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### Preface and mission overview
- IMF MCM conducted a mission at the request of the Central Bank of Belize (CBB).
- Mission dates: October 14–22, 2024.
- Focus: technical assistance (TA) to the Supervision Department on supervision of Electronic Money Issuers (EMI).
- Scope: reviewed regulatory framework and licensing practices only to the extent they influence and impact effective supervision; excluded broader PSP activities, AML/CFT, legislative framework, and payment systems more broadly.
- Stakeholders met: CBB, Financial Services Commission (FSC), Ministry of Public Utilities, Energy, Logistics and E-Governance (MPUELE), Economic Development Council (EDC), Belize Trade and Investment Development Service (Beltraide), Bankers Association, Belize Bank Limited, Belize International Financial Services Association (BISFA), and DigiWallet Limited.
- Acknowledgements: Governor Mr. Kareem Michael, Deputy Governor Ms. Marina Laetitia Murillo, CBB Supervision Department staff; particular thanks to Mr. Pierre Escalante, Ms. Indira Banner, Ms. Diane Gongora, and Ms. Sheila Pook.

### Executive summary — key findings (usage, market, supervision)
- Usage and market size
  - E-money wallets involved in 1.23 percent of all digital transactions by volume and 0.11 percent by value as at the end of 2023.
  - Less than 16 percent of the population are e-money account holders, of which a small proportion are active accounts.
  - Consolidated volume grew from around 17,000 transactions in August 2021 to almost 27,000 transactions in July 2024.
  - Total volume for the first seven months of 2024: 223,271; total volume for 2023: 213,543.
  - Consolidated value grew from $199,505 to $2,464,734 from August 2021 to July 2024.
  - Total value for the first seven months of 2024: $14,631,052; total value for 2023: $16,633,592.
  - Over 63,300 e-money account holders (some dormant).
  - 3,700 merchants support the use of e-money (some also agents).
- Market structure and risks
  - Two firms currently issue e-money in Belize: one bank issuer and one nonbank issuer (a wholly owned subsidiary of a telecommunications company), both with a similar market share.
  - One additional service launched by another bank in December 2021 but discontinued in December 2023 due to lack of uptake; one rejected application due to lack of operational and technical capabilities.
  - Services: cash in, cash out, peer-to-peer transactions, some tax and Government collection payments; one issuer provides loan onboarding for a commercial bank.
  - Government of Belize and UNICEF have used one EMI for government assistance programs.
  - Market remains small; limited risks to users, markets, and financial stability at present.
- Supervision status and objectives
  - CBB conducts offsite monitoring of both bank and nonbank EMIs; no onsite inspections performed for the nonbank EMI as of October 2024.
  - CBB moving toward risk-based supervision for banks and credit unions and aims to extend this to nonbank PSPs including EMIs.
  - Mission objective: assist CBB to develop a supervisory manual for nonbank EMIs and guide transition to risk-based supervision and onsite inspections.
  - Domestic collaboration: strengthening cross-sector collaboration with other financial and nonfinancial authorities is instrumental to managing emerging risks and clarifying mandates.

### Recommendations (summary)
- Supervisory Approach
  - Move toward risk-based supervision for nonbank e-money issuers — MT Medium 27
- Supervisory Activities
  - Improve granularity of data collection — ST High 38
  - Formalize and communicate the periodicity of reconciliations — ST High 40
  - Improve supervisory consistency by replacing firm specific terms and conditions with a transparent public circular — ST High 43
  - Provide further clarity to supervisors on how to monitor risks to fund safeguarding — ST Medium 46
  - Clarify the list of permitted liquid investments for EMIs to allow supervisors to better monitor investment risks — ST High 49
  - Require EMIs to periodically submit updated lists of agents to the CBB, rather than reviewing and approving each new appointment — MT Low 52
  - Develop a standardized template for the inspection report — ST High 54
  - Strengthen cross-sectoral collaboration with relevant authorities and clarify respective mandates — ST High 60
- Notes:
  - ST = short term, 6–12 months; MT = medium term, 12–24 months.
  - In the CBB supervisors are also known as examiners and compliance officers.

### I. Introduction — mandate and TA scope
- CBB mandate: foster monetary and financial system stability; responsible for regulation of banks, credit unions, and certain nonbank financial institutions including moneylenders, PSPs and RSPs.
- TA request: strengthen supervisory approach to nonbank PSPs that issue e-money.
- Mission focus: improve supervisory approach for e-money issuers; reviewed regulation only where it impacts supervisors’ ability to perform tasks.

### A. Market composition — observations, drivers, and inhibitors
- CBB conducts horizon scanning with limited resources; digital payments usage (2014–2023) increased from 24 to 69 percent of adults using digital payments, with most payments made through credit and debit cards.
- NFIS goal: support growth of EMIs to increase total value and volume of digital transactions to improve financial inclusion.
- Current EMI landscape and services: two issuers (one bank, one nonbank telecom subsidiary); services include cash in/out, P2P (including business), some tax and government collections, loan onboarding facilitation; extensive agent networks for cash in/out.
- Inhibiting factors identified by stakeholders:
  - Lack of trust, interoperability, and digital and financial literacy.
  - Users prefer cash; merchants prefer cash because cost of doing business near zero.
  - EMIs charge between 1-2 percent fees per transaction; credit and debit cards charge approximately 3-5 percent.
  - Belize’s small population limits profitability for multiple EMIs.
  - E-money services are not interoperable within Belize; users can transfer funds only within their own networks or pay merchants on their network.
  - Nonbank EMIs can access the national payment system through commercial banks to move money between providers.
- Digital and financial literacy initiatives:
  - MPUELE conducting a digital literacy educational campaign matching tech-savvy users with less tech-savvy users.
  - Simplified due diligence regulation enables tiered wallets.
  - CBB working with the World Bank on improving digital financial literacy and delivering NFIS initiatives.

### B. Regulatory framework — legal evolution, NPSR, and terms
- CBB response: used firm-specific terms and conditions in absence of full regulation to meet market demand while monitoring firms.
- Legislative framework:
  - Payment System Oversight Framework assigns CBB oversight of the national payment system and regulator/supervisor of PSPs; oversight over payment instruments including e-money.
  - National Payment System Act implemented in 2017 and updated in 2020; provides legal definition for e-money and captures EMIs under PSPs; grants CBB authority to issue regulations and license PSPs.
  - E-money definition in the Act preserved verbatim from source.
- Regulatory gap and interim measures:
  - Seven-year gap between legislative implementation and implementation of underpinning regulation; during gap CBB issued firm-specific terms and conditions.
- National Payment System Regulation (NPSR):
  - Issued in February 2024.
  - Covers licensing and supervision of PSPs issuing e-money and broader FMIs; includes licensing and authorization, conditions of a license, ongoing oversight including reporting and capital requirements, agent registration, and electronic fund transfer rules.
  - Bank-issued e-money subject to existing banking regulation but banks and credit unions still subject to NPSR rules when conducting payment services.

### C. Institutional structure — Supervision Department and restructure
- Staffing and responsibilities (as of October 2024)
  - CBB has less than 300 full time staff.
  - Supervision Department responsible for policy making, licensing, and supervision of bank and nonbank issuers of e-money and other regulated financial activities.
  - Supervision Department staffing: 33 staff in total (29 on the bank side, and 4 on the non-bank side), responsible for 131 firms in total.
  - Operational implication: single staff members may assess applications at gateway and conduct supervision across many firms due to constrained resources.
- Organizational restructure (to be completed by 1 January 2025)
  - Post-restructure headcount of 34 reporting to the Manager, Supervision.
  - Divided into four teams: onsite examination; off-site surveillance; payment system oversight and development; supervisory methodology and practice.
  - Team responsibilities and cross-training plan described to support specialization and morale.

### Approach to licensing and agents under NPSR
- Nonbank entities must obtain a PSP license from the CBB to offer e-money services; banks do not need a separate PSP license to offer payment services.
- Under the post-1 January 2025 structure, the off-site examination team will be in charge of licensing both bank and nonbank financial institutions, including e-money issuers.
- Credit unions are not required to obtain a license for providing payment services, except when offering international remittance services.
- Terms and conditions attached to licenses:
  - The Act allows CBB to impose terms and conditions; these have been provided privately and are contingent on firm acceptance.
  - Two firms currently issue e-money and are licensed by the CBB: one under the NPSR, and one under existing banking regulation.
- Agents:
  - Under the NPSR, agents must obtain prior registration from the CBB by submitting a written application; once registered, agents are added to a register maintained by the Central Bank, which the Act says should be public.
  - Prior registration by the CBB is required for every agent an EMI intends to engage with.

### Supervisory approach — move to Risk-Based Supervision (RBS)
- Current stance (as of October 2024): predominantly prescriptive, compliance-based for PSPs; CBB has applied RBS to banks and credit unions and plans full RBS for EMIs.
- Rationale and features of RBS:
  - Ensures proportionality by assessing risks and directing supervisory resources accordingly; tailored to EMI business model, size, complexity, and risk profile.
  - Optimizes scarce resources and supports statutory policy goals.
  - RBS methodology should allocate supervisory attention, balance supervisory activities (offsite vs onsite), and be commensurate with systemic importance.
  - RBS requires systematized, ongoing, dynamic risk identification and assessment.
- Mission recommendations on RBS:
  - Establish a supervisory risk assessment process and outline the methodology in the CBB’s existing PSP supervision manual.
  - Adopt a risk matrix for EMI supervision suitable for EMI risk profiles (not bank risk matrices).
  - Recognize that “There is no single risk-based methodology.”

### Supervisory activities — monitoring, inspections, data collection, and reconciliation
- Market monitoring and perimeter controls:
  - Supervisors will monitor complaints, tips, inquiries, reports of unlicensed activity, social media, and local news.
- On-site vs off-site supervision:
  - As of October 2024, CBB conducts only off-site monitoring of nonbank EMIs; no on-site inspections to date.
  - First on-site inspection scheduled for November 2024 postponed to January 2025 to integrate IMF TA recommendations.
  - On-site inspections emphasized as important for independent verification of systems, controls, and reported information.
- Form EMR01 (monthly reporting) and data gaps:
  - Form EMR01 includes: number of e-money account holders; total value of transaction types; number of agents and merchants; total number of customer complaints; among others.
  - Current reporting useful but scope exists to expand data gathered.
- Recommended additional regulatory return items (preserve exact wording)
  - Data on the total number of e-money accounts
  - Statistics on the total of e-money holdings at the end of the month
  - Data on service interruptions, including the cause of each
  - Whether the reconciliation between outstanding e-money liabilities and float account balances in banks is performed regularly and frequently, including the periodicity of the reconciliation
  - Whether any discrepancies were identified during the above-mentioned reconciliation for the reporting period
  - Track how many customer complaints have been successfully resolved (in addition to total number collected)
  - Data on the primary reasons behind customer complaints (e.g., fraud, service interruptions, issues stemming from agents and other third-party providers, inappropriate disclosure of information or marketing)
  - Statistics on payment fraud, internal fraud incidents and cybersecurity breaches, including a description of each significant incident, the loss incurred or estimated for each, a description of data breaches, and number of e-money accounts affected by these breaches
  - Details of assets and liabilities on the balance sheet, as well as items related to profit and loss

- Reconciliation reporting (current status and recommendation)
  - Neither the Act nor the NPSR specifies reconciliation periodicity or reporting of discrepancies, though existing firm-specific terms and conditions require regular reconciliations.
  - Recommendation: CBB should ensure EMIs conduct reconciliation by the end of each business day and determine steps EMIs must take if discrepancies exist.
  - CBB should collect regular reports detailing whether any material discrepancies occurred and how frequently over a set period to identify EMIs with recurring reconciliation issues on a daily basis.

### Supervisory consistency, transparency, and level playing field
- Prior use of firm-specific terms and conditions filled the regulatory gap pre-NPSR; terms continue to be imposed privately and can vary by business model.
- Differences in supervision:
  - Bank and nonbank EMIs both subject to NPSR reporting but are licensed under different regimes; bank e-money activities supervised within broader bank supervision.
- Recommendation: CBB should issue a public circular or regulatory document that transparently reflects common terms and conditions to improve consistency, fairness, and trust.

### Fund safeguarding — verification, investments, outsourcing, and agents
- Fund safeguarding overview and key findings
  - Supervisors should examine whether float accounts are legally protected from claims of other creditors or that e-money customers have priority in insolvency; one way is via a special account (e.g., trust account).
  - Mission recommends the Supervision Manual provide detailed guidance to supervisors on assessing fund safeguarding during inspections (see Annex I).
  - Four areas to assess: (i) existence and sufficiency of funds in the float account, (ii) procedures to ensure required balances are maintained (reconciliation), (iii) liquidity of the float, and (iv) accurate control and reporting of e-float and client balances.
- Investment and liquidity of the float
  - Jurisdictional practice varies: deposit in commercial banks; mandated holding at central bank; permitted investments in certain financial instruments; or a mix.
  - In Belize, terms and conditions allow EMIs to invest in other “permitted liquid assets” but do not clarify the permitted list, complicating supervision.
  - Recommendation: CBB should clarify in a circular a list of permitted investments and ensure supervisors examine investment policy/strategy, Board approval, evidence of investments, and performance/risk.
- Outsourcing to agents and third-parties
  - NPSR requires EMIs to apply to CBB at least 30 days prior to outsourcing any aspect of operations, and mandates approval for all outsourcing arrangements without materiality distinction.
  - Agreement between an EMI and an agent cannot be exclusive; agents can work with multiple providers.
  - Recommendation: Require EMIs to periodically submit updated lists of agents to the CBB instead of pre-approval for each appointment; ensure robust controls and due diligence on agents, and require assessment of agent capacity when already engaged with other providers.
- Inspection reports, templates, supervisory follow-up, and enforcement
  - Recommendation: develop a standardized inspection report template outlining objective, scope, techniques, key findings, and corrective actions.
  - Benefits: consistent structure, assist junior and senior supervisors, streamline reporting, identify critical areas quickly, improve communication.
  - CBB should conduct ongoing, dynamic risk assessments using prior supervisory results.
  - Enforcement tools recommended include: action plans with deadlines; monitoring progress; proportionate formal measures such as fines, additional capital, restricting issuance of new e-money accounts, mandating third-party risk assessments, withholding approvals, limiting dividends, replacing executives, limiting third-party partnerships, referring to law enforcement, or suspending operations.

### Strengthen domestic supervisory collaboration
- Multiple authorities with overlapping mandates: FSC (nonbank and capital markets activities, payment processing, money transmission), OSIPP (insurance and pensions), FIU (financial integrity risks), and telecom regulator (oversees MNOs).
- CBB and FSC mandates can be unclear; current clarity provided case-by-case supported by Financial Stability Committee and an MoU.
- Recommendation: CBB and FSC should provide clear and transparent guidance on respective responsibilities for PSPs; consider MoU with Belize Public Utilities Commission to improve oversight of MNO-related EMI activities and customer protection.

### Conclusion and priorities
- Limited regulatory risks given market smallness:
  - Two EMIs.
  - EMIs conduct 1.23 percent of all digital transactions by volume and 0.11 percent by value.
- Regulatory framework in place and CBB moving toward RBS.
- Mission recommendations prioritized: improve data granularity; improve reconciliation processes; clarify permitted investments and terms and conditions; periodic review of agent use; develop standardized inspection reports; strengthen supervision of fund safeguarding.
- CBB receptive to recommendations and should prioritize rapidly growing risks in context of other TA.
- IMF stands ready to provide further assistance if required.

### Annex I: Supervising Fund Safeguarding — methods for CBB consideration
A. Existence and Sufficiency of Funds in the Float Account
- Compare total e-money issued with float account balances; analyze bank statements to:
  - Check float account identification data against agreements and periodic reports.
  - Check balances at several cut-off dates and compare with reported “total e-money issued.”
  - Check whether credits/debits concentrate around reporting dates, which could indicate reconciliation issues or concealment.
- These procedures assume the reported total e-money issued is accurate.

B. Effective Reconciliation Procedures
- Prior to onsite inspection, examine policies and procedures for reconciliation and staff responsibilities.
- Understand how e-money is created and destroyed; effective automated reconciliation (real time or batch) expected.
- Supervisor techniques:
  - system tests simulating variations, unauthorized access, and agent transactions;
  - observe manual reconciliation;
  - review audit trails of automated reconciliations;
  - review records and explanations for mismatches on specific dates.

C. Governance and Management of Float Account
- Ensure EMIs have written policies and operational procedures governing access to and operation of the float account; restrict authorizations to a few designated employees.
- Access and escalation rules commensurate with EMI size and reconciliation mechanism.
- Supervisors can analyze employee lists and user profiles and test EMI policies through system audits.

D. Accurate Control and Reporting of Total E-money Issued and Client Balances
- Assess whether accurate control of client balances is in place.
- Compare previously reported total e-money issued on multiple cut-off dates with reports produced in presence of supervisors from the EMI platform.
- Inquire about procedures for producing regulatory reports, responsible staff, and whether manual procedures are used.
- Determine inclusion of pending transactions in reported totals and whether supervisors can conduct system tests.

*IMF Technical Assistance Report — Preface and Introduction (content unit)*

### Preface ................................................................................................................

### Preface

### Preface (mission overview)
- An International Monetary Fund (IMF) Monetary and Capital Markets Department (MCM) conducted a mission at the request of the Central Bank of Belize (CBB).
- Mission dates: October 14–22, 2024.
- Focus: technical assistance (TA) to the Supervision Department on the supervision of Electronic Money Issuers (EMI).
- Scope: reviewed the regulatory framework and licensing practices only to the extent they influence and impact effective supervision.
- Exclusions: did not consider broader activities of payment service providers, issues related to anti-money laundering, and counter financing of terrorism (AML/CFT), the legislative framework, or payment systems more broadly.
- Stakeholders and meetings: CBB, Financial Services Commission (FSC), Ministry of Public Utilities, Energy, Logistics and E-Governance (MPUELE), Economic Development Council (EDC), Belize Trade and Investment Development Service (Beltraide), Bankers Association, Belize Bank Limited, Belize International Financial Services Association (BISFA), and DigiWallet Limited.
- Acknowledgements: Governor Mr. Kareem Michael, Deputy Governor Ms. Marina Laetitia Murillo, and CBB Supervision Department staff; particular thanks to Mr. Pierre Escalante, Ms. Indira Banner, Ms. Diane Gongora, and Ms. Sheila Pook.

### Executive Summary — key findings
- Usage and market size
  - E-money wallets were involved in 1.23 percent of all digital transactions by volume and 0.11 percent by value as at the end of 2023.
  - Less than 16 percent of the population are e-money account holders, of which a small proportion are active accounts.
  - Consolidated volume of transactions grew from around 17,000 transactions in August 2021 to almost 27,000 transactions in July 2024.
  - Total volume for the first seven months of 2024: 223,271; total volume for 2023: 213,543.
  - Consolidated value of transactions grew from $199,505 to $2,464,734 in the same period (August 2021 to July 2024).
  - Total value for the first seven months of 2024: $14,631,052; total value for 2023: $16,633,592.
  - Over 63,300 e-money account holders (some dormant).
  - 3,700 merchants support the use of e-money (some also agents).
- Market structure and risks
  - Two firms currently issue e-money in Belize: one bank issuer and one nonbank issuer (a wholly owned subsidiary of a telecommunications company), both with a similar market share.
  - One additional service launched by another bank in December 2021 but discontinued in December 2023 due to lack of uptake.
  - One rejected application due to lack of operational and technical capabilities.
  - Both issuers offer cash in, cash out, peer-to-peer transactions, ability to pay some taxes and Government collection; one issuer provides loan onboarding for a commercial bank.
  - Government of Belize and UNICEF have used one of the EMIs for government assistance programs.
  - Market remains small; limited risks to users, markets, and financial stability at present.
- Supervision status
  - CBB conducts offsite monitoring of both bank and nonbank e-money issuers but has not yet conducted onsite inspections for the nonbank e-money issuer.
  - CBB is moving toward a risk-based approach to supervision for banks and credit unions, with the objective to extend this to nonbank payment service providers including e-money issuers.
  - Areas for enhancement: data granularity in regulatory returns, reconciliation processes, clarity on permitted investments and terms and conditions, agent appointment processes, and standardized inspection reporting.
- Mission objective
  - Assist CBB to develop a supervisory manual for nonbank e-money issuers and guide transition to risk-based supervision and onsite inspections.
- Domestic collaboration
  - Strengthening cross-sector collaboration with other financial and nonfinancial authorities is instrumental to managing emerging risks and clarifying mandates where multiple authorities may have responsibilities.

### Recommendations (summary table reproduced)
- Supervisory Approach
  1. Move toward risk-based supervision for nonbank e-money issuers — MT Medium 27
- Supervisory Activities
  2. Improve granularity of data collection — ST High 38
  3. Formalize and communicate the periodicity of reconciliations — ST High 40
  4. Improve supervisory consistency by replacing firm specific terms and conditions with a transparent public circular — ST High 43
  5. Provide further clarity to supervisors on how to monitor risks to fund safeguarding — ST Medium 46
  6. Clarify the list of permitted liquid investments for EMIs to allow supervisors to better monitor investment risks — ST High 49
  7. Require EMIs to periodically submit updated lists of agents to the CBB, rather than reviewing and approving each new appointment — MT Low 52
  8. Develop a standardized template for the inspection report — ST High 54
  9. Strengthen cross-sectoral collaboration with relevant authorities and clarify respective mandates — ST High 60
- Notes:
  - ST = short term, 6–12 months; MT = medium term, 12–24 months.
  - The note refers to supervisors; in the CBB supervisors are also known as examiners and compliance officers.

### I. Introduction — mandate and TA scope
- CBB mandate: foster monetary and financial system stability; responsible for regulation of banks, credit unions, and certain nonbank financial institutions including moneylenders, PSPs and RSPs.
- TA request: strengthen supervisory approach to nonbank PSPs that issue e-money.
- Mission focus: improve supervisory approach for e-money issuers; reviewed regulation only where it impacts supervisors’ ability to perform tasks; no specific recommendations to the broader regulatory regime beyond supervisory impact.

### A. Market Composition — observations and drivers
- CBB conducts horizon scanning with limited resources using day-to-day supervision and prior TA to quantify market composition and dynamics.
- Digital payments usage (2014–2023): percentage of adults using digital payments increased from 24 to 69 percent, with most payments made through credit and debit cards.
- NFIS goal: support growth of EMIs to increase total value and volume of digital transactions to improve financial inclusion.
- Current EMI landscape:
  - Two firms issue e-money (one bank, one nonbank telecom subsidiary); further applications pending; one rejected application.
  - Services offered include cash in/out, peer-to-peer (including business), some tax and government collections, and loan onboarding facilitation by one issuer.
  - Extensive network of agents for cash in/out.
- Usage statistics and trends (preserve exact numbers)
  - E-money wallets involved in 1.23 percent of all digital transactions by volume and 0.11 percent by value as at the end of 2023.
  - Consolidated volume: ~17,000 transactions in August 2021 to ~27,000 in July 2024.
  - Total volume first seven months 2024: 223,271; total volume 2023: 213,543.
  - Consolidated value: $199,505 to $2,464,734 over the same period.
  - Total value first seven months 2024: $14,631,052; total value 2023: $16,633,592.
  - Over 63,300 e-money account holders (some dormant).
  - 3,700 merchants support e-money (some also agents).
- Inhibiting factors identified by stakeholders:
  - Lack of trust, interoperability, and digital and financial literacy.
  - Users prefer cash (tangible experience); merchants prefer cash (cost of doing business near zero).
  - E-money issuers charge between 1-2 percent fees per transaction; credit and debit cards charge approximately 3-5 percent.
  - Belize’s small population limits profitability for multiple EMIs.
  - E-money services are not interoperable within Belize; users can transfer funds only within their own networks or pay merchants on their network.
  - Nonbank EMIs can access the national payment system through commercial banks to move money between providers.
- Digital and financial literacy initiatives:
  - MPUELE conducting a digital literacy educational campaign matching tech-savvy users with less tech-savvy users.
  - Regulation on simplified due diligence enables tiered wallets with different identity verification and transaction limits.
  - CBB working with the World Bank on improving digital financial literacy and delivering NFIS initiatives.

### B. Regulatory Framework — legal and regulatory evolution
- CBB response: moved quickly to establish environment for firms to issue e-money; used terms and conditions in absence of regulation to meet market demand while monitoring firms.
- Legislative framework:
  - Payment System Oversight Framework assigns CBB oversight of the national payment system and regulator/supervisor of PSPs; oversight over payment instruments including e-money.
  - National Payment System Act (the Act) implemented in 2017 and updated in 2020; provides legal definition for e-money and captures EMIs under PSPs.
  - The Act provides authority for the CBB to issue regulations and to license PSPs, and clarifies that banks that are direct participants to the national payment system do not need a separate license under the Act; credit unions need a separate license only if providing remittance services.
  - E-money definition in the Act: “monetary value represented by a claim on the issuer which is stored on a payment device such as a chip, prepaid card, mobile phone, or on a computer system; issued on receipt of funds of an amount not less in value than the monetary value issued; and accepted as a means of payment by persons other than the issuer” and emphasizes such funds are not deposits.
- Regulatory gap and interim measures:
  - Seven-year gap between legislative implementation and implementation of underpinning regulation.
  - During the gap, CBB issued firm-specific terms and conditions to allow firms to operate.
- National Payment System Regulation (NPSR):
  - Issued in February 2024.
  - Framework covers licensing and supervision of PSPs issuing e-money and broader financial market infrastructures.
  - In line with the Act, bank-issued e-money subject to existing banking regulation but banks and credit unions still subject to NPSR rules when conducting payment services.
  - NPSR covers: licensing and authorization (classification, application, duration and fees, suspensions, outsourcing); conditions of a license; on-going oversight including reporting and capital requirements; agent registration; and details on electronic fund transfers (documentation, execution, unauthorized transfers, liabilities of PSP and consumers).

### C. Institutional Structure — CBB Supervision Department
- CBB staffing and efficiency:
  - Less than 300 full time staff at the CBB.
  - Supervision Department is responsible for policy making, licensing, and supervision of bank and nonbank issuers of e-money, and other regulated financial activities within CBB remit.
  - As of October 2024, Supervision Department divided into two areas: one for banks and credit unions, and one for non-deposit taking institutions (including PSPs and RSPs).
  - Supervision Department staffing: 33 staff in total (29 staff on the bank side, and 4 on the non-bank side), responsible for 131 firms in total.
- Operational implications:
  - Single staff members may assess applications at the gateway and conduct supervision across a range of bank and nonbank firms due to constrained resources.

_Imf Technical Assistance Report — Preface and Introduction (content unit)_

### 17.        The Supervision Department is conducting an organizational restructure to be completed

### tarea2025015-print-pdf - 17.        The Supervision Department is conducting an organizational restructure to be completed

### Organizational restructure (Supervision Department)
- The Supervision Department is conducting an organizational restructure to be completed by 1 January 2025.
- Post-restructure headcount and structure:
  - Headcount of 34 reporting to the Manager, Supervision.
  - Divided into four teams: onsite examination, off-site surveillance, payment system oversight and development, and supervisory methodology and practice.
- Team responsibilities after restructure:
  - On-site examination team: conduct on-site inspections for all firms under the remit of the CBB including banks and nonbanks.
  - Off-site examination team: conduct off-site monitoring, risk assessments, licensing, and maintain risk management documents.
  - Payment system oversight and development team: in charge of financial market infrastructures.
  - Supervisory methodology and practices team: develop policies and rulemaking, conduct regulatory projects (such as Basel implementation), resolution and intervention, and develop research papers.
- Cross-training:
  - The CBB is conducting a cross training exercise covering training and development plans, transition plans, and ensuring effective communication between the new teams.
  - The staggered retraining and specialization is described as effective in ensuring high morale and confidence in staff ability to discharge responsibilities.

### Approach to licensing (NPSR and PSP licensing)
- Licensing requirements on adoption of the NPSR:
  - Nonbank entities must obtain a PSP license from the CBB if they intend to offer e-money services; these services fall under the definition of “payment services” in the Act.
  - Under the institutional structure effective from 1 January 2025, the off-site examination team will be in charge of licensing both bank and nonbank financial institutions, including those issuing e-money.
  - Banks do not need a separate PSP license to offer payment services.
  - Credit unions are not required to obtain a license for providing payment services, except when offering international remittance services.
  - A bank or a credit union that provides a payment service under the Domestic Banks and Financial Institutions Act or the Credit Union Act must obtain the authorization of the CBB for the use of an agent to provide e-money services, in line with that for nonbank EMIs.
  - While banks and credit unions do not need to be separately licensed under the NPSR, they are still subject to its rules when conducting relevant activities, including the issuance of e-money, as these apply to all institutions.
- Terms and conditions attached to licenses:
  - Each licensed firm is subject to certain terms and conditions; not all are reflected in regulation but the Act allows the CBB to impose them to mitigate risks not covered in regulation.
  - Terms and conditions are provided privately to each firm and licensing is contingent on accepting these terms.
  - Two firms currently issue e-money and are licensed by the CBB: one under the NPSR, and one under existing banking regulation.
- Agents of EMIs:
  - Under the NPSR, EMIs can offer e-money services to customers through agents.
  - The agent must obtain prior registration from the CBB by submitting a written application with necessary documents and information, following the CBB's prescribed format and guidelines.
  - Once registered, the agent is added to a register of agents maintained by the Central Bank; according to the Act, this registry should be available to the public.
  - Prior registration by the CBB is required for every agent an EMI intends to engage with.

### Supervision of EMIs — Supervisory approach (as of October 2024)
- Current supervisory stance:
  - As of October 2024, the CBB approaches supervision in a prescriptive, compliance-based approach.
  - The CBB has taken a risk-based approach to supervising banks and credit unions and plans to adopt a fully risk-based supervision approach (RBS) for oversight and supervision of EMIs.
- Rationale and features of Risk-Based Supervision (RBS):
  - RBS helps ensure proportionality by systematically assessing risks and directing supervisory resources accordingly.
  - Supervision should be tailored to each EMI’s business model, size, complexity, and risk profile.
  - RBS will optimize use of scarce resources and help achieve statutory policy goals including maintaining stability despite constraints in resources, capacity, and skills.
  - RBS methodology will allocate supervisory attention and time (i.e., intensity of supervisory activities and enforcement measures) according to systematic evaluation and risk prioritization.
  - RBS must be commensurate with each institution's risk profile and its systemic importance to the financial system.
  - RBS relies on systematized identification of risks and their relative importance within and across different EMIs.
  - By adopting RBS, supervisors can adjust level and intensity of supervision over time in a structured but flexible way.
- Recommendations regarding RBS:
  - The mission commends the CBB’s move towards RBS.
  - To fully implement RBS for issuers of e-money, the CBB needs a process that maintains an up-to-date understanding of the risk landscape and systematically and periodically identifies and assesses risks in individual EMIs, considering inherent risks and controls.
  - The risk assessment process should shape supervisory priorities, level and duration of supervisory scrutiny, how supervision is conducted, balance among supervisory activities (e.g., offsite vs onsite), and allocation of experienced staff.
  - Risk assessment must be ongoing and dynamic to adapt to changes from the EMI itself and external factors like macroeconomic conditions and industry trends.
  - The CBB should establish a supervisory risk assessment process as the sector grows and more EMIs enter the market.
  - The risk assessment methodology for EMI supervision should be clearly outlined in the CBB’s existing PSP supervision manual.
  - The CBB’s bank supervision manual can serve as a reference but the CBB should recognize EMIs differ significantly from banks.
  - The mission recommends that the CBB adopt a risk matrix for the supervision of EMIs and the e-money sector to assist in managing limited resources.
  - Note: “There is no single risk-based methodology.” Supervisors may define risks differently; risk matrices for banks are not suitable for EMIs given simpler EMI risk profiles.

### Supervisory activities — monitoring, inspections, data collection
- Market monitoring and perimeter:
  - The CBB aims to ensure firms conducting regulated payment service activities are authorized and licensed in line with the NPSR.
  - Supervisors will actively monitor complaints and tips submitted through the CBB's website or received via phone calls, letters, and e-mails; review inquiries and reports from financial institutions about unlicensed or unregistered activities; and monitor social media and local news outlets.
- On-site vs off-site supervision:
  - Where firms are licensed, the CBB currently conducts only off-site monitoring of nonbank EMIs.
  - No on-site inspections have been performed to date given the nascency of relevant regulations.
  - The first on-site inspection was scheduled for November 2024 but was postponed to January 2025 to integrate recommendations from the IMF's TA.
  - On-site inspection is emphasized as important for independent verification of systems and controls and reliability of reported information.
- Specificities for EMI supervision:
  - Supervisors must consider the particularities of onsite inspections for e-money compared to traditional financial services and ways to strengthen offsite monitoring.

- Data collection (regulatory returns):
  - EMIs are required to submit a monthly report (Form EMR01).
  - Form EMR01 includes: number of e-money account holders; total value of different types of transactions (including cash-in, cash-out, and P2P transactions) during the reporting period; number of agents and merchants; total number of customer complaints; among others.
  - Current reporting has provided useful insights and reflects statistics observed by the mission, but scope exists to expand data gathered.

- Recommendations to improve data granularity (regulatory returns):
  - Consider gathering additional information regularly such as:
    - Data on the total number of e-money accounts
    - Statistics on the total of e-money holdings at the end of the month
    - Data on service interruptions, including the cause of each
    - Whether the reconciliation between outstanding e-money liabilities and float account balances in banks is performed regularly and frequently, including the periodicity of the reconciliation
    - Whether any discrepancies were identified during the above-mentioned reconciliation for the reporting period
    - Track how many customer complaints have been successfully resolved (in addition to total number collected)
    - Data on the primary reasons behind customer complaints (e.g., fraud, service interruptions, issues stemming from agents and other third-party providers, inappropriate disclosure of information or marketing)
    - Statistics on payment fraud, internal fraud incidents and cybersecurity breaches, including a description of each significant incident, the loss incurred or estimated for each, a description of data breaches, and number of e-money accounts affected by these breaches
    - Details of assets and liabilities on the balance sheet, as well as items related to profit and loss

### Reconciliation reporting
- Current status and gaps:
  - It is important to understand how EMIs reconcile their float accounts with the total e-money issued to assess fund safeguarding.
  - Currently, neither the Act nor the NPSR refers to reconciliation activities or includes provisions on how often EMIs need to perform these reconciliations or whether EMIs are required to report discrepancies to the CBB.
  - Terms and conditions individually issued to existing EMIs do require them to carry out regular reconciliations.
- Recommendation on reconciliation:
  - Reconciliation reporting must be improved.
  - The CBB should ensure EMIs conduct reconciliation by the end of each business day and determine steps EMIs need to take if discrepancies exist between total e-money issued and float accounts.
  - The CBB should collect regular reports from EMIs detailing whether any material discrepancies occurred and how frequently over a set period, to identify EMIs with recurring reconciliation issues on a daily basis.

### Supervisory consistency and transparency
- Prior practice:
  - Prior to the implementation of the NPSR, firms conducted e-money activities if they met certain terms and conditions imposed as part of licensing.
  - Terms and conditions served to provide CBB regulatory authority before full regulation development.
  - The CBB continues to impose terms and conditions to new licensees even following NPSR implementation; these are imposed privately to each firm and are generally consistent across firms of the same set but can vary by business model.
- Differences in supervision across firm types:
  - Bank and nonbank EMIs are subject to different supervision:
    - Both are subject to the NPSR and must submit monthly regulatory reporting.
    - Bank e-money issuers are licensed under banking regulation while nonbank e-money issuers are licensed under the NPSR.
    - Supervision of the bank e-money issuer occurs as part of off-site monitoring and on-site inspections of the broader bank; financial statements are collected as part of bank supervision as e-money activities are part of the banks’ balance sheet.
- Recommendation on transparency and level playing field:
  - The mission recommends the CBB issue a public circular or other regulatory document that transparently reflects common terms and conditions provided as part of the licensing process.
  - The CBB should maintain a consistent approach to supervising and oversight of electronic money activities, whether conducted by banks or nonbank entities, to create a level playing field and promote trust and stability within the e-money ecosystem.

### Supervision of fund safeguarding
- Verification and supervisory focus:
  - Verifying the balance of the float account is the fundamental method to ensure EMIs adhere to fund safeguarding requirements.
  - Supervisory activities should include offsite examination procedures and onsite inspections to evaluate policies, procedures, and systems behind reported balances.
  - Procedures should ensure customer funds are not commingled with the EMIs or third-party funds and should validate accuracy of reported numbers and assess risk management and internal controls related to fund safeguarding.
- Legal requirements and gaps:
  - The Act requires the CBB to be satisfied during licensing that an applicant has a mechanism to safeguard funds received from consumers by not commingling them with funds of third parties and insulating them against claims of other creditors of the PSP, particularly in insolvency.
  - The NPSR lacks sufficient clarity on this and whether supervision exists in practice.
  - The CBB’s PSP Supervision Manual emphasizes inspections should cover four key areas but is sparse on detail on how to conduct these inspections.
- Recommendation on segregation of funds:
  - Legal and operational segregation of funds is paramount.
  - While the Act requires customer funds not to be commingled with third-party funds, it should be made clear to issuers of e-money that customer funds must also not be commingled with any of the issuer’s own funds or accounts.
  - This requirement should be explicitly stated in the NPSR.
  - Supervisors should closely monitor whether EMIs are properly segregating customer funds from their own.

*IMF Technical Assistance Report — excerpt provided in content unit*

### 47.        Improving fund safeguarding practices of EMIs will mitigate risks. Supervisors should

### Improving fund safeguarding practices of EMIs will mitigate risks. Supervisors should

### Fund safeguarding: overview and key findings
- Supervisors should examine fund safeguarding practices of EMIs to ensure float accounts held with financial institutions would legally be protected from the claims of other creditors or ensure that e-money customers have a priority over the creditors of the EMI if the EMI becomes insolvent.
- One way to achieve this is by requiring the float account to be a special account (e.g., trust account).
- The mission recommends the Supervision Manual provide more detailed guidance to supervisors on assessing fund safeguarding areas during inspections and outlines methods for reviewing these aspects (see Annex 1).
- The four areas to assess are (i) existence and sufficiency of funds in the float account, (ii) procedures to ensure that the required balance are maintained (reconciliation), (iii) liquidity of the float, and (iv) accurate control and reporting of e-float and client balances, however there is little underpinning detail for supervisors on how this can be conducted.7

### Investment and liquidity of the float
- E-money funds can usually be stored or invested by the EMI in four ways.
- Jurisdictional practice varies: EMIs can deposit float in commercial banks, be mandated to hold float at central banks, be permitted to invest in certain financial instruments, or a mix of these.
- In Belize, terms and conditions issued to existing issuers allow EMIs to invest in other “permitted liquid assets” in addition to maintaining float in a financial institution account, but it does not clarify what the permitted list of investments are; absence of regulatory clarity complicates supervision.
Recommendation:
- The CBB should clarify in a circular or similar regulatory document a list of permitted investments in which an EMI can invest the float.
- Supervisors must ensure effective monitoring of compliance with these rules by enquiring about:
  - the investment policy/strategy (e.g., risk profile, target return, assets);
  - any recent changes (and their reasons) to the policy;
  - the decision-making process.
- Board of directors should approve investment strategy and risk management functions; risk committee, if any, should monitor results.
- Supervisors may request and analyze evidence of investments (e.g., statements of investment accounts, statements of the float account showing transfers to investment accounts), assess performance and level of risk, and confirm information with investment managers.

### Outsourcing to agents and other third-parties
- Agent networks are common for extending services to rural or hard-to-reach populations; the CBB requires these agents to be registered.
- The NPSR requires EMIs to apply to the CBB at least 30 days prior to the date it proposes to outsource any aspect of its operations or payment services, including outsourcing to an agent network manager, and mandates EMIs obtain approval for all outsourcing arrangements without distinguishing between material and immaterial outsourcing relationships.
- Under the NPSR, the agreement between an EMI and an agent cannot be exclusive, so agents are free to work with multiple providers, including other EMIs.
- Requiring pre-approval for each agent appointment could become resource-intensive as the sector grows and may impose excessive burdens on providers and the regulator.
Recommendation:
- To efficiently use limited supervisory resources, supervisors should require EMIs to periodically submit updated lists of agents to the CBB instead of requiring CBB pre-approval for each new appointment.
- The CBB should ensure EMIs establish robust control and oversight mechanisms for agents and monitor their operations for regulatory compliance.
- If an EMI intends to hire an agent already working with another provider, require EMIs to assess the agent’s capacity to handle transactions for multiple providers as part of due diligence.
- The CBB already requires EMIs to conduct due diligence on prospective agents with the EMI liable.

### Inspection reports, templates, and supervisory follow-up
- Current PSP Supervision Manual requires an exit meeting after onsite inspection to communicate findings, conclusions, recommendations and obtain the EMI’s commitment to corrective actions; the team finalizes the inspection report including main deficiencies and findings.
Recommendation:
- The mission recommends the CBB develop a standardized template for inspection reports that outlines inspection objective, scope, techniques used, key findings, and recommendations for corrective actions.
Benefits of a template:
- Ensures consistent structure and format across inspection reports.
- Assists junior and senior supervisors to summarize findings effectively.
- Streamlines reporting, reducing time spent on report preparation and allowing more detailed analysis.
- Helps supervisors quickly identify critical areas and improves communication among CBB supervisors, EMI management, and other stakeholders.

- The CBB should conduct ongoing risk assessments considering results from past supervisory activities (including onsite inspections); risk assessment should be continuous and dynamic to reflect changes in internal operations and external environment.
- Supervisors should consider results from prior supervisory cycles, inspection reports, ratings, and corrective actions when performing risk assessments.

Enforcement and supervisory tools:
- The CBB should use a range of tools to address weaknesses identified during onsite inspections, including:
  - action plans with identified issues, corrective measures, and deadlines;
  - monitoring progress against timelines;
  - proportionate formal enforcement measures for significant or repeated weaknesses, such as imposing fines, requiring additional capital, restricting issuance of new e-money accounts, mandating independent third-party risk assessments, withholding approval for new products or acquisitions, limiting dividend payments, replacing or restricting executives, limiting partnerships with third-party service providers, referring matters to law enforcement, or suspending operations.

### Strengthen domestic supervisory collaboration
- Belize has multiple regulatory and supervisory authorities with sometimes unclear delineation of mandates:
  - many nonbank and capital markets activities fall under the Financial Services Commission of Belize (FSC);
  - insurance and pensions activities fall under the Office of Supervisor of Insurance & Private Pensions (OSIPP);
  - oversight of financial integrity risks is conducted by the Financial Intelligence Unit of Belize (FIU).
- The FSC’s mandate includes payment processing and money transmission services and has been expanded under the Financial Services Commission Act (2023) to include domestic firms conducting domestic activities.
- The CBB and FSC both have mandates over nonbank entities; the telecom regulator is responsible for the parent company of one EMI.
- The delineation between the CBB and FSC regarding supervision of individual providers and payment systems oversight can be unclear; the CBB and FSC currently provide clarity on a case-by-case basis, supported by the Financial Stability Committee and an MoU between relevant members.8
- Mobile network operators (MNO) can establish a subsidiary as an EMI and can offer services to different nonbank and bank EMIs.
Recommendation:
- The CBB and the FSC need to provide clear and transparent guidance on their respective responsibilities in relation to PSPs; more prescriptive guidance to industry may be necessary in future.
- The CBB should consider signing an MoU with the Belize Public Utilities Commission, which oversees licensing and regulation of MNOs, to improve oversight of EMI activities and protection for e-money customers.

### Conclusion and next steps: summary findings and priorities
- There are limited regulatory risks from e-money in Belize given the small size of the market and steps taken by the CBB:
  - There are two EMIs.
  - Only 1.23 percent of all digital transactions by volume and 0.11 percent by value are conducted by these firms.
- A regulatory framework is in place and the CBB is moving toward risk-based supervision (RBS) to reflect growing risks.
- The mission provided recommendations to assist the CBB in strengthening supervision by:
  - improving the granularity of data collections;
  - improving the reconciliation process;
  - clarifying a list of permitted investments and the use of terms and conditions;
  - periodic reviews of the use of agents;
  - developing a standardized inspection report; and
  - supervision of fund safeguarding.
- The CBB has been open and receptive to recommendations but should prioritize areas where risk is growing quickly and in the context of other TA being received.
- The IMF stands ready to provide further assistance if required.

### Annex I: Supervising Fund Safeguarding — methods for CBB consideration9
A. Existence and Sufficiency of Funds in the Float Account
- Compare reports on total e-money issued with reports on the float account balance; analyze bank statements of the float account to:
  - Check float account identification data (e.g., number, branch, account holder) against the float account agreement/contract and periodic reports sent.
  - Check the balance of the float account at several cut-off dates and compare with total reported “total e-money issued” on the same dates to test consistency.
  - Check whether credits and debits are concentrated around reporting dates (e.g., quarterly), which could indicate potential reconciliation issues or intentional mismatches and their concealment.
- These procedures assume that the reported total e-money issued is accurate.

B. Effective Reconciliation Procedures
- Prior to onsite inspection, supervisors should examine policies and procedures outlining the reconciliation process and staff responsibilities; absence of formal policies may result in inadequate fund safeguarding.
- Understand how e-money is created and destroyed.
- Effective automated reconciliation (real time or batch) is expected to minimize errors and delays; robust data security and integrity controls should mitigate fraud and unauthorized access.
- Supervisors should:
  - inquire about encoded rules triggering transfers between the EMI bank account and the float account;
  - identify steps requiring manual intervention to assess risk.
- Possible supervisor techniques:
  - system tests simulating variations in total e-money issued, unauthorized access, and purchases or sales by agents and agent network managers;
  - observing a full manual reconciliation process;
  - reviewing audit trails of reconciliations when automated;
  - reviewing records and explanations for mismatches on specific dates.

C. Governance and Management of Float Account
- Supervisors should ensure EMIs have written policies and operational procedures governing access to and operation of the float account; typically only a few designated employees are authorized to access and transact.
- Access and escalation rules should be commensurate with EMI structure, size, complexity, and reconciliation mechanism; rules should define transactions permitted for each user profile.
- Supervisors can analyze employee lists and user profiles to determine interview targets to assess adherence to policies.
- There should be formal rules for managing funds (e.g., transfers to/from float), including procedures for periodically checking interest or other income flowing into the float account, their withdrawal or distribution, and dealing with errors (e.g., transfers from IT glitches). Supervisors can test EMI policies through system audits.

D. Accurate Control and Reporting of Total E-money Issued and Client Balances
- Maintaining accurate control of clients’ account balances is a fundamental EMI obligation.
- Supervisors should assess whether accurate control of client balances is in place.10
- Compare previously reported total e-money issued on multiple cut-off dates with reports generated upon the supervisor’s request and in the presence of the supervisor directly from the EMI e-money platform.
- Inquire about procedures for producing periodic regulatory reports on total e-money issued, responsible staff, and whether manual procedures are used.
- Ask staff about identified weaknesses (e.g., system incapability of automatically reporting total e-money issued) and, if concerns arise, require staff to simulate report production in front of supervisors.
- Determine if pending transactions (amounts temporarily in suspense or settlement accounts) are included in total e-money issued reported to the supervisor and considered for replenishing the float account.
- Supervisors can probe rules by conducting system tests.

*IMF Technical Assistance Report | Excerpt provided in content unit*

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_Source: https://www.imf.org/-/media/files/publications/tar/2025/english/tarea2025015-print-pdf.pdf_