E-Money: Prudential Supervision, Oversight, and User Protection

Departmental Papers, December 14, 2021

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Canonical URL: E-Money: Prudential Supervision, Oversight, and User Protection

Authors: Marc C Dobler, Jose M Garrido, Dirk Jan Grolleman, Tanai Khiaonarong, Jan Nolte
Published: December 14, 2021
Series: Departmental Papers
DOI: https://doi.org/10.5089/9781513593401.087

Discusses evolving prudential frameworks for nonbank issuers of electronic money (EMIs).
Notes jurisdictional variation: some jurisdictions apply a light-touch approach to regulating EMIs; others apply more stringent requirements to protect electronic money (e-money) users as the sector grows in importance.
Aims to build on previous IMF staff contributions and draw policy conclusions for strengthening e-money regulatory regimes, particularly in jurisdictions where issuers, individually or collectively, have grown to a size to which they are of macro-financial importance.
Structure of the paper:
- Chapter 2: background on development of e-money, its economic benefits, and potential risks.
- Chapter 3: prudential supervision of EMIs.
- Chapter 4: oversight of EMIs from a payments system perspective.
- Chapter 5: potential additional measures for user protection and contingency arrangements for EMI failure.
- Last chapter: policy recommendations for policymakers, especially in emerging market economies and developing countries where EMIs have reached a scale that could have a significant economic impact if they were to fail.

Findings on the sector’s evolution:
- E-money has developed into an important component of payment systems in many jurisdictions.
- Economic benefits and potential risks are central considerations for regulatory design and supervisory approaches.

Core supervisory focus areas discussed:
- Appropriate prudential frameworks for nonbank EMIs.
- The balance between light-touch regulation and more stringent requirements, depending on issuer size and systemic importance.
Emphasis on jurisdictions where EMIs are of macro-financial importance and may warrant stronger prudential measures.

Oversight considerations include:
- Integration of EMIs into the broader payments system oversight framework.
- Risks to payment system stability stemming from EMI operations and failures.
- Need for coordination between prudential supervisors and payment system overseers.

Potential measures for user protection:
- Additional safeguards beyond prudential requirements to protect e-money users.
- Contingency arrangements for EMI failure to mitigate economic impact on users and the payments system.

Target audience: policymakers, especially in emerging market economies and developing countries where EMIs have reached significant scale.
Objective: Strengthen e-money regulatory regimes to address prudential, oversight, and user-protection challenges as EMIs grow in systemic importance.