KRIIs to be Introduced in 2018
The new KRIIs introduced over 2017-18 focus majorly on standardization and customer protection as regulatory landscape is following a cyclical path with the focus of KRIIs transcending from standardization to innovation and back again. Especially, regulators in emerging markets focus on standards, governance, and oversight of new entrants
At present, P2P lending is partially or fully regulated in Australia, Argentina, Canada (Ontario), New Zealand, the U.K., France, Germany, Italy, and the U.S. while it is banned in Israel and Japan. China has the largest P2P market in the world, with hundreds of platforms offering diverse services. The industry recorded transactions valued at $445 billion in 2017 and is currently not regulated. In a move to crack down on the segment, a new ‘record filing’ system was enforced in April 2018. A lack of clarity about the system has raised the levels of apprehension in the market. The South Korean government is expected to announce measures to tackle abusive and deceptive peer-to-peer (P2P) lending practices amid a rise in the number of fraud cases being reported in the sector.
On 1 January 2018, the Central Bank of the United Arab Emirate’s (CBUAE’s) Regulatory Framework for Stored Values and Electronic Payment Systems (EPS) came into effect. On a regional level, the Framework seeks to encourage the adoption of secure digital payments in the region and position the country as a digital leader in the region, while also fostering greater financial inclusion in the U.A.E. It mandates that those providers offering digital payment services in the U.A.E. must store user and transaction data in the country for five years from the date of the transaction or from when the user relationship ends. This data must be kept confidential and can be made available only to the user, CBUAE, other regulatory authorities upon authorization by the CBUAE, or by court order. All such data must also be physically stored in the U.A.E. and therefore transfer of such data is restricted.
Thailand’s Payment System Act (PSA) became effective on14 April 2018. It empowers the Ministry of Finance (MOF) and the Bank of Thailand (BOT) to regulate and supervise systemically important payment systems (SIPS), regulated payment systems (RPS), and regulated payment services to ensure risk management and security, financial stability, good governance, customer protection and efficiency, and competitiveness.
SIPS support high-value fund transfers, clearings or settlements between members of the system. RPS operate as a center or a network between users of the systems and support fund transfers, clearings or settlements. Under the PSA, the existing operators of such payment systems and payment services must obtain necessary licenses from the MOF within 120 days from the effective date of the PSA, failing which the operators can be subject to administrative fines, criminal penalties or both.
In February 2018, the Monetary Authority of Singapore (MAS) launched a public consultation on proposed guidelines to protect users of electronic payments (e-payments). The proposed guidelines aim to encourage wider adoption of e-payments by setting standards on the responsibilities of financial institutions and e-payment users. Under the new guidelines, individuals and micro-enterprises that hold e-payment accounts can expect financial institutions to provide timely notifications of all e-payment transactions. Financial institutions will be expected to set clear resolution processes for unauthorized or erroneous payment transactions. The guidelines also set out the responsibilities of e-payments users, including the good security practices they should adopt to protect their passwords and e-payment accounts. The consultation was closed on 16 March 2018 and the final draft of the guidelines were published in July, 2018.
The European Union’s Payment Accounts Directive (PAD) was implemented in the U.K. under the Payment Accounts Regulations (PARs) in 2015. In line with the Directive, the provisions of the PARs on packaged accounts, account switching, and basic bank accounts took effect in the U.K. on 18 September 2016. However, most of the provisions related to transparency and comparability of fee information came into force from April 2018. The firms affected will have six months after the announcement to implement the provisions. On 30 April 2018, the FCA published the final list of the most representative services within the meaning of PAD, which are linked to payments accounts and are subject to a fee.
In the interests of protecting credit card holders persistently in debt, the FCA has introduced a new set of rules. Effective from March 2018, firms must help customers to break the cycle of persistent debt and ensure those who cannot afford to repay more quickly are given help. However, credit card firms have been given until September 2018 to fully comply.
Based on the consensus received on the April 2015 consultation paper Balancing Oversight and Innovation in the Ways We Pay, the Department of Finance Canada released a further paper, A New Retail Payments Oversight Framework in October 2017. The paper outlines various components of a new functional oversight framework for retail payments. The framework, when enforced, would apply to every retail PSP and would cover a wide variety of day-to-day transactions that are conducted through various payment methods, including credit cards, online payments, pay deposits, debit cards, pre-authorized payments and peer-to-peer (P2P) money transfers.
The National Bank of Cambodia has issued new regulations governing the licensing of PSPs, requiring that all firms providing online services to accept electronic payments have at least $2 million in registered capital. Such a move is aimed at increasing the stability of the sector and encouraging the consolidation of its smaller players. The PSP licenses are valid for six years, with an annual licensing fee of 20 million riel ($5,000). The new regulations aim at better governance of third-party processors (TPPs) that act as intermediaries to complete payment transactions, and reflect the rapid growth of FinTech solutions.
In June 2017, Bank of Indonesia issued a new regulation on the National Payment Gateway (NPG). The regulation has a transition period of one year. The NPG consists of switching and services that integrate all payment instruments and channels nationally. The regulation mandates processing of every domestic payment transaction through the NPG. The central bank aims to achieve interoperability with national payment systems, including switching interconnection and interoperability of payment channels and instruments. A second phase, currently in development, will not only enable smoother inter-bank transactions, but will also provide payment facilities for the bills of 20 main utilities, including electricity and telecoms providers. The regulation aims to increase use of digital payments instruments as part of the government’s efforts to facilitate cashless payments.
The People’s Bank of China (PBOC) has announced that China will open up to foreign third-party electronic payment firms. The aim of the move is to increase competition in the industry currently dominated by Chinese services such as WeChat and Alipay. However, such payment firms will have to set up local businesses to gain a license and also ensure the financial information, including client data, resides in China.
In a bid to further regulate the operations of e-payment platforms, the PBoC raised the reserve funds ratio of payment platforms from 20% to 50% on 30 December 2017. The move was designed to better track ho funds are used by bringing more e-wallet deposits and funds held in escrow by payment providers under the PBoC’s centralized management. The ratio, effective from April 2018, will be gradually increased to 100% over time. It holds a strong promise to erase hundreds of millions of yuan in interest fees that providers such as Tencent and Ant Financial currently receive by parking an estimated $75 billion in reserves in commercial banks. Further, PBoC imposed caps on payments made by QR code. Based on the new security measure and user credentials, transaction limits are set at 500 yuan ($77), 1000 yuan ($154) or 5,000 yuan ($769), which will adversely affect the purchase of big ticket items.