STATUTORY AND PROCEDURAL REQUIREMENTS FOR PROVISION OF PAYMENT SYSTEMS’ SERVICES, INCLUDING BOTH PAPER AND ELECTRONIC PAYMENT IN TANZANIA.
- Governing legislation and regulations.
- A look into the shifting paradigms in payment systems; from paper to electronic mediums
- Application requirements for licenses by banks, financial institutions, non-banks and non-financial institutions.
- The Bank’s stand on digital cryptocurrencies such as Bitcoin
Technological changes have led into a drastic shift from paper based payment system to modern electronic payment system. In Tanzania there is an increase in the use of mobile money transfers and payments. With this increase in mobile and electronic payments, the Government of the United Republic of Tanzania had to enact a legislation to regulate payment systems. The National Payment Systems Act, 2015 (‘the Act’) was enacted with a view of addressing new electronic and mobile money transfers.
The Act defines Payment System to mean “a facility consisting of payment instruments, banking and transfer of money procedures, interbank funds transfer systems or payment system provider’s system that ensures circulation of money”.
The Bank of Tanzania (‘BOT’) is mandated to administer registration, administration and regulation of the payment system services rendered by banks and financial institutions as well as non-banks and non-financial institutions. All service providers providing payment system services are to be registered by the BOT. The new regulatory framework on payment systems in Tanzania commenced on 1st day of July, 2016.
The Banking and Finance law team together with our Telecommunication Law team at Breakthrough Attorneys prepared this article to iron out compliance and procedural requirements for provision of payment system services in Tanzania.
2.0 . Licensing for provision of payment systems’ services.
The Act requires financial institutions and non-financial institutions to be in possession of specific license and/or approval of BOT prior to provision of services with regards to payments. The licensing and approval requirements by the BOT is provided for under the Payment Systems (Licensing and Approval) Regulations, 2015 and the Payment Systems (Electronic Money) Regulations, 2015.
Prospective service providers have to apply for three licenses or approvals. The difference between application for a license and approval depends on the nature of the institution. The institutions which are non-banks or non-financial institutions shall apply for Licenses while banks and financial institutions shall apply for approval. The three licenses and approval are;
(i) The payment system license or approval,
(ii) The payment instrument license or approval and
(iii) The Electronic money license or approval.
The service providers are required to apply for the three licenses collectively. It is not permissible under the Act and its respective regulations for the service provider to operate with one license.
Any body corporate incorporated under the laws of Tanzania to operate as a bank or a financial institution or non-bank or non-financial institution is eligible to apply for provision of payment system services.
Launch of Modernized Payment System Regulations
Tanzania launched a payment systems modernisation by introduction of National Payment System Act, 2015 and its Regulations. The primary objective is to modernise the country’s payment system to internationally acceptable best practices by decreasing risks and increasing convenience, affordability and timeliness of the systems. The Act and its Regulations were enacted, to wit, for curbing the telecommunication companies growing electronic money transfer for instance, M-PESA by Vodacom, Airtel Money by Airtel, Ezy-Pesa by Zantel, Hallo-Pesa by Halotel, tigo-Pesa by Tigo.
In provision of payment system services, non-bank and non-financial institutions like Telecommunication Companies are obliged, in essence to separate telecom services from electronic money services, to set up a separate legal entity (in form of a trust) for issuance of electronic money; and in order to be able to issue electronic money, a trust account to be maintained by the trust entity must be opened for management of customers’ money. On the other hand, banks like CRBD and NMB and other financial institution are required to obtain approval from BOT to provide the services.
Nevertheless, there are some electronic payment services which are yet to be curbed by the current regime. With that regard, there few new invention with regards to cryptocurrencies which are not regulated by the BOT.
Application for payment systems’ license by banks and financial institutions.
The application is made through prescribed Form No. A provided for under the Second Schedule to the Payment Systems (Licensing and Approval) Regulations, 2015. The application is accompanied by the following documents;
(i) Business plans for the intended payment system operations
(ii) Process flow and system architecture
(iii) Governance arrangements including internal controls, risks management, accounting procedures, administrative controls, operational risks management with disaster recovery plans and business continuity arrangements, that demonstrates that the arrangements, control and procedures are appropriate, sound and adequate;
(iv) Customer terms and conditions that include disclosure requirements, complaints, disclosure and redress mechanisms; and
(v) Any other information that the Bank may require.
2.1 Application for payment systems’ license by non-banks and non-financial institutions:
The procedure begins by submission of prescribed Form No. A as per the Second Schedule of the Payment Systems (Licensing and Approval) Regulations, 2015. As opposed to banks and financial institutions, the documents required to accompany the application are:
(i) Memorandum and Articles of Association;
(ii) Copy of Certificate of Incorporation;
(iii) Specified shareholders particulars from authorities and parties themselves
(iv)Names of shareholders, their
(v) Certified copy of certificates of paid up capital or audited financial statements;
(vi) Certified copy of tax identification number for a new company and copy of tax clearance certificate for a going concern;
(vii)Certified copy of a valid network services and or application services licence from Tanzania Communications Regulatory Authority;
(viii)Proof of payment of a non-refundable application fee;
(ix) Documented procedures and policies for detecting and reporting incidences of money laundering in line with anti-money laundering and combating the financing of terrorism laws;
Upon receipt of the application, the BOT shall assess the application with respect of the ability of the entity and the suitability of its trustees, significant shareholders, directors and senior managers. When the BOT approves the application, after the prescribed fees have been paid by the applicant, it shall issue a license.
2.2 Application for payment instrument license and approval by banks and financial institutions:
Apart from payment system license, the law requires payment systems’ services providers to be issued with payment instrument license. This is a license specific for instruments used in the provision of services. The procedure for application and issuance of the license is provided for in the Payment Systems (Licensing and Approval) Regulations, 2015. This License is issued after the service provider has been registered and issued with payment system license.
Application for payment instrument license and approval is done by filling prescribed forms under the Payment Systems (Licensing and Approval) Regulations, 2015. The application should be accompanied with:
(i) Copy of a payment system provider’s licence;
(ii) Type of payment instruments intended to be issued in accordance with the law;
(iii) Risk management plans commensurate with the payment instrument;
(iv) Customer terms and conditions that include disclosure requirements, complaints, disclosure and redress mechanisms;
(v) Mechanisms for issuing and acquiring payment instruments;
(vi) Draft merchant and agent agreements;
(vii) Payment instrument process flows;
(vii) Pricing policies that include the variables used to arrive at a price and the nature of and amount of charges or fees imposed to customers; and
(ix) Any other information that the Bank may require.
2.3 Application for payment instrument license by non-banks or non-financial institutions
The application for a payment instrument license by non-banks and non-financial institutions is done by using forms provided for in the Payment Systems (Licensing and Approval) Regulations, 2015. The application is accompanied by a list of the attachments as provided for in the application by the banks and financial institution in 2.3 above.
2.4 Application for electronic money license and approval by banks and financial institutions:
Electronic payment refers to payments delivered in electronic form by licensed payment service providers. Examples of electronic money payments by banks include simbanking, b-mobile and NMB mobile.
The application for license/approval for provision of electronic payment services by banks and financial institutions is done through a specified form provided in the Payment Systems (Licensing and Approval) Regulations, 2015. The application shall be accompanied with specified documentation, including:
(i) Copy of a payment system provider’s licence;
(ii) Proposed services to be offered;
(iii) Proposed locations where electronic money services will be provided;
(iv) Pricing policies that include the variables used to arrive at a price and the nature of and amount of charges or fees imposed to customers;
2.5 Application for electronic money license by non-banks and non-financial institutions:
Electronic money payments by non-banks and non-financial institutions include services such as m-pesa, airtel money, tigo-pesa and halopesa and Ezy-Pesa which are provided by telecommunication companies in Tanzania. The other services regulated by the current regime include services by Max Malipo and Selcom.
The application for license made through a prescribed form provided for under the Payment Systems (Licensing and Approval) Regulations, 2015 is to be accompanied by the specified documents.
2.6 Post Licensing requirements
Electronic money service providers, prior to commencement of business are required to ensure that the business premises, security facilities, communication facilities, processing equipment, anti-money laundering system and accounting systems are in place and have been inspected, reviewed and approved by the BOT.
The modernization of banking business with respect to payment systems has been revolutionized by the provision of payment services by institutions other than banks or financial institutions like telecommunication companies. This move has, to a large extent catalysed the move to liberalised economy which on the other hand has led to influx of commercial banks and other financial transactions.
The current simplified payment system services provided by Payment System providers like Max Malipo, Selcom, and other online payments platforms through swift and credit cards operations are regulated by the National Payment System Act, 2015 and it’s Regulation.
It is however, worth to pinpoint at this stage that not all electronic payments are regulated in Tanzania. The BOT governor addresses through widely circulated newspaper “The Guardian” on 9th October, 2017, the situation of the new electronic payments. The governor refers among others Bitcoins as unregulated and whoever involved in it does it on his own risk. In his statement, the Governor states as follows;
“We are now working to see if we should allow it, regulate it or ban it. We are still studying the matter and looking at it very closely before taking any further measures”.
This article has highlighted the regulatory framework by the BOT on the electronic payment system and the way the legal framework has been forced to adapt to the rapid technological change around the country and world in general.
This publication has been prepared for information only, and it does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it