Page 92 - ITU-T Focus Group Digital Financial Services – Recommendations

ITU-T Focus Group Digital Financial Services
Recommendations

Title of recommendation Adopt clear approach to deposit insurance treatment of DFS stored-value
Working Group Consumer Experience and Protection

Theme Protection of Funds
Audience for recommendation Regulators

Regulators should address legal and customer uncertainties on whether a DFS is or is not considered a deposit
and, taking into account specific country legal and market conditions, adopt a clear approach to the deposit
insurance treatment of digital stored-value products (e.g. exclusion, direct coverage, or pass-through coverage).
If digital stored-value products are excluded from deposit insurance coverage, then alternative mechanisms to
protect customer funds should be in place.

The emergence of a wide range of DFS (e.g. electronic wallets, prepaid debit or virtual cards, online transaction
accounts) has made it harder for authorities, providers, and consumers to clearly identify what products are
legally considered deposits. This issue impacts which products can be covered by deposit insurance and which
providers need to be licensed or prudentially regulated, which in turn could affect access to central bank
facilities, among other regulatory aspects. Regulators thus need to give certainty to all actors and explicitly
indicate whether a new DFS is considered a deposit and, subsequently, the deposit insurance treatment it
will receive.
CGAP has observed that countries with deposit insurance have adopted one of three approaches to digital
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stored-value products: (i) the exclusion approach, whereby such products are explicitly excluded from deposit
insurance coverage, although other measures to protect customers’ stored value are adopted; (ii) the direct
approach, whereby such products are directly insured by a deposit insurer and their providers must be or
must become members of the deposit insurance system; and (iii) the pass-through approach, whereby deposit
insurance coverage “passes through” a custodial account at an institution that is a deposit insurance member
which holds customer funds from stored-value products, to the individual customer of the DFS provider
(although this is not a deposit insurance member).

Countries applying the exclusion approach (e.g., Peru, the Philippines) typically consider digital stored-value
products to be primarily instruments of temporary value storage to make payments or transfers – although here
customer funds are still protectable from some risks associated with the failure of their provider, for example,
by requiring that the digital float be held in a custodial account. Countries adopting the direct approach (e.g.
Colombia, Mexico) emphasize the need to ensure that customers only have access to digital stored-value
products offered in a safe and sound manner by supervised financial institutions. The pass-through approach
is being adopted in countries where digital stored-value products may be offered by nonfinancial firms, such as
MNOs and technology companies (e.g. Kenya, Nigeria). GSMA and the Committee on Payments and Market
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Infrastructures (CPMI) have highlighted the benefits of this approach. It is worth noting that in countries
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where the legal and regulatory framework has been adjusted to accommodate the pass-through approach,

49 Izaguirre, Juan Carlos, Lyman, Timothy, McGuire, Claire, Grace, Dave. CGAP, Deposit Insurance and Digital Financial Inclusion
(2016) http:// www. cgap. org/ publications/ deposit- insurance- and- digital- financial- inclusion
50 Grossman, Jeremiah, GSMA, Safeguarding Mobile Money: How providers and regulators can ensure that customer funds are
protected (2016) http:// www. gsma. com/ mobilefordevelopment/ wp- content/ uploads/ 2016/ 01/ 2016_ GSMA_ Safeguarding-
Mobile- Money_ How- providers- and- regulators- can- ensure- that- customer- funds- are- protected. pdf
51 World Bank Group, Committee on Payments and Market Infrastructures, Payment Aspects of Financial Inclusion (2016) http://
www. bis. org/ cpmi/ publ/ d144. pdf

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