November 7, 2019

Bank of Tanzania: Notice on the Prohibition of Operating Payment System Instruments Update

In this month’s legal briefing, we set out the additional requirements imposed on payment system providers by the Bank of Tanzania (the BoT). In exercising the powers conferred to it under Section 15 of the National Payment System Act 2015 (the Act) and Regulations 22 and 29 of the Payment Systems Licensing and Approvals Regulations 2015 (the Regulations), the BoT has prohibited payment system providers from engaging, partnering or entering into agreements with other entities prior to obtaining approval or a licence from the BoT. The additional requirements are set out in the BoT's notice, number LB.178/179/01/8 which was issued on 15 October 2019 (the Notice).

The Bank of Tanzania exercising its powers under the National Payment System Act of 2015 and the Payment Systems Licensing and Approvals Regulations of 2015 have issued additional requirements via a notice dated 15 October 2019 prohibiting payment system providers from engaging, partnering, or entering into agreements with other entities prior to obtaining approval or licence.

The Notice follows the enactment of the Act for which we provided an updater on 01 June 2016. Please refer to our previous updater here.

In summary the Notice:

  1. requires all payment system providers in Tanzania to apply in writing to the BoT to obtain approval or a licence from the BoT prior to engaging, partnering or entering into agreements with other entities to operate payment systems
  2. prohibits all operations of any payment system instruments which have not been approved by the BoT

Key definitions under the Act

  • A payment instrument is an instrument in electronic or written form used for ordering the transmission or payment of money
  • A payment system is a facility consisting of payment instruments, banking and transfer of money procedures, interbank funds transfer systems or payment system provider’s systems that ensure the circulation of money
  • A payment system provider is a body corporate that provides electronic payment services licensed under the Act

Criteria for obtaining approval or licence for a payment system

A person eligible to operate a payment system shall be a body corporate incorporated under the laws of Tanzania either as a bank/financial institution (by obtaining approval from the BoT under Section 15(2)(a) of the Act) or a non-bank/non-financial institution (by obtaining a licence from the BoT under Section 15(2)(b) of the Act). To be eligible for approval by or a licence from the BoT a payment system must have as its object one or more of the following (Section 6 of the Act):

  1. settling obligations arising from the clearing of payment instructions
  2. clearing payment instructions between financial and non- financial institutions
  3. transfer of funds from one account to another using any electronic device
  4. provision of technological services to facilitate switching, routing, clearing, data management for and on behalf of a payment system provider
  5. facilitation of interoperability of payment systems and services between payment system providers and consumers
  6. provision of electronic payment services to the unbanked and under banked population
  7. establishing a payment clearance house
  8. provision of financial communication network
  9. any other object that may be prescribed and directed by the BoT for the payment system provider to incorporate

Eligibility of an electronic payment instrument to obtain an approval or a licence

An electronic payment instrument shall be eligible for approval by or a licence from the BoT, if it is capable of performing one of the following (Section 16 of the Act):

  1. ordering or transmitting payment instructions
  2. storing information on a device for the purpose of effecting payments
  3. fulfilling payment obligations on point of sales, merchants outlets or over the internet
  4. having any other ability that the BoT may prescribe

Approval / Licence of payment systems

The Notice specifically serves as a reminder to all payment system providers to obtain the necessary approval or licence as set out under Regulations 22 and 29 of the Regulations.

We set out below the procedure for obtaining a payment instrument approval/licence, as referred to in the Notice:

Approval / Licence Bank or financial institution procedure Non-bank or non-financial institution procedure
Approval/licence to issue a payment system instrument

1. Application Form - Fill in the application form (Form E) as set out in the Second Schedule of the Regulations (Section 22(1) of the Regulations)

1. Application Form - Fill in the application form (Form F) as set out in the Second Schedule of the Regulations (Section 29 and 30(1) of the Regulations)

 

2.  Documents - Attach the following accompanying documents as prescribed in the Regulations:

  • a copy of a payment system provider's licence
  • the type of payment instruments intended to be issued in accordance with the Act
  • risk management plans commensurate with the payment instrument
  • customer terms and conditions that include disclosure requirements, complaints, disclosure and redress mechanisms
  • mechanisms for issuing and acquiring payment instruments
  • draft merchant and agent agreements
  • payment instrument process flows
  • pricing policies that include the variables used to arrive at a price and the nature of and amount of charges or fees imposed to customers
  • any other information the BoT may require (Section 22(2) or Section 30(2) of the Regulations respectively)

3. Satisfaction Criteria - In reviewing the application the BoT must satisfy itself that:

  • the applicant is capable of issuing the payment instrument in a secure and efficient manner
  • the applicant's risk management measures are adequate, including anti-money laundering and combating financing of terrorism risk
  • the payment service provider is safe and financially sound
  • the applicant's system will not impair the BoT's ability to effectively monitor compliance with the Regulations
  • any other factor as may be determined by the BoT (Section 23(2)(a) – (e) or Section 31(2)(a)-(e) of the Regulations respectively)

4. Decision - The BoT shall, within ten (10) days either grant or reject the application. If the application is accepted the BoT will issue an approval certificate and if the BoT rejects the application it shall notify the applicant in writing and give reasons for the rejection (Section 23(3) – (5) or Section 31(3) – (5) of the Regulations respectively).

5. Further Review of Decision - An applicant may within thirty (30) days of the date of the notification apply to the BoT for a review of its decision. The BoT shall then provide its decision within thirty (30) days (Section 24(1) or Section 31(1) of the Regulations respectively).

For ease of reference, the procedures for obtaining additional approvals/licences in respect to payment systems are summarised below. This table is applicable to those entities which, for example, require a payment system approval/ licence as this is a prerequisite for the payment instrument approval/licence, as set out in the table above.

Payment system licence

Electronic money issuer licence

  1. Establish a trust entity separate from the common business
  2. Obtain network services or application services licence from the Tanzania Communications Regulatory Authority
  3. Fill in the application form (Form A)
  4. Attach the accompanying documents prescribed under regulation 6 of the Licensing Regulations
  5. Pay the application fee
  1. Fill in the application form (Form C)
  2. Attach the accompanying documents prescribed under Regulation 13 of the Electronic Money Regulations

 

Fees for the payment system and the payment instrument approvals or licences (First Schedule of the Regulations)

Please note that an approval/licence is valid for five (5) years unless otherwise suspended or revoked by the BoT (Section 7(6) of the Act).

Category of payment system provider based on services

Approval / Licence fees in Tanzanian Shillings (TZS) / United States Dollars (USD)

Approval / Licence Renewal fees

Inter-institutional payment systems

TZS 5 million (equivalent to approximately USD 2,174)

TZS 5 million (equivalent to approximately USD 2,174)

Intra-institutions payment system

TZS 1 million (equivalent to approximately USD 438)

TZS 1 million (equivalent to approximately USD 438)

Payment system data management

TZS 5 million (equivalent to  approximately USD 2,174)

TZS 5 million (equivalent to approximately USD 2,174)

Remittance

TZS 1 million (equivalent to approximately USD 438)

TZS 1 million (equivalent to approximately USD 438)

Approval / Licence fees for the electronic money issuance licence (First Schedule of the Electronic Money Regulations 2015)

 

Approval / Licence fees in TZS / USD

Approval / Licence Renewal Fee

Minimum Capital

Electronic money issuance approval / licence

TZS 2 million (equivalent to approximately USD 870)

TZS 2 million (equivalent to approximately USD 870)

TZS 500 million (equivalent to approximately USD 217,391)

Penalties for operating payment system instruments without an approval or a licence

Payment system providers who operate payment system instruments without an approval or licence from the BoT shall be liable for:

  1. a fine of not less than TZS 50 million (equivalent to USD 21,800) or imprisonment for a term not exceeding five (5) years, or both for natural persons

  2. a fine not less than TZS 500 million (equivalent to USD 217,391) for body corporates
    (Section 20(a) and (b) of the Act respectively)

This briefing is prepared for clients and contacts of Clyde & Co Tanzania. We aim to keep our clients abreast of developments in Tanzania as they happen and if you have any questions on the issues raised above please contact us directly.

Further advice should be taken before relying on the contents of this summary. Clyde & Co Tanzania accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this summary. No part of this summary may be used, reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, reading or otherwise without the prior permission of Clyde & Co Tanzania.