25th AUGUST 2021
Dr Tumubweinee Twinemanzi is the Executive Director Supervision, Bank of Uganda, where he is tasked with providing oversight over the prudential operation of commercial Banks and Non-bank financial institutions and monitoring the state and degree of stability of the financial sector. As Executive Director Supervision, his brief includes ensuring that financial sector regulation as conducted by the Central Bank is cognizant and adaptable to the dynamism and innovation in how financial intermediation is conducted in Uganda.
Here Dr Twinemanzi spares a moment to answer some consumer questions…
MTN and Airtel recently separated mobile money services from their main telecommunication businesses; what is the reason for this, and where can consumers of these services seek redress?
Prior to the recently enacted National Payment Systems Act 2020, Mobile Network Operators (MNOs) provided mobile money services. On closer scrutiny of the applicable business processes, this was actually a payment service within the broader meaning of financial institution business as defined in the Financial Institutions Act 2004 (FIA 2004).
However, payment services provided by MNOs using their network infrastructure was an innovation never envisaged nor imagined when the FIA 2004 was enacted. Although the Uganda Communications Act 2013 that governed the conduct of the telecommunication sector regulator (UCC) was more recent, its focus, and rightly so, was on the regulation of telecommunication services. So, there was a situation where a licensee of UCC was providing a service categorised as “financial institution business” that should have been regulated by the financial sector regulator, Bank of Uganda (BOU), but was not.
More so, this mobile money service was gaining traction in the economy to the point of becoming a source of systemic risk, with the upside of reaching formerly financially excluded economic agents at a very low cost with relative ease of adoption.
While this lacuna in the law could have been remedied by amending the existing law to require the MNO providing this payment service to be subject to regulation by BOU, it would have created a situation where one entity was subject to two different regulatory regimes, with sometimes contradicting objectives.
In order to avoid the possibility of the conundrum that would arise, functional separation was the silver bullet. Under functional separation, the mobile money business arm of an MNO was hived off and reconstituted as a separate entity that would then be subject to regulatory and supervisory direction by BOU.
The ownership of this reconstituted mobile money division as an independent corporate entity was immaterial as long as it complied with the provisions and requirements of the revised regulatory framework. This, in a nutshell, was and is the motivation for the separation of mobile money services from the main telecommunication business of MNOs.
Consumers of mobile money services provided by these “regulated Mobile Money service providers” must first raise and seek their complaints with the service providers since it is the entity with which they have contractual obligations. Then, only if the remedy provided by the service provider is deemed inadequate or unsatisfactory should the customer raise the complaint to the regulator, in this case, the Bank of Uganda. In other words, the service provider is responsible and accountable for first level complaint resolution, and the regulator comes in at the second level in this redress regime.
How does the Central Bank collaborate with other stakeholders to protect users of digital financial services from fraud?
First, the Bank of Uganda has information-sharing agreements and collaboration arrangements with peer Central Banks in the EAC region. Similar information sharing agreements exist with the parent companies’ home regulators whose subsidiaries it supervises and regulates in Uganda and with other financial sector regulators in Uganda.
Second, in the regular conduct of risk-based assessments (onsite and offsite) of its licensees, BOU determines their compliance with regulations, directives and guidelines it has issued on matters of operational risk. This broad risk category includes fraud. Where gaps or shortcomings and/or non-compliance events are identified or anticipated, especially with regard to the likelihood of fraud, BOU directs on required corrective actions with timelines and enforces compliance. In addition, BOU regularly assesses the efficacy of the existing risk management mechanisms that Supervised Financial Institutions (SFI) have in place.
A key component of this assessment is to ensure that the risk management mechanisms or frameworks used by SFIs ameliorate or lessen in a material manner the impact on customers of actual or potential fraud arising from the exponential growth of, and reliance on, digital financial services.
What Industry trends are you most excited about?
Cloud computing, Big Data Analytics and Artificial Intelligence. The first, by allowing supervised financial institutions, and we as their regulators, to focus on core mandates and competencies. This is equivalent to “outsourcing” network architecture and application design and maintenance to entities best placed to manage the associated risks and possess the relevant skillsets.
The second is Big Data analytics, both static and predictive, enabling both the regulator and the regulated to better “mine” the voluminous amounts of transactional data they generate. This “mining of data” provides insights central to the competitive advantage and agility in responsiveness to SFI consumers’ needs. These needs include but are not limited to; quality of service considerations, empirical-based decision making, effective risk identification and mitigation, and the conduct of forward-looking assessments of the impacts of current and future developments. These benefits also extend to how regulators conduct their supervisory functions.
Lastly, the inferential ability and capacity that Artificial Intelligence brings to the supervisory function of a financial sector regulator is cause for excitement, especially on the ability for learning and understanding behavioural science influenced aspects of regulated entities.
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