Enabling agent banking: the legal, regulatory, and oversight framework *

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1 Enabling agent banking: the legal, regulatory, and oversight framework * Agent Banking: Expanding Access to Payment and Remittance Services Achievements and Opportunities Brasilia, Brazil, 12 March 2014 Klaus Löber CPSS Secretariat Bank for International Settlements * Views expressed are those of the author and not necessarily those of the BIS or CPSS Restricted

2 Outline The BIS and the Committee on Payment and Settlement Systems The role of oversight CPSS work in the field of retail Agent banking scope and main challenges Issues and challenges for authorities and central banks Restricted 2

3 The Bank for International Settlements (BIS) The mission of the BIS is to serve central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas and to act as a bank for central banks The world s oldest international financial institution, established under the Hague Convention of 1930 The BIS pursues its mission by: promoting discussion and facilitating collaboration among central banks and with other authorities responsible for promoting financial stability conducting research on policy issues confronting central banks and financial supervisory authorities and providing statistics hosting committees and secretariats of regulatory bodies acting as bank for central banks Restricted 3

4 The Committee on Payment and Settlement Systems The CPSS is a global standard setting body in the field of payments, clearing and settlement systems and related activities (also including the formulation of common policies and recommendations): e.g. Central bank oversight of payment and settlement systems (2005) Principles for financial market infrastructures (2012) It also serves as a forum for central banks to monitor and analyse developments in large value and retail payment, clearing, settlement and related arrangements, schemes and instruments, both within and across jurisdictions (also including cooperation and sharing information, increasing common understanding, etc.): e.g. Role of central bank money in payment systems (2003) The interdependencies of payment and settlement systems (2008) Innovations in retail payments (2012) Establishment in 1990 (preceded by the 1980 Group of Experts on Payment), reporting to the Governors of the Global Economy Meeting Today 25 member central banks, chaired by Benoît Coeuré (ECB) Restricted 4

5 The Basel process (simplified) BIS G20 CENTRAL BANKS IAIS BCBS CGFS CPSS IMF World Bank JOINT FORUM INSTITUTIONS MARKETS INFRASTRUCTURE IOSCO Restricted 5

6 Central bank oversight Oversight of [payment and settlement] systems is a central bank function whereby the objectives of safety and efficiency are promoted by monitoring existing and planned systems, assessing them against the objectives and, where necessary, inducing change. CPSS report on Oversight of payment and settlement systems, BIS, 2005 In promoting safety (robust risk management) and efficiency (regarding performance of functions towards participants and wider markets), a central bank may: o conduct oversight activities o also take an operational role o also act as catalyst for change These roles are not mutually exclusive, but complement each other Restricted 6

7 The central bank interest(s) Ensuring the safety and efficiency of payment, clearing and settlement activities and systems Contributing to financial stability Contributing to the smooth implementation of monetary policy Maintaining the public confidence in the currency Restricted 7

8 A question of territory Large value payment systems Retail payment systems Central banks Market regulators Bank supervisors Competition authorities Consumer protection agencies Financial stability authorities Resolution authorities S + E (E)? S (S)? S + E (S)? E (S + E) S? Other (IT, telco, etc.) regulators Quasi systems? S E?? Banks S E S + E (S) (S) Payment instruments (S + E) S? (E)? Non-bank payment service providers S + E? S? S? E (S + E) (S + E) Infrastructure perspective Market perspective Entity perspective Competition perspective User perspective Stability perspective Stability perspective Sectoral perspective (S)afety (E)fficiency Restricted 8

9 CPSS work in the field of retail Descriptive reports and statistics (e.g. Red books) Principles and Best practices (e.g Remittance Principles) Policy and analytical reports (e.g Retail payment systems study, 2003 Policy issues for central banks in retail payments) Recent CPSS work in the field of retail partially covers the issue of banks agents (but not as the main focus): Innovations report (May 2012): Financial inclusion as a driver for innovation; bank agents mentioned as an example Non-banks in retail payments (forthcoming): Analysis of the causes and consequences of the growing importance of non-banks in payment services; bank agents an example of non-banks that provide payment services to end customers Joint CPSS-WB task force on Payment Aspects of Financial Inclusion: initial stages of work; bank agents will likely be within the scope Restricted 9

10 Innovations in retail payments Trends: Dynamic market, but few innovations have had significant market impact (so far), regional differences are likely to persist Innovations are usually domestic (but similar innovations have appeared in many markets) and adopted gradually, but large leaps are possible (especially in emerging markets) Speed is becoming an important factor in retail payments processing Financial inclusion is one of the driving forces for innovation The role of non-banks is significantly increasing, technical developments will continue blurring the categories Security issues will become ever more critical Regulation can be either driver or barrier Restricted 10

11 Agent banking - Scope Terminology can be confusing: what is a bank agent in the broader context of non-banks (in retail payments)? Provision of payment services to the public Important vehicle for financial inclusion Horizontal competition with other agents / banks Vertical cooperation (usually) with financial institutions (access to clearing and settlement infrastructures) Non-banks active in retail payments Non-bank providers of payment services to end-customers Bank agents Restricted 11

12 Why focus on bank agents? Two closely related aspects Bank agents and innovation: Potential to improve the efficiency of the overall payment infrastructure Bank agents and financial inclusion: by providing payment services to the un-banked or under-banked Potential to provide a wider range of basic financial services as an add-on to the payment services Restricted 12

13 Legal and regulatory challenges for bank agents Payment clearing and settlement infrastructures Different issues in different areas 1 Fair access to payment infrastructures 2 Competition 3 Security and efficiency of services provided to end-customers Bank Bank agent Bank Competitors (banks, non-banks) End-customers of payment services Restricted 13

14 Main issues in the different areas (I) Payment services provided to end-customers: Risks are similar for banks and non-banks Safe and efficient services are the goal: the debate about tradeoffs between safety and efficiency is, in many cases, meaningless: relaxing safety is never efficient in the long term A functional approach to regulation focused on the payment activity might be preferable to ensure customers receive similar treatment and quality of service irrespective of the provider Main concern for consumer protection authorities, other authorities in charge of AML-CTF, bank supervisors, non-banks regulators (if any) Central banks (as overseer or catalyst) interested in security and quality/efficiency of services/instruments rather than providers Restricted 14

15 Main issues in the different areas (II) Competition with other payment service providers: Are agent banks able to compete fairly with banks and other non-bank providers? Regulation can work to the advantage of banks (e.g. if the provision of certain services is restricted to them) or nonbanks (e.g. if banks are subject to requirements that non-banks do not have to fulfil) Again, a functional approach to regulation might help ensuring a level playing field for competition, proportionality and nondiscrimination Mainly a concern for competition authorities To the extent that banks are simply not interested in providing services to certain areas / population segments, there may be an interest from a financial inclusion or catalyst perspective for development agencies or central banks Restricted 15

16 Main issues in the different areas (III) Fair and open access to payment infrastructures: This may be an issue for many non-bank payment service providers, but mostly not for bank agents, as they cooperate with banks (that cater for the link with clearing and settlement services) Access policies of individual systems are in many cases defined by the operator (subject only to high level rules in the general regulatory framework) Main goal: the infrastructure should have objective, risk-based and publicly disclosed participation criteria, allowing for fair and open access (PFMIs Principle 18) This is within the field of competence of central banks (mostly from an infrastructural/catalyst point of view, to some degree oversight: the participation criteria should ensure the safety and efficiency of the FMI and the markets its serves) Restricted 16

17 Some preliminary findings from the non-bank report 110+ non-banks (individual or groups) reported. Around 50% provide services to end-customers. Bank agents are included, but a tiny fraction of these Non-bank services to end customers increasingly regulated Multiplicity of areas, regulations, authorities at the local and global level Important that authorities (not just central banks) understand the role, importance and challenges posed by non-banks (including bank agents) Cooperation among authorities at the local and global level is key to ensure a consistent approach Restricted 17

18 Issues and challenges for central banks The role of central banks varies from country to country, but a number of common issues and challenges persist: Importance to monitor and assess new developments (collection of relevant data, building expertise) Formulating and communicating in a clear and transparent way the objectives, views and research of the central bank Interoperability is usually a policy goal to increase competition and thus efficiency - central banks may play a role fostering standardisation and interconnectivity Oversight frameworks and cooperation with other central banks and authorities (domestically and cross-border) may need to be reviewed Need to assess the impact of new developments on central bank payment services, on cash provision and on monetary policy Restricted 18 18