COLLABORATIVE REGULATION KEY IN BOOSTING CROSS-BORDER PAYMENTS

In the recent years, there has been a strong momentum towards regional economic and financial integration as seen by the developments in the Regional Economic Communities (RECs) on the African continent. This has been followed by the development and implementation of links and interconnections in payments and market infrastructures. Sound and efficient payment systems significantly contribute to the efficiency of financial systems and enhance financial stability. Consequently, well-developed regional payment systems promote cross-border trade and economic and monetary integration by reducing transaction periods and cost; and supporting safety in transaction processing.

Against this backdrop, MEFMI’s Financial Sector Management Programme (FSMP) conducted an East African Community (EAC) sub-regional workshop on cross-border payment systems from the 31 July – 4 August 2017 in Kigali, Rwanda. The workshop, the first of its kind, targeted staff from the EAC Central Banks and Ministries of Finance, involved in the operation, oversight, supervision and legal advisory of cross- border payment systems in the four MEFMI member states – Kenya, Tanzania, Uganda and Rwanda.

The seminar aimed to review the current state of cross-border payment linkages in the region and identify constraints to their development and interconnection; proposing ways for creating the conditions needed to improve and integrate payments and market infrastructures. It further intended to contribute in strengthening the capacity of regulators and policy makers, sensitizing them on their role as operators, payment system regulators and users.

The EAC has launched several initiatives for cross-border payment linkages including the regional gross settlement payment system (EAPS), the EAC Central Securities Depository, cross-border mobile money transfer schemes, and other such interconnections. However, it has been noted that despite the efforts, great challenges still exist in the operationalisation and uptake of these systems with consumers still preferring correspondent banking and other informal payment methods that are costly and inefficient. Weak legal and regulatory frameworks, underdeveloped physical and IT infrastructure, lack of interoperability, are some of the challenges facing countries as they interconnect their payments infrastructures. These deterrents, if not promptly or adequately addressed are likely to slow down the on-going efforts by countries to move towards monetary and financial integration. In addition, while efforts to modernise cross-border payment schemes present immense opportunities, they introduce other regulatory concerns; AML/CFT issues, foreign exchange settlements and consumer protection. These call for the harmonisation and strengthening of cross-border payments operations and oversight.

The workshop was officially opened, on behalf of the Governor of the National Bank of Rwanda (BNR), by the Director General of Financial Stability, Mrs Peace Uwase Masozera. In her remarks, Mrs. Masozera extolled MEFMI for its commitment in building capacity by designing timely products and services in cognisance of emerging developments. She noted that MEFMI’s endeavors promote Central Bank and Ministry of Finance initiatives in building appropriate policy and operational frameworks.

She also commended the central banks in the EAC for the headway made at the national and sub-regional levels to modernize payment systems. She added that the region had seen progression in payment infrastructures, like the Real Time Gross Settlement systems (RTGS), retail payment systems like credit cards and point of sale, and more recently mobile banking services. She added that new models for cross-border remittance transfers had also been launched in various jurisdictions noting the significant role these remittances play in the growth and development of economies especially in developing countries. Mrs. Masozera added that with the emergence of modern technologies, like online banking and mobile telephony, the potential of remittances was increasing. These developments, she discussed, have been inevitably proceeded by the harmonization of regional financial policies, institutions, rules and regulations.

Mrs. Masozera said that market dynamisms and influences as opposed to government interventions, have been the driving force of the emergence and adoption of these new payment services. However, she cautioned that without adequate incentives and strong risk mitigation measures, private players could not be left on their own to penetrate new markets and push the frontiers of the financial services industry. As a regulator and facilitator, the Central bank in collaboration with other policy makers and market authorities needs to provide a level playing field that encourages innovation, competition, interoperability, consumer protection and financial inclusion.

She applauded MEFMI for inviting private players into the dialogue at such forums. This approach provides the platform needed for more collaborative regulation for future market products and services. She stressed BNR’s commitment to work with other central banks and authorities in the EAC in ensuring that cross-border payment systems in the region are modern, safe and efficient.

Speaking earlier, Mr Patrick Mutimba, the Director of the FSMP commended the EAC member states for their efforts in modernizing their cross-border payment systems. He advised that the MEFMI secretariat continues to align its products and services and adjust its approach to capacity building with emerging trends and developments in the region. He, therefore, encouraged that countries fully utilize MEFMI products to optimally benefit from institute’s partnership with its member states. He called attention to the need of harmonized regulatory policies if the goal of regional integration is to be achieved. He commended the BNR for its commitment in spurring cross-border payment systems and the close partnership it has with MEFMI.

The seminar covered various aspects of cross-border payment systems including; technology enablers and emerging trends, AML/CFT considerations for cross-border payments, legal and regulatory issues, lowering the cost of remittances, interoperability in digital financial services; and risks and oversight of cross-border payment systems.

The workshop was attended by 17 participants from seven institutions. The officials were middle-level staff from the Central Bank, Ministry of Planning, and Ministry of Finance/National Treasury.

It was resourced in collaboration with the GSMA, TransferTo, MTN Kigali, SADC and MEFMI. The facilitators, were Mr Brian Muthiora from GSMA, Ms Sandra Yao and Mr Nicolas Vonthron from TransferTo, Mr Norman Munyampundu from MTN Kigali and Mr Josephat Mutepfa from SADC. The MEFMI team comprised of Fellows – Ms Adeline Mukashema and Mr. Amani Itatiro; and from the MEFMI secretariat – Mr Patrick Mutimba and Ms Jackie Kitiibwa. The mix of resource persons helped ensure discussions were multifaceted and was key in drawing out key considerations for creating the enabling environment for cross-border payments to flourish.

The main outcome of the activity was that it helped create the road map on how policymakers, regulators and industry players can join forces to boost cross border payments in the EAC region. A similar event is planned for the SADC member states in 2018.