This document discusses financial regulatory issues related to mobile banking services. It covers regional and international efforts to promote mobile banking, regulators' viewpoints, and how business models and regulations influence areas like agent arrangements, consumer protection, and efficiency. Regulators aim to balance financial inclusion with safety by focusing on issues like float management, know-your-customer processes, and operational risks. Emerging themes suggest regulators will engage more with non-bank players and consider interoperability, while industries should involve regulators early in development.

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

2. OverviewFinancial Regulatory IssuesRegional and International EffortsRegulator’s ViewpointExplaining the Business ModelRegulatory Focus – Safety and EfficiencyEmerging Themes in Regulation

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

4. 1b. International EffortsAlliance for Financial InclusionCGAP Technology GroupGSMA Development FundUK Dept for International DevelopmentBill & Melinda Gates Foundation

5. 2a. Financial Regulator’s ViewSee opportunities for inclusionSee benefits for greater safety and efficiency in payment systemsPost GFC - regulators are more conservativeConcern when non-banks are proposing to be the issuers of the stored value

6. 2b. Regulatory ViewpointFinancial protection alongside financial inclusionNeed to understand the business modelsImplications of different modelsEnd-usersMarket playersRegulators

7. 3a. Business ModelBy playerBy functionTransaction 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 modelHow customers are able to register for accounts and do cash-in and cash-out transactions

9. 4a. Regulatory Focus - SafetyIssuance and Management of the FloatOperational/Security Risks AML/CFT and KYCThe Role of AgentsConsumer Protection

10. Issuance / Management of FloatFund SafeguardingFund Isolation

11. Fund SafeguardingFunds must be available when required by the customerMaintain “unencumbered liquid assets”Examples – Philippines, Indonesia, Malaysia, CambodiaM-Pesa (Kenya) –interim agreement to store funds with a regulated bank

12. Fund IsolationWho 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 RisksPayments processing, clearing and settlement arrangementsSecurity - type and levelsE-crime or fraud

14. AML/CFT and KYCFinancial Action Taskforce (FATF) requirementTiered 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 ArrangementsAre non-bank entities allowed to handle cash-in and cash-out transactionsAre banks and non-banks both held liable for their agents’ activitiesClearing and settlement arrangements can reduce the liquidity and credit riskConsumer protection risk - disclosure and redress mechanisms

16. Consumer ProtectionImportant where stored value is not a “deposit”Framework can include:Disclosure requirementsRedress mechanismsClear identification of users for KYC purposesConsumer education

17. 4b. Regulatory Focus - EfficiencyInteroperabilityIntegrationCompetitionhttp://mmublog.org/blog/mobile-money-interoperability-at-mwc-2011/mService in Vietnam

18. Emerging Themes for RegulatorsStored value as a savings mechanismInteroperability and integrationEngage the telcos and other non-bank playersRegulatory proportionality

19. Emerging Themes for IndustryInvolve the financial regulator earlyCooperation between regulators and industry playersIndustry players working togetherBeneficial partnership solutions

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

21. Thank You lmalady@skybroadband.com.ph