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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

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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

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“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”

The Bank for International Settlements (BIS)

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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)

The Committee on Payment and Settlement Systems

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The “Basel process” (simplified)

BIS

JOINT

FORUM

INSTITUTIONS MARKETS INFRASTRUCTURE

IOSCO

CGFS BCBS CPSS

IMF

World

Bank

IAIS

G20 CENTRAL BANKS

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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

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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

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A question of “territory”

(E)fficiency (S)afety

Central

banks

Market

regulators

Bank

supervisors

Competition

authorities

Consumer

protection

agencies

Financial

stability

authorities

Resolution

authorities

Other (IT,

telco, etc.)

regulators

Large value

payment

systems

S + E

(E)?

S

(S)?

Retail

payment

systems

S + E

(S)?

E

(S + E)

S?

“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

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CPSS work in the field of retail

Descriptive reports and statistics (e.g. Red books)

Principles and Best practices (e.g. 2007 Remittance Principles)

Policy and analytical reports (e.g. 1999 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

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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

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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 Bank agents

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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

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Legal and regulatory challenges for bank agents

Different issues

in different areas

Bank agent

Bank

Competitors

(banks, non-banks)

End-customers of payment services

Bank

Payment clearing and

settlement infrastructures

1 – Fair access

to payment

infrastructures

2 – Competition

3 – Security and

efficiency of

services provided

to end-customers

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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 trade-

offs 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

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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 non-

banks (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 non-

discrimination

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

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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)

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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

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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 standardi-

sation 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

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