## empsoupea

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### Overview and purpose
- Discusses evolving prudential frameworks for nonbank issuers of electronic money (EMIs).
- Notes divergence in regulatory approaches: some jurisdictions use light-touch regulation; others apply more stringent requirements to protect e-money users as the sector grows.
- Objective: build on previous IMF staff contributions and draw policy conclusions for strengthening e-money regulatory regimes, especially where issuers, individually or collectively, have become of macro-financial importance.
- Structure summarized:
  - Chapter 2: background on development, benefits, and risks of e-money.
  - Chapter 3: prudential supervision of EMIs.
  - Chapter 4: payments system oversight for e-money.
  - Chapter 5: user protection and contingency arrangements for EMI failure.
  - Chapter 6: policy recommendations for policymakers, particularly in emerging market economies and developing countries.

### Definitions and legal nature of e-money
- Core definitional elements:
  - Electronic store of monetary value.
  - Expressed in an existing official monetary unit.
  - Represents a claim enforceable against the EMI.
  - Accepted as a means of payment by undertakings other than the EMI.
- Distinguishing features:
  - Stored monetary value/prepaid product accepted by parties other than the issuer (multipurpose use).
  - Redeemability: claim enforceable against the e-money provider to repay the balance on demand and in full—distinguishes e-money from single-purpose retail gift cards.
  - Excludes most existing crypto-assets (for example, Bitcoin, Litecoin, Ethereum) and most stable coins; stable coins meeting the e-money definition should be regulated as other e-money.
- Legal relationships and safeguards:
  - EMI typically holds money on the user’s behalf with an obligation to redeem when demanded; user has a claim against the issuer.
  - E-money legal frameworks generally require segregation of users’ funds from other EMI assets and liabilities and investment only in “safe and liquid” assets.
  - If amounts received from users are adequately invested and recorded so they can be indisputably identified, such funds should be treated as users’ assets and segregated from other assets and liabilities, without exposure to losses.
- Legal form:
  - EMIs can be subsidiaries of phone companies, payment providers, or fintech firms; they are not legally classified or regulated as banks.

### Economic benefits and financial inclusion
- E-money expanded with mobile networks and internet access, serving previously unbanked populations in many developing regions.
- Digital financial services are faster, more efficient, and typically cheaper than traditional services (Sahay and others 2021) and deliver significant financial inclusion benefits.
- In some developing countries, mobile money is used for a significant portion of payments.

### Growth, systemic importance, and risks
- Rapid growth and market concentration can make EMIs potentially systemic:
  - Example: Safaricom’s M-Pesa in Kenya accounts for about 90 percent of mobile money transactions.
  - It is estimated that two-thirds of the combined adult population of Kenya, Rwanda, Tanzania, and Uganda use e-money regularly; many of these do not have a bank account.
- Key arguments for stronger regulation:
  - Potential systemic argument: systemic because of size (transaction volume, value of stored funds), number and types of users, and potential macro-financial impact if failure occurs.
  - Functional argument: e-money accounts becoming “deposit-like” (users hold high proportions of disposable funds for extended periods; used for savings as well as transactions).
  - Financial inclusion argument: large portions of society with no access to conventional banking use EMIs as substitutes.
- Material risks to users despite segregation safeguards:
  - Operational risks including fraud and cybersecurity incidents.
  - Business and investment risks, for example, failure of the EMI’s bank or banks.

### Potential systemic risk criteria and indicators
- Size:
  - Number of customers measured by (active) accounts.
  - Types of customers such as individuals, merchants, utilities, insurance companies, and governments.
  - Number and value of transactions; market share controlled.
  - Breadth of services provided.
- Substitutability:
  - Availability of cash-out points that do not require the EMIs (agents and ATMs linked to other EMIs and banks, and bank branches).
  - Availability of other payment options such as debit/credit cards, checks, postal money orders, and bank transfers.
- Interconnectedness:
  - Float balances of EMIs expose banks to concentration risk through exposures to large deposits.
  - EMIs’ growth affects banks’ profitability by competing for clients, funds, and services.
  - Use of e-money services for paying government taxes and utility bills exposes governments and utilities to potential loss of income if the EMI fails.
  - Failure of an EMI may undermine public confidence in other EMIs, banks, utility firms, etc.

### E-money systems and business model elements
- Core functions and features:
  - Issuance of e-money: customers receive one unit of e-money for each unit of cash provided to agents; e-money stored in transaction accounts linked to mobile phones/SIM cards.
  - Operating a platform: hardware/software keep records of transaction accounts and settle payments between e-wallets; messages use the telecommunications network.
  - Fund management: cash received from customers is invested and managed according to regulation (for example, held in a trust or in escrow in pooled bank accounts); EMIs are not allowed to use funds to provide credit directly to the public.
  - Management of an agent distribution network: agents register users, enable cash-in and cash-out, and provide face-to-face contact.
- Business model evolution:
  - Some EMIs expanded to broader mobile financial services (credit, savings, insurance) via alliances with licensed financial institutions; in such cases the EMI executes instructions of the financial institution and does not extend loans or savings on its own account.

### Prudential regulation and supervision of EMIs — key prescriptions (Chapter 3)
- Overview:
  - International prudential standards exist for banks, insurers, and securities intermediaries, but not yet for EMIs.
  - Prudential regulation aims to protect savers/investors and preserve financial stability; should be proportionate to risks to e-money users and the financial system.
- A. Legal structure:
  - Authorities generally apply prudential requirements to legal, managerial, operational, and ownership structures.
  - EMIs typically required to conduct activities as a legal entity separate from related groups.
- B. Fund safekeeping:
  - Principle: EMIs should not intermediate customer funds; intermediation requires a credit institution license.
  - Typical requirement: maintain a pool of liquid funds (e-float) at least equivalent to the aggregate balance of clients’ e-wallets (one-on-one matching).
  - Common practices:
    - Hold liquid assets in demand deposits at domestic commercial banks.
    - Invest portion of client funds in tradable, high-quality, short-term securities (for example, Treasuries and short-term government debt) where liquid secondary markets exist—this introduces market risk and requires prohibitions on re-use or pledge.
    - Alternatively: deposit client funds in a reserve account at the central bank to remove investment risks (may lower returns and contribute to disintermediation).
  - Design considerations: size/soundness of banking system; availability of high-quality liquid short-term securities; size/relevance of EMI sector; EMIs’ risk management capacity.
- C. Fund segregation:
  - Segregation of user funds is critical to prevent general creditors from seizing e-money users’ funds upon EMI insolvency.
  - Legal techniques internationally include trusts, fiduciary contracts, escrow accounts, and statutory legal provisions.
  - Limitation: absent specific insolvency rules, segregation may not ensure quick access to funds after EMI failure, posing continuity risks if the EMI is potentially systemic.
- D. Risk management:
  - EMIs should have strong internal control frameworks; boards should approve risk management frameworks for credit, market, operational, liquidity, and general business risks.
  - Requirements include written policies, operational procedures, assigned staff responsibilities, and internal/external audit for reconciliation of e-float with liquid assets.
  - Reconciliation practices:
    - Maintain updated user identity and e-wallet balance data and reconcile total e-float with segregated liquid assets.
    - Ideally real time; wide variation exists—many jurisdictions require reconciliation at least once a day, before the bank closes.
  - Operational risk governance should cover outsourcing, fraud prevention, data and cybersecurity, business continuity, and disaster recovery.
  - Agent network management: agents must be properly screened, trained, monitored; EMIs legally responsible for agents’ actions.
- E. Minimum capital requirements:
  - Most jurisdictions apply nominal statutory minimum capital requirements for licensing and ongoing operations; these are significantly lower than for banks.
  - Complementary risk-based capital requirements may be considered depending on business model and systemic significance.
- F. Supervisory approach:
  - Supervision should be risk-based and proportionate; effective implementation via off- and on-site work.
  - Key supervisory elements:
    - Understand and review EMI risk management, reconciliation policies, and procedures.
    - Require periodic reporting of key metrics for offsite supervision.
    - Some regulators require offsite access (viewing rights) for daily monitoring of the e-float balance and daily reconciliation with liquid assets.
    - EMIs part of financial or mixed conglomerates should be included in consolidated and cross-border supervision following Joint Forum principles.

### Payments system oversight for e-money (Chapter 4)
- PFMI and oversight:
  - PFMI provide a benchmark for oversight of e-money as a payment system.
  - Application of PFMI to e-money is at an early stage; as EMIs grow, PFMI application should be integrated into EMI regulatory and payment oversight frameworks.
  - Governance bodies of e-money payment schemes should mitigate legal, business, operational (including security and cyber), interdependency, and financial risks.
- Access to regulated payment systems and central bank facilities — considerations and observed practice:
  - Potential benefits of central bank settlement account access for potentially systemic EMIs:
    - Allow settlement in central bank money, increasing safety/efficiency.
    - Reduce operational risks from tiering of access.
    - Foster innovation and competition; ensure interoperability.
    - Remove risk of insolvency of a settlement agent and mitigate disruption risks when EMIs settle bilaterally through private services.
  - Current practice (Table 2 summary: Direct Access to Settlement Account / Direct Access to Credit Facilities1):
    - AFRICA
      - Ghana: ✗ / ✗
      - Nigeria: ✗ / ✗
    - LATIN AMERICA
      - Colombia: ✓ / N/A
      - Mexico: ✗ / ✗
    - ASIA
      - India: ✓ / ✗
      - China: ✓ / ✗
      - Philippines: ✗ / ✗
      - Malaysia: ✗ / ✗
    - EUROPE
      - European Union: ✗ / ✗
      - United Kingdom: ✓ / ✗
      - Switzerland: ✓ / ✗
    - NORTH AMERICA
      - Canada: ✗ / ✗
      - United States: ✗ / ✗
    - Source: Central bank websites; and IMF staff.
    - 1 Including intraday lending.
  - Note: Where access is granted, services are restricted to settlement accounts without credit facilities (including intraday).

### User protection approaches and contingency arrangements
- Rationale:
  - Authorities should consider additional arrangements to protect users in the event of a potentially systemic EMI and/or its custodian bank failing.
  - Segregation alone would not protect against temporary loss of funds, loss of non-substitutable services, or losses if the commercial bank holding funds fails.
- Two observed deposit insurance approaches in practice:
  - Indirect approach (“pass-through” protection):
    - Protects users from failure of the bank holding their funds but not from EMI failure (for example, fraud) or losses from other investments.
    - EMIs’ user funds held in pooled trust/custodial accounts at insured banks; beneficiaries receive deposit insurance if special eligibility conditions are met.
    - Requires DIS recognition of custodial/trust accounts and pass-through coverage; trustee must disclose identities and amounts owed to each beneficiary.
    - Countries applying indirect approach include Jamaica, Kenya, Malaysia, Nigeria, Rwanda, WAEMU, and Zimbabwe.
  - Direct approach:
    - Includes e-money in definition of insured deposits and licensed EMIs as DIS members (payment banks or niche banks).
    - Protects users from EMI failure, including loss of e-float due to bank failure.
    - EMIs as DIS members pay deposit insurance levies and are subject to DIS rules.
    - Countries applying direct approach include Bangladesh and Colombia; India has direct coverage for eligible deposits mobilized by payment banks while prepaid payment instruments are not covered.
- Recordkeeping and operational challenges:
  - Critical requirement: EMIs must be able to deliver data identifying users and individual balances quickly (for example, 24 hours) to enable rapid verification prior to DIA reimbursement.
  - Pass-through coverage requires three-way sharing of information among the account-holding bank, the EMI, and the DIA.
  - Customer records and IT systems should enable DIAs and liquidators to distinguish customer funds from firm’s own funds; verification and annual audits are recommended.
  - Indirect approach may leave customer information solely with the EMI and not regularly shared with the bank or DIA.
  - Payout scenarios:
    - Indirect approach premise: DIA reimburses quickly when bank fails; operational capacity must allow reimbursements in hours or days to prevent EMI illiquidity.
    - Direct DIS payout faces challenges if EMI systems are inoperable after failure; DIAs typically rely on paying agents (banks), which may not reach unbanked e-money users.
    - Substitutability and interoperability can enable compensation by transferring funds to another EMI; authorities should include such arrangements in resolution planning.
- Table 3 comparison (Direct vs Indirect approaches) — key distinctions:
  - DIS membership of the EMI: Direct = Yes / Indirect = No
  - EMI subject to DIS rules on recordkeeping: Direct = Yes / Indirect = No
  - Obligation of the EMI to pay levies to the DIF: Direct = Yes / Indirect = No
  - E-money defined as eligible deposits: Direct = Yes / Indirect = No
  - Need for IT systems able to track e-money balances: Direct = Yes / Indirect = Yes
  - Pooled funds or float held in trust/custodial accounts: Direct = Not required, but recommended / Indirect = Required for pass-through coverage
  - Protects against: Direct = Loss caused by failure of the EMI / Indirect = Loss caused by failure of the bank(s) holding the EMI’s e-float

### Country example — Colombia (Box 6)
- Institutional arrangements and coverage:
  - 2012: new deposit category “electronic deposits” eligible for deposit insurance through FOGAFIN.
  - 2014: created regulated, specialized financial institution offering electronic deposits and payments (SEDPEs).
- Permitted SEDPE activities:
  - (1) accept electronic deposits,
  - (2) make payments and money transfers on behalf of clients,
  - (3) borrow domestically or internationally to finance their operations,
  - (4) issue or cash money orders.
- Prohibitions and limits:
  - SEDPEs not allowed to offer intermediation of funds or offer credit.
  - Balances of individual customers subject to transaction limits (about US$780).
- Interest and coverage:
  - Electronic deposits can offer interest.
  - Electronic deposits enjoy same coverage per person and per SEDPE as bank deposits (currently Col$50 million or US$13,300).
  - Given legal limits on individual balances, eligible deposits held by SEDPEs should be fully covered in practice.
- Safekeeping and pass-through:
  - SEDPEs must place customer funds either at the central bank or with commercial banks, with funds equivalent to their e-money liabilities.
  - When placed with commercial banks, customer funds eligible for pass-through deposit insurance per Colombian regime.
- Membership, premiums, and data obligations:
  - SEDPEs must register as DIS members and pay a lower premium than commercial banks.
  - SEDPEs must make depositor information available to FOGAFIN; in liquidation, liquidator must hand over data within five days.
- Payout mechanics:
  - DIA would directly reimburse electronic deposits that qualify if a SEDPE fails.
  - DIA would indirectly cover mobile deposits deposited by the SEDPE with a commercial bank if that bank were to fail.

### Contingency planning and continuity measures
- Contingency planning should cover failure of a potentially systemic EMI and failure of the bank holding the e-float; aim to ensure continuity of critical e-money services.
- In EMI bankruptcy:
  - If segregation requirements observed, funds should be separated from the failed company’s estate and returned by the trustee in cooperation with the liquidator; delays may occur.
- In bank failure without deposit insurance for the e-float:
  - Recovery speed depends on liquidator’s ability to identify funds and beneficiaries; asset recovery can take years; EMI may fail if users cash out balances.
- Possible continuity measures:
  - Transfer contracts and user funds from a failing EMI to an alternative provider—requires special legal regime assigning transfer powers to a public authority or special administrator.
  - Require EMIs to have interoperable IT platforms and mechanisms for bulk transfer of accounts.
  - Assess scalability for absorbing entities.
  - If DIS funds transfers are used, safeguards such as a least-cost rule should apply.
- Remaining risks even with segregation:
  - Provider misuse of customer funds (fraud, pledging as collateral, comingling).
  - If funds are insufficient, users share loss proportionately.

### Recommendations summary (chapter recommendations)
- All EMIs should be subject to proportionate prudential regulatory requirements; supervision should be proportionate to risks and forward looking.
- E-money regulatory regimes should cover:
  - Legal, governance, operational, and ownership structure;
  - Rules for safekeeping and segregation of user funds;
  - A prohibition on retail lending;
  - Minimum capital requirements;
  - Minimum requirements for operational risk governance and management, outsourcing, fraud prevention, data and cybersecurity, business continuity, and disaster recovery;
  - Fit-and-proper requirements for direct and indirect beneficial shareholders, the board, senior management, and trustees;
  - Market conduct and consumer protection rules;
  - A framework for controlling AML/CFT risks and managing/monitoring the agent network;
  - Standards for payments system oversight that ensure safety and efficiency.
- Supervisory intensity should increase with systemic importance:
  - Strengthen supervisory arrangements—intensity of supervision and expectations regarding governance, risk management and internal control standards—for potentially systemic EMIs.
  - Enhanced oversight for systemically important EMIs akin to oversight of other systemically important retail payment systems.
  - Coordinate licensing and supervision where responsibilities reside in different authorities.
  - Include EMIs in financial conglomerates in consolidated and cross-border supervision.
- Reporting, monitoring, and access:
  - Require key metrics periodically for offsite supervision.
  - Potentially require off-site access (viewing rights) for daily monitoring of e-float and daily reconciliation—assess cost and proportionality.

### Annex Table 2.3 — Selected country-level mobile money transactions per 1,000 adults (2011–2019) — notable observations
- Country series examples (selected values preserved exactly as in source):
  - Cambodia: 2011: 340; 2012: 354; 2013: 1,369; 2014: 3,832; 2015: 5,815; 2016: 3,332; 2017: 9,137; 2018: 12,945; 2019: 16,884
  - Kenya: 2011: 17,655; 2012: 22,700; 2013: 27,944; 2014: 33,607; 2015: 39,741; 2016: 52,647; 2017: 51,513; 2018: 56,210; 2019: 57,528
  - Uganda: 2011: 5,117; 2012: 13,644; 2013: 21,733; 2014: 25,983; 2015: 34,884; 2016: 46,985; 2017: 50,089; 2018: 82,865; 2019: 119,950
  - Zimbabwe: 2011: 306; 2012: 1,796; 2013: 15,449; 2014: 22,822; 2015: 28,755; 2016: 37,118; 2017: 92,355; 2018: 200,849; 2019: 228,876
- Notable highest reported 2019 values:
  - Zimbabwe: 228,876
  - Uganda: 119,950
  - Kenya: 57,528
  - Zambia: 52,195
  - Senegal: 49,510
  - Rwanda: 49,811
- Data caveats:
  - Several country-year entries marked as "nav" or "NA" indicating data not available for those cells (examples: Cameroon 2019: nav; Ghana 2018–2019: nav; India 2011–2012: NA).
  - Some country series are nonmonotonic with declines in certain years (examples provided in the source).

*Source: IMF staff (from the chapter "1. Introduction" of the provided IMF departmental paper).*

### 1. Introduction ........................................................................................................

### 1. Introduction

### Overview and purpose
- Discusses evolving prudential frameworks for nonbank issuers of electronic money (EMIs).
- Notes divergence in regulatory approaches: some jurisdictions use light-touch regulation; others apply more stringent requirements to protect e-money users as the sector grows.
- Aims to build on previous IMF staff contributions and draw policy conclusions for strengthening e-money regulatory regimes, especially where issuers, individually or collectively, have become of macro-financial importance.
- Structure of the paper:
  - Chapter 2: background on development, benefits, and risks of e-money.
  - Chapter 3: prudential supervision of EMIs.
  - Chapter 4: payments system oversight for e-money.
  - Chapter 5: user protection and contingency arrangements for EMI failure.
  - Chapter 6: policy recommendations for policymakers, particularly in emerging market economies and developing countries where EMIs could have significant economic impact if they were to fail.

### Definitions and legal nature of e-money
- E-money is defined variably across jurisdictions; common elements include:
  - Electronic store of monetary value.
  - Expressed in an existing official monetary unit.
  - Represents a claim enforceable against the EMI.
  - Accepted as a means of payment by undertakings other than the EMI.
- Distinguishing features:
  - E-money is a stored monetary value or prepaid product where the record of funds is stored on a prepaid card or electronic device and is accepted as a payment instrument by parties other than the issuer (multipurpose use).
  - Redeemability: the stored value represents a claim enforceable against the e-money provider to repay the balance on demand and in full, distinguishing e-money from single-purpose retail gift cards.
  - Excludes most existing crypto-assets (for example, Bitcoin, Litecoin, Ethereum) and most stable coins; stable coins that meet the e-money definition should be regulated the same as other e-money.
- Legal relationship between EMI and user:
  - Typically, the EMI holds money on the user’s behalf with an obligation to redeem when demanded; the user has a claim against the issuer.
  - E-money legal frameworks generally provide that users’ funds should be segregated from other EMI assets and liabilities and invested only in “safe and liquid” assets.
  - Insolvency scenario: if amounts received from users are adequately invested and recorded so they can be indisputably identified, such funds should be treated as users’ assets and segregated from other assets and liabilities, without exposure to losses.
- Legal form of EMIs:
  - EMIs can be subsidiaries of phone companies, payment providers, or fintech firms; they are not legally classified or regulated as banks.

### Economic benefits and financial inclusion
- E-money services have evolved with rapid growth in mobile networks and internet access.
- Many people in Africa and other developing regions lack access to bank accounts; mobile networks have enabled EMIs to serve previously unbanked populations.
- Digital financial services are faster, more efficient, and typically cheaper than traditional financial services (Sahay and others 2021) and can deliver significant benefits in terms of financial inclusion.
- In some developing countries, mobile money is used for a significant portion of payments.

### Growth, systemic importance, and risks
- Rapid growth and market concentration in some countries can make EMIs potentially systemic from a macro-financial perspective:
  - Example: Safaricom’s M-Pesa in Kenya accounts for about 90 percent of mobile money transactions.
  - It is estimated that two-thirds of the combined adult population of Kenya, Rwanda, Tanzania, and Uganda use e-money regularly; many of these do not have a bank account.
- Key concerns motivating stronger regulatory measures:
  - Potential systemic argument: an EMI or the sector may be systemic because of size (transaction volume, value of stored funds), number and types of users, and potential macro-financial impact if failure occurs; suggested criteria in Table 1.
  - Functional argument: e-money accounts becoming “deposit-like” (for example, users hold high proportions of their disposable funds for extended periods) and used for savings as well as transactional purposes.
  - Financial inclusion argument: a large portion of society with no access to conventional banking uses EMIs as substitutes.
- Material risks to users despite segregation safeguards:
  - Operational risks, including fraud and cybersecurity incidents.
  - Business and investment risks, for example, failure of the EMI’s bank or banks.

### Potential systemic risk criteria and indicators (Table 1)
- Size:
  - Number of customers measured by (active) accounts.
  - Types of customers such as individuals, merchants, utilities, insurance companies, and governments.
  - Number and value of transactions; market share controlled.
  - Breadth of services provided.
- Substitutability:
  - Availability of cash-out points that do not require the EMIs (agents and ATMs linked to other EMIs and banks, and bank branches).
  - Availability of other payment options such as debit/credit cards, checks, postal money orders, and bank transfers.
- Interconnectedness:
  - Float balances of EMIs expose banks to concentration risk through exposures to large deposits.
  - EMIs’ growth affects banks’ profitability by competing for clients, funds, and services.
  - Use of e-money services for paying government taxes and utility bills exposes governments and utilities to potential loss of income if the EMI fails.
  - The failure of an EMI may undermine public confidence in other EMIs, banks, utility firms, etc.

### E-money systems and business model elements (Box 2)
- Core functions and features:
  - Issuance of e-money: customers receive one unit of e-money for each unit of cash provided to agents; e-money is stored in transaction accounts linked to mobile phones/SIM cards.
  - Operating a platform: hardware and software keep records of transaction accounts and settle payments between e-wallets; messages use the telecommunications network.
  - Fund management: cash received from customers is invested and managed according to regulation (for example, held in a trust or in escrow in pooled bank accounts); EMIs are not allowed to use funds to provide credit directly to the public.
  - Management of an agent distribution network: agents and retail outlets register users, enable cash-in and cash-out, and provide face-to-face contact.
- Business model evolution:
  - Some EMIs have expanded from pure payment services to broader mobile financial services, including access to credit, savings products, insurance products, and other services via strategic alliances with licensed financial institutions; in such cases the EMI executes instructions of the financial institution and does not extend loans or savings on its own account.

*Source: IMF staff (from the chapter "1. Introduction" of the provided IMF departmental paper).*

### 3. Prudential Regulation and Supervision of EMIs

### 3. Prudential Regulation and Supervision of EMIs

### Overview
- International prudential standards exist for banks, insurers, and securities intermediaries, but not yet for EMIs.5
- Ultimate objective of prudential supervision: protect savers and investors, and preserve financial stability.
- Prudential regulation aims for safe and sound financial groups, systems, and markets; distinct from payment oversight which focuses on payment systems and critical service providers (CPMI 2005).
- Many countries require a license and compliance with prudential standards to operate as an EMI (IMF 2021).
- Prudential supervision should be proportionate to risks to e-money users and to the financial system; supervisors must understand technological innovation-related risks (Annex 1).
- The section discusses approaches in sample jurisdictions6 and concludes with policy recommendations on licensing and supervising EMIs.

### A. Legal Structure
- Authorities generally apply prudential requirements on the legal, managerial, operational, and ownership structures of EMIs.
- Practical consequence: EMIs are typically required to conduct activities as a legal entity separate from related groups (for example, a mobile network operator parent).
- Benefits of separate legal entity:
  - Facilitates segregation of activities and financial flows, limiting contagion from other business activities.
  - Enables regulation and prudential supervision of the EMI on a standalone basis.

### B. Fund Safekeeping
- Principle: EMIs should not intermediate customer funds; intermediation should require a credit institution license (bank, credit union, microfinance institution, etc.).
- Consequence: EMIs should have limited (or potentially no) exposure to credit, maturity transformation, and leverage risks.
- Typical requirement: maintain a pool of liquid funds (e-float) at least equivalent to the aggregate balance of clients’ e-wallets (one-on-one matching).
- Investment and placement practices:
  - Widely used: hold liquid assets in demand deposits at domestic commercial banks to minimize liquidity and credit risks.
  - EMIs may be authorized to invest a portion of client funds in tradable, high-quality, short-term securities (for example, Treasuries and short-term government debt) where liquid secondary markets exist; this introduces market risk and requires more sophisticated risk management and prohibitions on re-use or pledge of these securities.
  - Alternatively: require or allow EMIs to deposit client funds in a reserve account at the central bank to remove investment risks, though this may lower returns and contribute to disintermediation.7
  - Allowing diversification across commercial bank deposits, high-quality liquid short-term securities, and central bank reserves can provide diversification benefits.
- Design considerations for safekeeping requirements:
  - Elements to consider: size and soundness of banking system, availability of high-quality liquid short-term securities, size and relevance of the EMI sector, EMIs’ risk management capacity, and EMIs’ ability to comply with central bank facility access requirements.

### C. Fund Segregation
- Segregation of user funds is critical to prevent general creditors from seizing e-money users’ funds upon EMI insolvency.
- Segregation should be required in all e-money regulatory regimes; the legal approach may vary but authorities should aim for a high level of protection.8
- Limitation: absent specific insolvency rules, segregation may not ensure quick access to funds after EMI failure, posing continuity risks if the EMI is potentially systemic.
- Box 3 (Mechanisms for segregation) summarizes legal techniques used internationally:
  - Trusts: separation of legal title to user funds; used in multiple jurisdictions (listed in source).
  - Fiduciary contracts: used in certain civil law jurisdictions; scope of protection varies.
  - Escrow accounts: specially designated accounts; example: India requires 100 percent backing in a noninterest-bearing escrow account with immunity from liquidator or creditor action.
  - Legal provisions: statutory declarations that user funds are separate from EMI assets (examples: Brazil, Chad, the Philippines).

### D. Risk Management
- EMIs should have strong internal control frameworks for fund safekeeping and segregation; boards should approve risk management frameworks and policies for credit, market, operational, liquidity, and general business risks.
- Risk management function (and audit and risk committees, if any) should monitor compliance and performance.
- Requirements:
  - Written policies, operational procedures, and assigned staff responsibilities to assure fund segregation and safekeeping.
  - Internal control framework subject to minimum standards.
  - Specific internal and external audit requirements for reconciliation of the e-float with liquid assets.
- Reconciliation practices:
  - EMIs must maintain constantly updated user identity and e-wallet balance data and reconcile total e-float with segregated liquid assets.
  - Wide variation in reconciliation procedures exists (CGAP 2018b); ideally reconciliation should be real time, but practices range from highly manual to entirely automated (batch or real-time).
  - Generally, jurisdictions require reconciliation at least once a day, before the bank closes, since 24/7 processing is not yet possible in many jurisdictions.9
- Operational risks and requirements:
  - Operational risks (internal/external fraud, cyber risk, physical damage, IT problems) can cause unavailability or loss of client balances.
  - Operational risk management requirements should, in principle, be similar to those of banks (BCBS 2011) and payment systems (PFMI Principle 17).
  - Minimum requirements should cover operational risk governance and management frameworks, outsourcing, fraud prevention, data and cybersecurity, business continuity, and disaster recovery.
  - EMIs should have adequate control frameworks for agent network management and monitoring, including AML/CFT and consumer protection measures; agents must be properly screened, trained, and monitored, and liability rules should make EMIs legally responsible for agents’ actions.
- Market conduct and consumer protection regulation:
  - Requirements should be proportionate to activity and risk and cover fit-and-proper requirements for shareholders, board, senior management (and trustees, if applicable).
  - Clear disclosure on fees and complaint handling mechanisms should be included in e-money regulation.
  - Disclosure of the extent to which customer funds are covered (or not) by deposit insurance needs consistent emphasis; recent EMI failures show customers may be unaware of lack of coverage (Chapter 5).
  - Some jurisdictions impose limits on balances and transaction sizes to limit customers’ exposure; such limits may help delineate e-money from bank deposits but may not prevent macro-financial impact if EMIs fail and services are widely used.10

### E. Minimum Capital Requirements
- Most jurisdictions apply nominal statutory minimum capital requirements for licensing and ongoing operations; these are significantly lower than for banks.
- Purpose: ensure investors have initial capital to undertake activities, absorb startup losses, and meet cost of nonproductive assets.
- Minimum statutory capital acts as a barrier to entry for less serious investors and has not limited e-money development to date.
- Depending on business model and systemic significance, complementary risk-based capital requirements may be considered.
- Rationale: even with segregation and real-time reconciliation, customer funds face credit (if deposited in a bank), market (if invested in securities), and operational risks.
- The Basel framework and risk-based capital requirements could be a model but would need simplification and adaptation to the EMI business model (notably absence of lending); more work needed for potentially systemic EMIs.

### F. Supervisory Approach
- Effective implementation should be supervised through a mix of off- and on-site work.
- Supervision should be risk-based and proportionate to the institution/group risk profile and systemic importance; large EMIs should have more advanced risk management and internal control standards.
- Key supervisory elements:
  - Understand and review EMI risk management, reconciliation policies, and procedures.
  - Require periodic reporting of key metrics to enable effective offsite supervision.
  - Some regulators require offsite access (viewing rights) to monitor e-float balance and daily reconciliation with liquid assets.
  - More intensive and real-time monitoring is particularly important when the EMI sector or individual EMIs are relevant from a financial stability or financial inclusion perspective.
  - EMIs that are part of financial or mixed conglomerates should be included in consolidated and cross-border supervision following Joint Forum principles.11

*Source: empsoupea - 3. Prudential Regulation and Supervision of EMIs*

### 4. Payments System Oversight for E-Money

### 4. Payments System Oversight for E-Money

### The Principles for Financial Market Infrastructures (PFMI) and oversight scope
- The Principles for Financial Market Infrastructures (PFMI) 12 provide a benchmark for oversight of e-money as a payment system.
- Application of the PFMI to e-money within the broader oversight of payment systems is at an early stage.
- As EMIs and their inter-connections with other parts of the financial system grow, the application of the PFMI to EMIs is likely to become more relevant and should be integrated into:
  - a regulatory framework for EMIs, and
  - the oversight framework for payment systems. 13
- The prudential approaches outlined in Chapter 2 are broadly compatible with the PFMI and could be built on to develop a proportional oversight approach to EMIs.
- Governance bodies of e-money payment schemes should take measures to maintain confidence and mitigate risks associated with exposure to:
  - legal risks,
  - business risks,
  - operational risks (including security and cyber),
  - interdependencies, and
  - financial risks.
- Example: The Eurosystem’s single oversight framework for electronic payment instruments, schemes, and arrangements (PISA framework) proposed the application of 16 principles from the PFMI for schemes that handle electronic payment instruments such as e-money (ECB 2020), although the payment schemes/arrangements are not designated as systematically important payment systems (Annex 3).

### Access to regulated payment systems and central bank facilities
- Considerations for potentially systemic EMIs:
  - Access to regulated payment systems and central bank accounts could be considered for potentially systemic EMIs.
  - Potential benefits of broadening access to regulated payment systems and central bank accounts:
    - Allow EMIs to settle in central bank money, increasing safety and efficiency of settlement.
    - Reduce operational risks arising from tiering of access.
    - Foster financial innovation and competition.
    - Ensure interoperability (CPMI and World Bank 2020).
    - Remove the risk of insolvency of a settlement agent and mitigate disruption risks when EMIs settle bilaterally through private settlement services (Khiaonarong and Goh 2020).
    - Enhance payment system oversight by ensuring appropriate and consistent rules for clearing and settlement of e-money.
    - Potentially reduce transaction fees, increase transparency, and increase user convenience (Khiaonarong and Goh 2020).
- Current practice:
  - While some central banks allow nonbank payment service providers access to a settlement account, most require EMIs to be licensed banks or payment banks (Table 2).
  - Jurisdictions that introduce special purpose payment bank licenses include India 14 and Nigeria.
  - In jurisdictions where access is granted, services are restricted to settlement accounts without credit facilities (including intraday).

- Table 2. Nonbank EMI Access to Central Bank Account Arrangements
  - Direct Access to Settlement Account / Direct Access to Credit Facilities1
    - AFRICA
      - Ghana: ✗ / ✗
      - Nigeria: ✗ / ✗
    - LATIN AMERICA
      - Colombia: ✓ / N/A
      - Mexico: ✗ / ✗
    - ASIA
      - India: ✓ / ✗
      - China: ✓ / ✗
      - Philippines: ✗ / ✗
      - Malaysia: ✗ / ✗
    - EUROPE
      - European Union: ✗ / ✗
      - United Kingdom: ✓ / ✗
      - Switzerland: ✓ / ✗
    - NORTH AMERICA
      - Canada: ✗ / ✗
      - United States: ✗ / ✗
  - Source: Central bank websites; and IMF staff.
  - 1 Including intraday lending.

### User protection: rationale and approaches
- Authorities should consider additional arrangements to protect users in the event of a potentially systemic EMI and/or its custodian bank failing.
- EMIs can fail and put customer funds at risk (example: Celpay in Zambia in 2014).
- Segregation of user funds:
  - Segregation offers protection against certain risks but would not protect against:
    - temporary loss of funds until the liquidator (and trustees, if pertinent) made them available again,
    - loss of the e-money services if services of the failed EMI were non-substitutable,
    - losses if the commercial bank in which funds were deposited fails (these funds would be treated as part of the insolvency estate).
- Depending on the importance of the EMI from a macro-financial perspective, additional user protection measures may be warranted.

A. User Protection — observed country practice and approaches
- Advanced economies:
  - Typically do not use deposit insurance to protect e-money users.
  - Users maintain relatively small balances for specific payment transactions; ready substitutability of alternative service providers reduces macro-financial risks.
  - Restrictions on use of e-money funds (Chapter 3) mean user balances are less exposed to credit risks than bank deposits.

- For developing countries and emerging market economies wherein e-money plays a significant role, authorities have sought to extend deposit insurance through two approaches:

  - The indirect approach (sometimes called “pass-through” protection):
    - Seeks to protect users from failure of the bank holding their funds.
    - Does not protect users from losses caused by failure of the EMI (for example, fraud) or a loss of funds invested in other assets.
    - Not relevant where the e-float is held at the central bank.
    - Under the indirect approach:
      - EMIs’ user funds are held in pooled trust or custodial accounts at banks that are insured by the deposit insurance system (DIS).
      - Beneficiaries of the trust accounts (the e-money users) receive deposit insurance protection for the funds held on their behalf by the EMI at a bank if the accounts fulfill special eligibility conditions for coverage (see Box 5).
      - The DIS must recognize custodial or trust accounts and apply insurance coverage to the individual beneficiaries (so-called pass-through coverage).
      - The trustee must be able to disclose the identity of, and the amounts owed to, each beneficiary—to the bank and ultimately the DIS.
      - Banks are levied on the deposits in the float account according to DIS rules.
    - Countries that apply the indirect approach include, among others, Jamaica, Kenya, Malaysia, Nigeria, Rwanda, WAEMU (consisting of eight countries), and Zimbabwe.15

  - The direct approach:
    - Some authorities have included e-money in the definition of insured deposits and licensed EMIs (in the form of so-called payment banks or niche banks) as members of the DIS.16
    - Seeks to protect e-money users from failure of the EMI, including loss of user funds due to fraud or failure of a bank in which the e-float was deposited.
    - As DIS members, these institutions are subject to DIS regulations and pay deposit insurance levies.
    - Advantages of requiring legally independent entities to act as licensed and supervised EMIs:
      - Helps to segregate user funds (for example, only a subsidiary would be permitted to hold user funds to which the parent/mobile network operator (MNO) would not have direct access).
      - The firm would be supervised by the financial regulator instead of, for example, a telecommunication regulator.
      - EMIs would become directly subject to DIS membership obligations, such as paying levies and recordkeeping requirements (with on-site verification).
    - Countries that apply the direct approach include Bangladesh and Colombia. India has direct coverage for eligible deposits mobilized by payment banks, while prepaid payment instruments are not covered under deposit insurance.16

- Recordkeeping requirements:
  - Critical under both approaches but may create additional challenges under the indirect approach.
  - EMIs must be able to deliver relevant data for identification of users and their individual balances within a short timeframe (for example, 24 hours) to enable rapid verification prior to reimbursement by the DIA.
  - For pass-through coverage to be workable in practice, three-way sharing of information among the account holding bank, the EMI, and the DIA is required.
  - Customer records and IT systems need to be in place to identify which customer funds a firm holds without delay; records should enable the DIA and/or the liquidator to distinguish customer funds from the firm’s own funds, and funds held for one user from the others.
  - Such identification should be verified and tested regularly by the regulator and DIA and be subject to annual audits.
  - These recordkeeping arrangements, and the oversight needed by the deposit insurer and/or supervisor, could entail significant costs.17
  - Under the indirect approach EMIs may not be subject to the recordkeeping requirements (such as single customer view) of the DIS (Table 3); in practice customer information usually remains solely with the EMI and is not shared regularly with the bank or the DIA for verification.

- Operational challenges in payout scenarios:
  - Indirect approach premise: in the event of bank failure, funds are quickly reimbursed to the EMI before it fails because of illiquidity; this process puts significant pressure on the DIA to have operational capacity to fulfill this task in a matter of hours or days or the EMI may fail.
  - Direct deposit insurance: the trigger for payout is the failure of the EMI after which its systems may no longer be operable; conventional methods for deposit insurance payouts may not work for e-money reimbursements, especially in developing countries.
  - DISs usually rely on payout via balance transfers to other banks (“paying agents”), but users of e-money in developing countries may be unbanked and reside in areas with little-or-no bank branch network.
  - Low transaction balances may be cumbersome to reimburse and raise cost and efficiency challenges.
  - If a substitutable service provider exists, the DIS could use the e-money system to compensate users by transferring funds to an e-wallet with another EMI.
  - As part of resolution planning, authorities could develop strategies for substitutability and require interoperability.
  - If the EMI fails and its services are not substitutable, authorities might need powers to keep the systems of the failed EMI operational and gain control to allow compensation to be paid via the failed EMI’s platform.

- Table 3. Comparison of the Direct and Indirect Approaches
  - Direct approach / Indirect approach
    - DIS membership of the EMI: Yes / No
    - EMI subject to DIS rules on recordkeeping: Yes / No
    - Obligation of the EMI to pay levies to the DIF: Yes / No
    - E-money defined as eligible deposits: Yes / No
    - Need for IT systems able to track e-money balances: Yes / Yes
    - Pooled funds or float held in trust/custodial accounts: Not required, but recommended / Required for pass-through coverage
    - Protects against: Loss caused by failure of the EMI / Loss caused by failure of the bank(s) holding the EMI’s e-float
  - Source: IMF staff.

Box 5. Legal Changes to Implement the Indirect Approach Effectively
- An e-float account with a bank would typically not be materially covered by deposit insurance without legal changes to allow for it.
- Issues to address and typical requirements:
  - The DIS law must recognize the existence of custodial or trust accounts and apply the coverage level to the individual beneficiaries and not to the account holder.
  - A custodial/trust agreement needs to be in place between the party placing the funds and the beneficiaries (that is, the e-money users) to formalize the relationship.
  - The float account must be clearly identifiable as an account created for the funds delivered by e-money users; the custodial/trust relationship must be disclosed to the bank and recorded in the depositor records of the insured institution (for the DIA to identify the accounts in the case of failure).
  - The identities and individual interests of the users (beneficiaries) should be disclosed in the records of the institution or in the records maintained by the custodian or third party, such as the EMI or a service provider. If unavailable in the bank’s records, it must be made available to the DIA upon the bank’s failure.
  - If the EMI uses more than one bank to deposit the float, a rule should exist to determine how user balances relate to individual bank accounts ex ante of any failure (for example, assume each customer’s insured funds in any bank represent the same fractional share as their share of the total float).
  - E-money user funds should not be subject to aggregation with deposits held by the same person in the same bank, as the user would typically be unaware about location of the placement by the EMI.
  - Legal changes would be required, and operational capacity developed, to enable the DIA to make users’ funds available to the EMI on behalf of its customers (the insured depositors) in a custodial account in another bank within a short timeframe to maintain the matching requirement of liquid assets and the e-money issued. After the users’ funds have been made available, the customers should have no claim against the DIS.
- Note: Some jurisdictions (for example, Jamaica, Kenya, Nigeria, Rwanda) allow insurance coverage to “pass through” the nominal account holder and reach the ultimate beneficiary if certain country-specific requirements are fulfilled.

### Contingency planning for potentially systemic EMI failure
- Contingency planning should be prepared for:
  - failure of a potentially systemic EMI, and/or
  - failure of the bank holding the e-float.
- Non-systemic EMIs could be liquidated under applicable procedures; contingency plans for potentially systemic EMIs should address both risks and aim to ensure continuity of critical e-money services.
- In bankruptcy of the EMI:
  - If segregation requirements have been observed, funds should be separated from the estate of the failed company and returned by the trustee in cooperation with the liquidator to users.18
  - There may be significant delay in recovery of funds due to verification and operational reasons if the liquidator and trustee are not operating to return funds quickly or lack operational capacity to refund individual customers.
- In a bank’s failure and without deposit insurance for the e-float:
  - Speed of recovery of customer funds depends on the liquidator’s ability to identify funds and beneficiaries and realize asset recoveries (which can take years).
  - Without quick access to funds, the EMI would fail when users cash out their balances.
- Possible continuity measures:
  - Transfer the contracts and user funds from a failing EMI to an alternative service provider; would require a special legal regime assigning transfer powers to a public authority or a special administrator, otherwise accounts would be frozen in bankruptcy and IT systems would not be maintained.19
  - Require EMIs to have IT platforms interoperable with other payment providers and mechanisms to allow bulk transfer of accounts and integration of a large number of new users.
  - Assess whether the failure of a large EMI dominating a market could pose technical challenges for the absorbing entity due to limitations in scaling up customers and accounts.
  - If a role for the DIS is foreseen to fund transfers (comparable to a paybox plus mandate), safeguards would be needed, including that costs for the DIS would be no higher than in a payout (least-cost rule).

- Risks that remain even with segregation:
  - Provider misuse of customer funds (for example, through fraud, pledging as collateral for loans, or comingling with its own funds).
  - If funds are insufficient, users should share the loss proportionately.18

- Regulatory examples and references:
  - See UK Payment and Electronic Money Institution Insolvency Regulations 2021.19

*Source: empsoupea - 4. Payments System Oversight for E-Money (IMF departmental paper).*

### Box 6. The Arrangements for Direct Protection in Colombia

### Box 6. The Arrangements for Direct Protection in Colombia

### Colombia: institutional arrangements and coverage
- In 2012 Colombia created a new deposit category of “electronic deposits” eligible for deposit insurance through the national DIS (FOGAFIN), originally limited to credit institutions (banks, financial cooperatives).
- In 2014 Colombia created a new type of regulated, specialized financial institution offering electronic deposits and payments (SEDPEs).
- Permitted SEDPE activities (subset of bank activities):
  - (1) accept electronic deposits,
  - (2) make payments and money transfers on behalf of clients,
  - (3) borrow domestically or internationally to finance their operations,
  - (4) issue or cash money orders.
- Prohibitions and limits:
  - SEDPEs are not allowed to offer intermediate funds or offer credit.
  - Balances of individual customers are subject to transaction limits (about US$780).
- Interest and coverage:
  - Deposit accounts offered by SEDPEs can offer interest.
  - Electronic deposits enjoy the same coverage per person and per SEDPE as bank deposits (currently Col$50 million or US$13,300).
  - Because individual balances are legally limited, all eligible deposits held by SEDPEs should be fully covered in practice.
- Safekeeping and pass-through insurance:
  - SEDPEs are required to place customer funds either at the central bank or with commercial banks, with funds equivalent to their e-money liabilities.
  - When placed with commercial banks, customer funds are eligible for pass-through deposit insurance, which is particular to the Colombian regime.
- Membership, premiums, and data obligations:
  - SEDPEs are required to register as members with the DIS.
  - SEDPEs pay a lower premium than commercial banks reflecting a lower-risk business model (no intermediation of funds).
  - SEDPEs must make depositor information available to FOGAFIN in a format and timeframe prescribed by the deposit insurance agency (DIA).
  - In case of a liquidation, the liquidator must hand over these data to FOGAFIN within five days.
- Payout mechanics:
  - The DIA would directly reimburse electronic deposits that qualify as insured deposits if a SEDPE fails.
  - The DIA would indirectly cover mobile deposits deposited by the SEDPE with a commercial bank if that bank were to fail.

### Practical considerations and challenges (broader context from the chapter)
- Contingency planning and systemic risk:
  - In the absence of other options, temporary public support may need to be considered for a potentially systemic EMI as part of contingency planning for a worst-case scenario.
  - Requiring EMIs to undertake stress tests and establish wind-down plans would strengthen contingency planning.
  - The United Kingdom requires EMIs to carry out stress testing and prepare wind-down plans proportional to the nature, size and complexity of the firm’s business and the risks it bears.
- Wind-down and continuity priorities:
  - Wind-down plans should include solvent and insolvent scenarios and contain triggers and information for the liquidator to enable quick identification and return of customer funds as a priority.
  - Contingency plans should identify critical IT systems, people, data, financials, and necessary funding to cover operational expenses to preserve critical functions in a failure.
- Operational and data requirements for DIAs:
  - DIAs should regularly test EMIs’ and banks’ capacity to provide the necessary data in the prescribed timeframe and verify its accuracy.
  - Trustees, EMIs, and their agents should be obliged to cooperate with the DIA; the DIA or the supervisor of the EMI should have the power to issue binding record-keeping requirements.
  - Third-party contractual arrangements (trust deed, fiduciary contract, service-level agreements) should include provisions on timely and accurate data provision to the authorities.
  - If the DIA is unable to perform onsite visits at EMIs, it should use its member banks to indirectly test EMI compliance and request needed EMI data during supervisory onsite visits.
  - Compliance of EMIs’ IT systems with customer data requirements should be subject to annual audits, noting potential adverse impacts on EMIs’ low-cost business models.

### Policy trade-offs: direct vs indirect deposit insurance and related user protection
- Direct deposit insurance (extending DIS membership to EMIs) — benefits and costs:
  - Direct deposit insurance offers greater protection for e-money users at a cost, and EMIs become directly subject to DIS membership rules and obligations and would pay deposit insurance levies which may impact financial inclusion benefits.
  - Direct coverage protects e-money users from losses caused by failures of the EMI (including loss of its bank deposits) and may help to prevent runs on the EMI.
- Indirect deposit insurance — limitations and risks:
  - Indirect coverage only protects against the failure of the bank holding the float, but not if user funds are misused by the EMI.
  - The critical distinction between direct and indirect coverage may be unclear to e-money users, raising significant consumer protection and reputational issues for the DIS.
  - Regulators should ensure EMIs inform users that indirect coverage only protects against failure of the bank holding the float, not losses caused by EMI failure (for example, fraud at the EMI or a loss or breach of the e-wallet).
- Operational readiness and speed of reimbursement:
  - EMIs should not purport to be covered by deposit insurance without adequate operational arrangements to ensure reimbursements can be effected quickly.
  - User access and services should be restored quickly (preferably within hours, or at most a couple of days).
  - If the DIA were unable to reimburse e-money users quickly, this could risk undermining confidence in the payment system and in the DIS more widely.
- Alternatives when DIA capacity is insufficient:
  - If concerns exist that the DIS is unable to efficiently protect EMI users’ funds, a requirement to keep these funds with the central bank, instead of with commercial banks, may make sense.
  - Conventional methods for reimbursing depositors may not work effectively for e-money users in developing countries, given their unbanked customer base.
  - Additional powers in liquidation may be needed to enable transfer of users’ e-money balances and the underlying custodial/trust account from the failing EMI to another EMI or to allow continuation or rapid restoration of the failed EMI’s platforms where services were not substitutable and the EMI was of macro-financial importance.

### Recommendations for EMIs, supervisors, and DIAs (summary of chapter recommendations)
- All EMIs should be subject to proportionate prudential regulatory requirements; supervision should be proportionate to risks and forward looking.
- E-money regulatory regimes should cover:
  - The legal, governance, operational, and ownership structure;
  - Rules for safekeeping and segregation of user funds;
  - A prohibition on retail lending;
  - Minimum capital requirements;
  - Minimum requirements for operational risk governance and management, outsourcing, fraud prevention, data and cybersecurity, business continuity, and disaster recovery;
  - Fit-and-proper requirements for direct and indirect beneficial shareholders, the board, senior management, and trustees;
  - Market conduct and consumer protection rules;
  - A framework for controlling AML/CFT risks and managing and monitoring the agent network (where pertinent);
  - Standards for payments system oversight that ensure safety and efficiency.
- Supervisory intensity should increase with systemic importance:
  - Strengthen supervisory arrangements—intensity of supervision and expectations regarding governance, risk management and internal control standards—for potentially systemic EMIs.
  - Enhanced oversight for systemically important EMIs should be akin to oversight of other systemically important retail payment systems.
  - Where responsibilities reside in different authorities (prudential supervision, market conduct, payment oversight), licensing and supervision should be carefully coordinated to limit overlaps, minimize burden, and reduce arbitrage.
  - Include EMIs that are part of financial conglomerates in the scope of consolidated and cross-border supervision.
- Reporting, monitoring, and access:
  - Supervisors should require key metrics to be reported periodically for effective offsite supervision.
  - Some regulators have required potentially systemic EMIs to provide off-site access to the system (viewing rights) for daily monitoring of the e-float balance and daily reconciliation with liquid assets—assess cost impact and proportionality.

### Annex 1: Specific risks of e-money issuance (categories and subrisks)
- General business risk: impairment of EMI financial condition from revenue declines or expense growth leading to losses charged against capital.
- Legal risks: losses from legal uncertainty, including liabilities toward customers in case of transaction failure and legal protection of pooled customer funds; potential inconsistencies across multiple laws and authorities.
- Governance risks: lack of good governance and internal controls (absence of a trust board, inadequate oversight, poor risk management and treasury governance).
- Operational risks: deficiencies in ICT systems or internal processes, or external events causing disruptions to e-money platforms, bank/agent connections, or telecom networks. Main types: business continuity risk, cyber risk, internal and external fraud, and agent risk.
- Financial risks: risk that EMI customers lose access to entrusted funds because of:
  - (1) bankruptcy of the bank holding the customers’ funds;
  - (2) insufficient protection against EMI failure (funds not adequately isolated);
  - (3) EMIs’ failure to manage entrusted funds prudently (invested in relatively illiquid assets).
  - Subdivisions:
    - a. Liquidity risk: risk that clients’ funds are not available for payout.
    - b. Credit risk: risk that clients’ funds are invested in assets of issuers that fail.
    - c. Interest rate risk: risk of mismatch in interest rates between assets and liabilities.
    - d. Market risk: risk of loss on investments due to a fall in the value of the assets.
- Money laundering/terrorism financing risks: e-money accounts and transactions may be used to launder money and/or finance terrorist activities; mobile money may be more traceable than cash and can be subjected to monitoring and limits.
- Consumer risk: loss of customers or confidence from ineffective disclosure, unfair terms, product/service failures, unfair sales practices, lack of redress mechanisms, and data privacy risks (use of personal information without consent or unfair handling).

*Source: empsoupea - Box 6. The Arrangements for Direct Protection in Colombia, IMF Departmental Papers, E-Money—Prudential Supervision, Oversight, and User Protection.*

### Annex Table 2.3. Number of Mobile Money Transactions per 1,000 Adults

### Annex Table 2.3. Number of Mobile Money Transactions per 1,000 Adults

### Country-level counts (2011–2019)
- Cambodia: 2011: 340; 2012: 354; 2013: 1,369; 2014: 3,832; 2015: 5,815; 2016: 3,332; 2017: 9,137; 2018: 12,945; 2019: 16,884
- Cameroon: 2011: 11; 2012: 111; 2013: 81; 2014: 697; 2015: 1,438; 2016: 6,168; 2017: 21,953; 2018: 39,734; 2019: nav
- Chad: 2011: nav; 2012: nav; 2013: nav; 2014: 2; 2015: 0; 2016: 1; 2017: 1; 2018: nav; 2019: nav
- Colombia: 2011: nav; 2012: nav; 2013: nav; 2014: nav; 2015: nav; 2016: nav; 2017: nav; 2018: 3; 2019: 107
- Fiji: 2011: 423; 2012: 629; 2013: 1,116; 2014: 172; 2015: 760; 2016: 1,066; 2017: 1,926; 2018: 3,912; 2019: 3,780
- Ghana: 2011: 1,135; 2012: 2,503; 2013: 6,751; 2014: 15,468; 2015: 31,170; 2016: 54,207; 2017: 78,299; 2018: nav; 2019: nav
- India: 2011: NA; 2012: NA; 2013: 36; 2014: 117; 2015: 272; 2016: 633; 2017: 1,679; 2018: 3,067; 2019: 4,130
- Kenya: 2011: 17,655; 2012: 22,700; 2013: 27,944; 2014: 33,607; 2015: 39,741; 2016: 52,647; 2017: 51,513; 2018: 56,210; 2019: 57,528
- Mozambique: 2011: nav; 2012: nav; 2013: nav; 2014: 358; 2015: 916; 2016: 9,819; 2017: 16,011; 2018: 12,145; 2019: 31,809
- Myanmar: 2011: nav; 2012: nav; 2013: nav; 2014: 0; 2015: 0; 2016: 1; 2017: 533; 2018: 954; 2019: 1,653
- Namibia: 2011: 51; 2012: 69; 2013: 64; 2014: 102; 2015: 3,840; 2016: 7,285; 2017: 1,685; 2018: 1,896; 2019: 5,057
- Nigeria: 2011: nav; 2012: nav; 2013: 25; 2014: 166; 2015: 282; 2016: 434; 2017: 453; 2018: 447; 2019: nav
- Pakistan: 2011: 426; 2012: 1,023; 2013: 1,582; 2014: 2,236; 2015: 2,932; 2016: 3,654; 2017: 4,828; 2018: 6,952; 2019: 9,309
- Philippines: 2011: 2,495; 2012: 2,902; 2013: 3,087; 2014: 4,019; 2015: 4,732; 2016: 5,188; 2017: 5,413; 2018: 5,507; 2019: 8,350
- Qatar: 2011: 0; 2012: 1; 2013: 5; 2014: 225; 2015: 425; 2016: 1,335; 2017: 194; 2018: 319; 2019: 356
- Rwanda: 2011: 116; 2012: 3,579; 2013: 8,958; 2014: 15,960; 2015: 24,964; 2016: 29,538; 2017: 35,046; 2018: 40,619; 2019: 49,811
- Samoa: 2011: nav; 2012: nav; 2013: 808; 2014: 1,324; 2015: 1,579; 2016: 1,585; 2017: 1,608; 2018: 1,219; 2019: 1,404
- Senegal: 2011: nav; 2012: nav; 2013: 1,324; 2014: 2,349; 2015: 3,438; 2016: 8,560; 2017: 17,186; 2018: 33,093; 2019: 49,510
- Togo: 2011: nav; 2012: nav; 2013: 30; 2014: 160; 2015: 2,309; 2016: 4,657; 2017: 8,487; 2018: 13,567; 2019: 19,493
- Tonga: 2011: 5; 2012: 105; 2013: 167; 2014: 245; 2015: 808; 2016: 1,450; 2017: 1,508; 2018: 2,005; 2019: nav
- Uganda: 2011: 5,117; 2012: 13,644; 2013: 21,733; 2014: 25,983; 2015: 34,884; 2016: 46,985; 2017: 50,089; 2018: 82,865; 2019: 119,950
- Zambia: 2011: 88; 2012: 505; 2013: 1,192; 2014: 146; 2015: 332; 2016: 678; 2017: 1,234; 2018: 28,750; 2019: 52,195
- Zimbabwe: 2011: 306; 2012: 1,796; 2013: 15,449; 2014: 22,822; 2015: 28,755; 2016: 37,118; 2017: 92,355; 2018: 200,849; 2019: 228,876

### Notable observations and patterns
- Highest reported values in 2019: Zimbabwe: 228,876; Uganda: 119,950; Kenya: 57,528; Zambia: 52,195; Senegal: 49,510; Rwanda: 49,811.
- Rapid increases over the series are evident in multiple countries, for example:
  - Zimbabwe rises from 306 (2011) to 228,876 (2019).
  - Uganda rises from 5,117 (2011) to 119,950 (2019).
  - Kenya rises from 17,655 (2011) to 57,528 (2019).
- Several country-year entries are marked as "nav" or "NA", indicating data not available for those cells (examples: Cameroon 2019: nav; Ghana 2018–2019: nav; India 2011–2012: NA).
- Some countries show nonmonotonic series (declines in certain years), for example:
  - Cambodia: 2015: 5,815 down to 2016: 3,332, then up to 2019: 16,884.
  - Namibia: 2016: 7,285 down to 2017: 1,685 then up to 2019: 5,057.
  - Qatar: peak 2016: 1,335, then 2017: 194.

*Source: IMF, Financial Access Survey.*

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_Source: https://www.imf.org/-/media/files/publications/dp/2021/english/empsoupea.pdf_