Legal and Regulatory Framework for Payment Systems
Due to the importance of the payment system to the economy, appropriate regulation is essential to ensure safety, and efficiency of the NPS. Effective regulation starts with a sound legal and regulatory framework.
The Principles of Financial Market Infrastructure (FMI) emphasise the importance of a sound legal and regulatory framework for payment systems and Principle 1 requires that an FMI should have a well-founded, clear, transparent, and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions, implying that:
a) The legal basis should provide a high degree of certainty for each material aspect of an FMI’s activities in all relevant jurisdictions.
b) An FMI should have rules, procedures, and contracts that are clear, understandable, and consistent with relevant laws and regulations.
c) An FMI should be able to articulate the legal basis for its activities to relevant authorities, participants, and, where relevant, participants’ customers, in a clear and understandable way.
d) An FMI should have rules, procedures, and contracts that are enforceable in all relevant jurisdictions. There should be a high degree of certainty that actions taken by the FMI under such rules and procedures will not be voided, reversed, or subject to stays.
e) An FMI conducting business in multiple jurisdictions should identify and mitigate the risks arising from any potential conflict of laws across jurisdictions.
A review of the payment system legal and regulatory framework in Uganda currently shows that there are several pieces of legislation that are relevant to the regulation of payment systems and they include: the Bank of Uganda Act; the Financial Institutions Act (2016); the Electronic Transactions Act (2011) which governs the use, security, facilitation and regulation of electronic communications and transactions; Computer Misuse Act (2011) which makes provision for the safety and security of electronic transactions and information systems to prevent unlawful access, abuse or misuse; the Contracts Act (2010); the Electronic Signatures Act (2011) and Anti-Money Laundering Act (2013). These various pieces of legislation appear to give some protection but do not address constraints to, or support, the operation or future development of the payment systems, however there is hope.
Currently Bank of Uganda has embarked on the amendment of the bank of Uganda Act to ensure payment systems are brought into the realm of Bank of Uganda regulation. Bank of Uganda working with Ministry of Justice and Ministry of Finance Planning and Economic development has embarked on drafting the National Payment Systems bill which will be enacted into a Payment Systems Law. The Payment System Law will be a comprehensive charter for the Bank of Uganda to operate, supervise, regulate and oversee the various payments systems in Uganda. Passage of this Law is critical to the future of payment systems in Uganda. The NPS Act will grant Bank of Uganda the legal mandate to perform licensing of payment system providers, payment service providers, and e-money issuers. It will also grant Bank of Uganda the mandate to impose regulation in the form of norms and standards for providers of payment system services, to request and gather payments related information, conduct on-site and off-site examinations or take enforcement actions. This will have a significant impact on the overall safety and efficiency of payment systems in Uganda.