Mobile money: The regulators’ headache
Customers at a mobile money outlet. The rapid growth in the mobile money sector, pauses a threat to money markets, which according to experts, calls for proper regulation and control.
What you need to know:
Need for regulation. A number of fraud cases related to mobile money have been reported, which calls for an urgent regulation to arrest the situation.
This week, the Commercial Court will issue a landmark ruling on whether telecoms should be allowed to provide mobile money services.
In a suit filed in 2012, Abdul Katuntu and Kimberly Kasana, a businesswoman sued telecoms, Uganda Communications Commissions and Bank of Uganda over the legality and regulation of mobile money.
The ruling comes at a time when there are increased calls for the regulation of mobile money. Similarly, in the Anti-Corruption Court a case of fraud involving MTN is ongoing with the telecom accusing its former employees of defrauding the company of between Shs10b and Shs25b.
The accused are said to have created fictitious mobile money float, creating the largest mobile money fraud case. Float is the amount of money that affords a dealer to conduct transactions of different customers.
According to the 2013 Annual Crime and Traffic Safety report, offenses under mobile money are classified as cybercrimes. The report points out that cyber-crime, among others, electronic fraud, phishing, email hacking, pornography/defamation, offensive communication, mobile money and ATM/VISA account for an estimated Shs18.1b.
Angela Nakatudde, a mobile money agent who operates a kiosk in Kampala has been a victim losing large sums of money to people under false pretense. “I was conned. He came to me, told me he wanted to withdraw. All the while, he was chatting and somehow, I trusted him. So I gave him the money before the transaction and he disappeared,” she narrates. This, according to police, is not classified as mobile money fraud, but rather theft. Such incidences are separated from cyber-fraud.
Light touch regulation
At the moment, there are calls for the regulation of mobile money from Parliament and other individuals. The current regulation, introduced in 2008, they claim, is not sufficient since mobile money is governed by guidelines issued by Bank of Uganda (BOU).
The guidelines, among others, require that a mobile money operator must have a financial institution to partner with in the management of mobile money float. “BoU has only allowed mobile money operations when this is done in partnership with a supervised financial institution. Mobile money operators have to hold, an escrow account in their partner financial institution, the equivalent in value of all the mobile money that they have sold to their customers,” Emmanuel Tumusiime-Mutebile recently told a parliamentary committee that had sought to understand how mobile money is regulated.
The argument by BoU is that since it regulates commercial banks, then in principal, it is regulating mobile money operators by default.
However, Sydney Asubo, the interim chief executive officer of Financial Intelligence Authority (FIA), believes this cannot be an effective regulation approach. “It is not effective enough to regulate mobile money through a third party. There must be heavy penalties which can only be found in the regulations and not guidelines,” he tells this newspaper.
To support Asubo’s view, internal audit reports submitted in the case before the Anti-Corruption Court case indicate that between 2009 and 2011, MTN failed to manage reports by agents.
Some agents, according to records were missing, which meant that the telecom couldn’t effectively play its supervisory role, as BoU requires. Brian Gouldie, the MTN Uganda chief executive officer, recently told this newspaper that the events of that period, which led to the loss of huge sums of money, have been dealt with.
Unexpected mobile money growth
According to Gouldie, the growth in mobile money was largely unexpected, thus: “BoU has to review the regulation. However, the responsibility to look after your money remains with us.” But then, who will be in charge here since the telecom sector, on whose platform mobile money is transacted is regulated by UCC?
The key concern, according to Mutebile, is what mobile money could morph into, if not regulated. “…could eventually challenge the dominance of banks in the provision of other types of services, including deposits. If so, prudential regulation which is focused on ensuring the soundness of the banking system may no-longer be sufficient to protect the safety of customers’ savings or the systemic stability of the financial system and preservation of its critical functions,” Mutebile told a mobile money workshop in February.
The BoU Act is under review and a National Payment Systems Legislation is being developed to cater for specific regulation of mobile money.
Money laundering
According to Asubo, money laundering through mobile money is limited because of the volumes transacted. In a single day, a person can transact a maximum of Shs5m. “How would somebody launder money through mobile money and by how much? The risk to the economy of using mobile money is not that high. If anyone wants to launder money, they’ll go to a bank or go into real estate,” he says.
However, he adds “if someone transacts Shs5m on mobile money daily, then that is a suspicious transaction, which according to the Anti-Money Laundering Act 2014, must be flagged for investigation.
His biggest concern is the companies that use mobile money to launder money. “What worries me are the rogue companies that facilitate money laundering because they take advantage of the system. The risk of employees of telecoms using the mobile money platform to commit fraud and consequently launder the proceeds of fraud,” he adds.
