CB UAE's Retail Payment Systems- 10 Takeaways

This week, the Central Bank of UAE (CBUAE) released the Retail Payment Systems Regulation (RPS) (Regulation) (link) which governs RPS, defined to include systems which handle low-value, high volume payments such as cheques, credit transfers, direct debit, card payments, amongst other things. This regulation comes in consonance with the SVF regulations, the Crypto-Assets Guidelines and the Large Value Payment Systems Regulations. Together, these instruments indicate that UAE is moving quick to establish itself as a leader in blockchain, crypto and fintech. Here are the top 10 takeaways from the Regulation.

 

  1. Systemically Important Payment Systems (SIPS) defined: The weight of the Regulation seems to be focused on regulating systemically important payment systems, which it defines a ‘Financial Infrastructure System’ which can trigger or transmit systemic disruptions to UAE’s monetary and financial stability. This may include systems that are the sole Financial Infrastructure System in a jurisdiction or the principal system in terms of the aggregate value of payments, and systems that mainly handle time-critical, high-value payments or settle payments used to effect settlement in other Financial Infrastructure Systems.
  2. Definition of Financial Infrastructure Systems (FIS) kept wide: The Regulation states that FIS include RPS and clearing and settlement systems. It also goes a step further and gives examples of systems which may qualify as RPS. These include – electronic fund transfer systems, payment card systems, clearing and settlement systems specifically meant for SVFs, and payment gateways.
  3. Broad criteria for identifying SIPS laid down: The Regulation lays down broad criteria to delineate SIPS. These include the number, and aggregate and average value of transactions, it’s replaceability by another payment system in the state, whether it undertakes cross-border activities, whether it is linked to any designated payment system, and the estimated number of participant persons, amongst other things. 
  4. RPS operated by banks not to be licensed or regulated: Any RPSs which are operated by licensed banks will be exempt from this regulation. This is because such banks are already subject to CBUAE’s prudential supervision. That said, if a licensed bank provides RPS services to other entities, then they would fall under the Regulation’s ambit.
  5. Payment systems run by stored value facility (SVF) providers not likely to be designated: The Regulations state that to avoid regulatory overlap, any payment system operated by an SVF is not likely to be ‘designated’ since they are already covered by the SVF regulations. Whether this means they will not be licensed at all or will only not be designated is ambiguous – but on the whole, this is good news for SVF providers.
  6. Compliance with Principles of Market Infrastructure (PMFI) requirements: The Regulation states that designated RPS (which we understand to mean systemically important RPSs) are required to comply with the relevant principles of the PMFI to limit systemic risk, foster transparency and financial stability.
  7. General requirements for RPS: Licensed RPS must comply with 16 principles laid down in the Regulation, including comprehensive risk mana
  8. Transition period: A one-year transitional period will commence on the date the Regulation comes into force i.e. January 10, 2021. System Operators and Settlement Institutions of any existing RPS operating in the State may continue operating throughout the transitional period without being regarded as contravening this Regulation. Nevertheless, they are required to obtain a license from the Central Bank to operate their RPS before the expiration of the transition period.
  9. Designation: Further, please note that if the Central Bank considers that a Financial Infrastructure System fulfills the criteria for designation as provided for under the Central Bank Law, the Central Bank shall have the power to require any such system to obtain a license within a reasonable period to be determined by the Central Bank before the expiration of the transition period.
  10. Other requirements: in addition to the license, the Regulation lays down multiple requirements in terms of operations, management, data, security and reporting.

 

 Authored by Ratul Roshan (Associate) with inputs from Akshata Namjoshi (Lead: Fintech, Blockchain & Emerging Tech)

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