Page 15 - ITU-T Focus Group Digital Financial Services – Interoperability

ITU-T Focus Group Digital Financial Services
Interoperability

Table 1 – Aspects of the legal and regulatory framework that can act as barriers to the development of DFS

Transparency and – To promote trust and confidence in DFS by the various stakeholders, the regulatory frame-
predictability of work must be sound, predictable, non-discriminatory, and transparent. Lack of these
regulations attributes can confuse the roles of different participants and create mistrust in the develop-
ment and operation of DFS.
– The legal and regulatory framework should provide an adequate balance to promote
innovative business models, as well as foster sound risk management practices in the pay-
ments industry, including through the supervision/oversight of PSPs and PSOs by regulatory
authorities.
– Further, to promote transparency and predictability, before implementing new or amending
existing laws or regulations in connection with DFS, regulators should carefully evaluate
the full costs and benefits of such proposed laws or regulations. Laws/regulations should
be drafted carefully to minimize the risk of unintended consequences and should focus on
clear, articulated goals or purposes.
Level playing field, – Some individuals may be “forced” to use cash as a result of an inability to access ATMs, POS
market access terminals, or bank branches. Reaching these individuals through traditional means may be
and licensing expensive and impractical. One way to overcome this challenge is to rely on technological
requirements innovations and to let a broader range of PSPs to reach out to new segments, or meet a
new need in an established market.
– Many countries have regulatory frameworks that are narrow in scope, and non-bank PSPs
and/or international PSPs or PIPs may find it difficult to be allowed in, or to compete fairly
with “traditional” local players. This may result in an environment where DFS are provided
by a smaller number of entities that otherwise would be possible, likely restricting choice
and quality of financial services for the end-user.
– To avoid compromising the safety and stability of the payments market, all PSPs and PIPs
should be licensed (or at least authorized) and regulated by the payment systems overseer/
regulator (i.e. the central bank). However, the underlying requirements should depend on
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the specific type of services offered and the specific risk associated to those services (i.e.
functional regulation rather than institution-based regulation).
– Third-party agents (acting on behalf of PSPs) may be prohibited from operating in the
market place if the legal and regulatory framework is not modified to explicitly include the
roles, responsibilities, requirements, etc. of third-party agents

Competition – In some cases there is a PIP or PSP that is backed by the government or that is organically
dominant, and other PSPs/PIPs are unable to compete openly and fairly in those markets.
– Another matter related to competition policy is imposition of revenue or fee caps to keep
consumer prices artificially low. This restricts the ability of PSPs/PIPs to provide services that
are commercially viable and discourages investment, and the net result is that the services
that are available to end-users are not good enough to promote adoption, and eventually
promote scale in DFS.
Proportionality – The easier and faster it is to open an account, the more likely consumers will take-up and
and risk-based use it. Smooth and simple account opening processes rely heavily on PSP’s ability to tier
approach for KYC, “Know Your Customer” (KYC) procedures. If the accounts are limited to a small balance and
AML/CFT small and simple transactions (i.e. cash-in, bill payment) and all transactions can be mon-
itored so that an account can be suspended right away in case of fraudulent or suspicious
use, the KYC risks are very limited. It is only when customers want to use their account more
and need larger balances and transactions that additional KYC should be performed.
– Regulations should be able to mirror the various scenarios earlier described. In other words,
regulations should be risk-based, being able to cope with both a very low risk environment
as well scenarios that may represent greater risks. Thus, in very low risk scenarios, simpli-
fied ID requirements that may even allow the possibility of activating accounts remotely
(e.g. through SIM registration) could be permitted.
– The lack of proper ID methods creates an additional barrier to undertake proper KYC.

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