Why developing Fintech code of conduct is a good thing

The Financial Technology Service Providers Association (FITSPA) has partnered with Financial Sector Deepening Uganda (FSDU) to develop an industry code of conduct for all service providers in the sector. The code of conduct will be mandatory and apply to all full members and start-up members of FITSPA who are in the business of providing financial services (Fintechs).

It will, among other things, cover some of the following service providers: digital and mobile payment providers, payment gateways, e-money, cross-border payment providers, digital credit or savings, InsureTech, blockchain-based finance and crypto-assets, digital microfinance, digital pension and savings platforms, P2P lenders, and crowdfunding platforms.

In simple terms, a code of conduct is a set of rules and measures which are put in by members of certain industry or sector to regulate the conduct of members in that sector. Its main purpose is to improve the sector by providing a low-cost and flexible form of regulation and protect businesses and customers of that sector. The intended code of conduct is, therefore, important for three primary reasons.

First, it will in the short-term fill the regulatory gap in the sector. Presently, there is no comprehensive law to regulate Fintechs in Uganda. The only semblance of Fintech regulation is in the form of the Mobile Money Guidelines (which are technically not law), and which are directed to only a small sphere (mobile money) of the financial technology spectrum. They do not cover other forms of financial technology.

Another form of regulation is the licence for the provision of Digital Financial Services recently introduced by the Uganda Communications Commission. This, however, is yet to be implemented and its precise scope is unknown. The result of this gap has been a regulatory free for all where anything goes.

And that is where the code of conduct comes in handy. It will address issues that should ordinarily be found in a proper regulation. It will set out the responsibilities of the Fintechs that have subscribed to it with the purpose of ensuring compliance with any existing laws and regulations as well as further strengthening of prudent and reliable business conduct.

Specifically, the code will provide clarity on the contractual arrangements that govern their relationships with clients; consumer protection and transparency of prices; resilience of underlying IT systems and cyber security standards; confidentiality of personally identifiable and sensitive information and data protection; confidentiality of commercially sensitive information; good governance and business conduct practices, including involvement of third-party providers; fair competition; reliable Anti-Money Laundering practices.

Secondly, it will create a sense of self-awareness and self-accountability among the Fintechs, which will in turn provide greater customer assurance and grow trust in this emerging industry. This will ensure that the industry remains viable and sustainable in the long-term. We are aware that there is a National Payments Systems Bill, which is being discussed in Parliament.

This Bill, if passed into law, will help regulate the payments sector in which the majority of the Fintechs fall and, therefore, address the regulatory gap in the sector. But even with this law, if it finally comes, the code will still be vital.

Thirdly, the code goes further than and instils a sense of community building. One of the key objectives of the code will be to require Fintechs to support the establishment of literacy programmes and the enabling of financial inclusion. This is very important.
The biggest population of Uganda is unbanked; they have no access to banking services and bank accounts and are therefore financially excluded.

Mr Kalule is secretary, FITSPA.
He is also a lawyer.