing and settlement arrangements Security - type and levels E-crime or fraud

14. AML/CFT and KYC Financial Action Taskforce (FATF) requirement Tiered KYC (Philippines, Singapore, EU) Dialogue between financial and telco regulators (e.g. Fiji and South Africa – two different approaches) Build KYC requirements into system design – role of agents very important

15. Agency Arrangements Are non-bank entities allowed to handle cash-in and cash-out transactions Are banks and non-banks both held liable for their agents’ activities Clearing and settlement arrangements can reduce the liquidity and credit risk Consumer protection risk - disclosure and redress mechanisms

16. Consumer Protection Important where stored value is not a “deposit” Framework can include: Disclosure requirements Redress mechanisms Clear identification of users for KYC purposes Consumer education

17. 4b. Regulatory Focus - Efficiency Interoperability Integration Competition http://mmublog.org/blog/mobile-money-interoperability-at-mwc-2011/ mService in Vietnam

18. Emerging Themes for Regulators Stored value as a savings mechanism Interoperability and integration Engage the telcos and other non-bank players Regulatory proportionality

19. Emerging Themes for Industry Involve the financial regulator early Cooperation between regulators and industry players Industry players working together Beneficial partnership solutions

20. Further Resources The Mobile Financial Services Development Report 2011 – World Economic Forum (in collaboration with The Boston Consulting Group) GSMA Mobile Money for the Unbanked survey on regulations http://www.mobilemoneyexchange.org/wiki/Regulation

21. Thank You lmalady@skybroadband.com.ph