Legal Update on the National Payment System (Amendment) Proclamation No. 1282/2022
On 22 December 2022, the House of Peoples’ Representatives of Ethiopia ratified the National Payment System (Amendment) Proclamation No. 1282/2022 amending the existing National Payment System Proclamation No. 718/2011.
The bill was anticipated for a long time as it promised to liberalize the digital payment system to foreigners. The fintech sector, at its infancy stage in Ethiopia, is bound to see competition among payment instrument issuers and operators.
The new Proclamation starts by amending different definitions set by the previous Proclamation. Article 2(12) was amended to explicitly include re-insurers, payment instrument issuers, and payment system operators in the definition of “financial institution.” It further clarified the terms “central security depository for government securities”, “operator” and “payment instrument.” New terms such as “foreign currency”, “company”, “electronic money”, “foreign national”, “subsidiary”, and “payment instrument issuer” were introduced in the new amendment.
Payment instrument issuer, as defined under the new Proclamation, means a company or a government-owned enterprise licensed by the National Bank of Ethiopia (NBE), or a bank or a microfinance institution authorized by the National Bank to issue payment instruments. An operator, on the other hand, means the National Bank, a financial institution, or any other company licensed or authorized by the National Bank to establish and operate a payment system including routing, matching, clearing, netting, and settlement of payment instructions or government securities.
The amendment Proclamation broadens the power of the National Bank of Ethiopia (NBE) which was vested upon it under Article 4 of Proclamation No. 718/2011. In a nutshell, the National Bank is mandated to license and authorize both payment system operators and issuers.
Coming to the responsibilities of payment system operators and issuers, the new amendment Proclamation simply reproduced the responsibilities previously imposed on payment system operators to payment system issuers. While these remain the same for payment system operators, the new Proclamation obliges both operators and issuers to apply laws of prevention and suppression of money laundering and financing of terrorism.
Requirements to Acquire a License
Similar to the existing Proclamation, the NBE remains to be the license grantor for applicants to engage in payment instrument issuer or operator services. The NBE is also mandated with prescribing different criteria to issue licenses through directives. The minimum paid-up capital for both services will be set in those directives. Previously, the minimum paid-up capital for such service was set at ETB 50 million. However, it is expected for NBE to come up with a higher requirement for foreign nationals under the planned directives. Likewise, the directives will regulate the employment of ex-pats, outsourcing, and the relationship between the parent company and its subsidiary.
Applicants, which are not financial institutions and government-owned enterprises, need to establish an exclusive subsidiary to get a license. For a government-owned enterprise, a specific regulation will be issued allowing them to engage in such services.
As for foreign nationals, they are allowed to engage in the services by establishing a subsidiary in Ethiopia. Where such an organization is fully owned by foreign nationals, the capital shall be fully paid in foreign currency. However, when the organization is an Ethiopian company partially owned by foreigners, only the aggregate percentage held by the foreigners may be paid in foreign currency.
In this sense, the amendment to the Proclamation liberalized the sector for foreign investors. Distinctly, foreign investors are required to pay an additional license fee in foreign currency as may be prescribed by the NBE Directive.
The NBE, after receiving an application, will consider different technical issues before responding to the application within 60 days. These conditions remain the same under the new amendment.
In principle, cross-border payments are not allowed. Only the NBE is permitted to enter into any operational or system arrangement for routing, clearing, settlement, participation, and management of cross-border payments. However, the NBE is mandated to issue a directive on the issue and may grant written authorization to service providers to engage in cross-border payments.
In addition to that, a payment issuer, upon the written approval of NBE, may facilitate the provision of micro-credit including overdraft, micro saving, micro insurance, inward international remittance, or any other related services digitally in partnership with financial institutions.
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