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A Guide to Supervising E-Money Issuers

Although a specialized regulatory window for e-money issuers (EMIs) has been recognized as a key regulatory enabler for inclusive digital financial services, regulation alone is not enough. It needs to be complemented by an efficient and effective supervisory regime to enforce compliance. While there is a solid body of evidence about how to regulate EMIs, much less guidance exists on how to supervise them. The role of supervision is to (i) ensure risks are identified, managed, and mitigated by EMIs; (ii) enforce compliance with regulatory requirements; and (iii) manage EMI crises. Proportional, risk-based supervision helps EMDEs keep e-money markets safe while advancing financial inclusion.

EMIs—which could be banks or nonbanks—have, by regulation, a much more limited scope of activities than banks. By posing less risk and being less complex, EMIs warrant a lower level of supervisory attention. A key regulatory provision is fund safeguarding rules that require EMIs to back e-money liabilities with safe and liquid assets. If such fund safeguarding requirements are effectively implemented by EMIs, the risk of clients losing their money is curtailed significantly. Hence, ensuring compliance with fund safeguarding requirements is a key aspect of EMI supervision.

This guide does not present a single recipe for the scope and depth of EMI supervision, as it recognizes the differences in risk depending on the EMIs’ scope of operations and scale and country-specific factors that may impact how EMI supervision is done. As in other areas of supervision, following a risk-based methodology is key, because it requires supervisors to allocate their scarce resources to areas of highest risk (i.e., on the most important EMIs and their highest risks). The level of supervisory intensity will vary across EMIs: offsite monitoring and enforcement of fund safeguarding rules might suffice for most EMIs while other (larger, systemic, or problematic) EMIs may require periodic, in-depth examinations. Country-specific factors such as concurrent supervisory priorities and available expertise also matter in achieving proportionality. Lastly, effectiveness in EMI supervision depends heavily on the availability of good data about EMIs and their operations.

This guide draws on the authors’ own experiences, interviews with EMI supervisors, and available literature to provide guidance to EMDE supervisors who wish to design a proportional approach to EMI supervision. While it does not provide detailed guidance on all areas of EMI risk, it can serve as a reference for drafting or improving EMI examination or offsite monitoring manuals in the following key areas of EMI supervision: fund safeguarding, operational risk, anti-money laundering and countering of financing of terrorism, and assessment of EMI performance. The guidance, particularly the detailed examination procedures described in this paper, should be used wisely in accordance with the risk-based approach to supervision adopted in each country.

Website photo by Sudipto Das, 2015 CGAP Photo Contest
Topic: Policy

Resources

Publication

This Technical Note looks in detail at safeguards such as maintaining customer funds in bank accounts and diversifying funds across several banks to reduce the concentration risk. It also discusses the option – offered in some countries – of placing funds in other safe, liquid assets.