Payment Services Limited to Offering Payment Solutions, Not Financial Entities

A recent report from the Central Bank highlights the key reporting and disclosure requirements for payment services providers in our jurisdiction. While these entities are not authorized to operate as financial institutions, they must still comply with extensive regulations.

Reporting Obligations

Financial entities offering payment services must file a range of documents and information with the Central Bank, including:

• Financial statements
• Capital adequacy reports
• Exchange transactions data
• Forward transactions records
• Consumer credit status updates
• Rejected cheque notifications
• Import monitoring system data
• Liquidity ratio reports
• Periodic position of treasury bills updates
• Net stable funding ratio information

Organisational and Governance Requirements

The Central Bank has established two categories of organisational requirements: Group A entities with assets valued at 1% or more of the total financial system assets, and Group B entities.

• Group A Entities: Must have a clear separation between their executive and administrative functions.
• Group B Entities: Do not require this segregation.

Risk Management Requirements

Financial entities offering payment services must implement a comprehensive risk management process that includes oversight by the board and senior management to identify, evaluate, follow up, control, and mitigate all significant risks. This process must be adequate for the size and economic importance of each entity, as well as the nature and complexity of its operations.

Internal and External Audit Requirements

Financial entities must perform both internal and external audits.

• Internal Audits: Regulated by the Central Bank’s Regulation on Minimum Requirements of Internal Audits.
• External Audits: Governed by the Regulation on Minimum Requirements of External Audits.

Senior Management Requirements

The Central Bank has established key requirements for the management structure of financial entities offering payment services, including:

• Evaluating annually whether the corporate governance code is appropriate to the entity’s profile, complexity, and importance
• Monitoring the entity’s risk profile
• Avoiding conflicts of interest
• Committing time and dedication necessary to fulfill responsibilities
• Promoting training and development for executives

Senior management must also ensure that the entity’s activities are consistent with its business strategy, implement policies, procedures, processes, and controls necessary to manage operations and risks in a prudent manner, monitor managers, and establish an effective internal control system.

Executive Compensation Regulation

Compensation in the banking sector may be freely determined by each financial entity. However, the compensation of directors cannot exceed the limits established by the General Companies Law, which states that the maximum compensation for directors and supervisory board members cannot exceed 25% of the entity’s profits.

Conclusion

In conclusion, while payment services providers are not authorized to operate as financial institutions, they still must comply with extensive regulations regarding reporting, organisational, governance, risk management, internal and external audits, senior management, and executive compensation. It is essential for these entities to understand and adhere to these requirements to ensure the stability and integrity of our financial system.