Continuing it the discussion on how regulation seems to be too far behind development in technology, we look at the Deposit Protection Corporation (DPC) and its role in mobile money regulation.
e-Money is not legal tender, it is “a means through which to transact” according to the RBZ; a token system if you must. All the money transacting on mobile money should be backed by real money sitting in a trust account within a banking institution. The trust account is part of a bank’s normal deposits regulated by the National Trust Act and the Reserve Bank Act overall. It is part of insurable deposits covered by the DPC.
In the event of the bank failing, the DPC moves in to liquidate the bank assets according to the Insolvency Act. In an ideal situation, the payment of those deposits is a simple process of listing all the depositors and disbursing equitably.
However, it is not clear whether in liquidation the trust fund goes as one lump sum to the mobile money operator or distributed to individuals. Payout under liquidation are not usually a 100% of original value. If the fund is given the operator are they responsible for filling the gap, because they chose the “wrong bank”?
At the same time, that same trust fund is also under the management of the mobile money operator as an asset in their overall books. In spite of the trust fund regulations that do exist, there is no distinct isolation of the fund in the company’s balance sheet. It is considered like any other entry in the current account.
This exposure may result in an operator for example using the fund to meet other obligation. Should the operator fail, as we have realized is possible in Skwama or Telecel itself, there is no clear priority or preference of the fund in a liquidation process.
Asked a simple question of whether mobile money trust accounts are safe recently, the DPC answered both yes and no. Yes, because theoretically it can be paid from a failed bank and no because the fund cannot be “seized” by the bank or DPC from a failed mobile operator.
Who really has jurisdiction over this fund? Is this fund really secure? Should the fund be given special status? Should both the bank and the operator fail, what happens to the trust fund? Of course the authorities are consulting, liaising, crafting, but the fact of the matter is that this is another real scenario where regulation is either unknown or inadequate in the area of mobile money.
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Never thought of it this way. There is need for legislation to protect depositors as mobile money becomes ever more popular
In the event of a bank collapse, the mobile money company will be responsible for making alternative banking arrangements and ensure that the transacting public is not inconvenienced. The money in the bank, though in trust, will be treated in the same manner that all deposits are treated in failed banks. It is he same as a legal trust account of a law firm having money in a bank that has collapsed. Owners of money in trust will demand their money from the law firm. It is the responsibility of the mobile money company, or the law firm in the example to place trust funds with a stable bank or a bank that does not close. How they do it is their own problem, and that is the risk of the business.
The worst case scenario is when both bank and operator fails.