Legal regulation of bank agents

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  • 1. Legal regulation of bank agents:Current legislation and recommendations for the future Moscow20111

2. Russian Microfinance Center, Institute for Financial Technologies, 2011 This Survey was conducted within the framework of the Project Promotion ofInnovative Regulation and Supervision over the Activity of Bank Agents to Improve Access toFinance in Russia by the Ministry for Economic Development of the Russian Federation jointlywith the Alliance for Financial Inclusion (AFI) to implement the provisions of the SeoulDevelopment Consensus approved by the G20 countries at the Summit in Seoul in November2010 and provide for the development of innovative financial instruments. The RussianMicrofinance Center (www.rmcenter.ru) acts as a partner in this Project.The Alliance for Financial Inclusion (AFI) is a global network of central banks and otherfinancial policymaking institutions in developing countries. AFI provides its members with thetools and resources to share, develop, and implement their knowledge of financial inclusionpolicies proven to work. AFI connects policymakers through online and face to face channels,supported by grants and links to strategic partners, so policymakers can implement the mostappropriate financial inclusion policies for their countrys individual circumstances.AFI is funded by the Bill & Melinda Gates Foundation and administered by the GIZ(German International Cooperation). You can read in greater detail about goals and objectives of AFI and the principles of theSeoul Development Consensus at www.afi-global.org news.kremlin.ru/ref_notes/769. 2 3. Table of contentIntroduction ..4 Key conclusions and recommendations.. ......................................... 5 Opening of a bank account and access thereto via an agent ............................................ 9 Client identification ....................................................................................................... 11Procedure of client identification by a bank .............................................................. 13Delegated identification under the banking legislation .......................................... 15Identification of clients by communications facilities operators ............................... 16Identification of recipients and senders by the Post of Russia .................................. 17 Payment services ........................................................................................................... 17Concept of settlements and settlement legal relationships ........................................ 18Transfers without opening a bank account ................................................................ 20Bank payment agents ................................................................................................ 22Postal orders............................................................................................................... 26Payments with the use of a current account ............................................................... 27Internet and mobile banking ...................................................................................... 28Payment cards ............................................................................................................ 29 Universal electronic payment card ................................................................................ 35Providing public and municipal services in electronic form ..................................... 35Banking services with the use of universal electronic card ....................................... 363 4. Introduction The banking sector has always been a major provider of financial services to thepopulation of Russia. It accounts for the overwhelming volume of operations relating tocrediting, accepting savings of individuals on deposits, performing settlements and moneytransfers. Apart from credit institutions, loan operations and acceptance of savings fromindividuals may be performed by law by credit cooperatives (only from the members thereof)and microfinance institutions (in the amount exceeding 1.5 million rubles):however, the volumeof such operations does not exceed 1% of bank deposits. About half of the settlements of thepopulation with housing and utility organizations and fixed-line telephony services operators areperformed via credit institutions. Credit institutions have an exclusive right to perform forexoperations. As of 1 January 2011, 2,926 subsidiaries of credit institutions operate in the territory ofthe Russian Federation. Services are provided to individuals in internal structural units of creditinstitutions, including 22,001 in subsidiary (supplementary) offices, 11,960 in cash offices,1,389 in credit-cash offices, 2,994 in back offices. Legal provisions that came into force on 1 January 2010 and regulate the activity of bankpayment agents opened up new possibilities for credit institutions regarding the expansion of thepresence thereof in the regions, creation of new additional channels for supply (sale) of bankservices, moving closer to those potential clients who so far have not been covered by banking(financial) services. This, in its turn, will allow to resolve the issue of enhancing accessibility tobank services with greater flexibility and at a qualitatively new level, without excessive costs andcreation of new bank branches and offices. Pursuant to Article13.1 of the Federal Law On banks and banking activity a bankpayment agent accepts money from individuals as payment for goods (work, services), taxes,fines, etc., and also to be credited on a bank account. Apart from that, bank payment agents havethe right to perform operations with bank cards and transfer instructions regarding suchtransactions. Replenishment of bank accounts via agents, and performing with the participationthereof of all the spectrum of operations with cards opens up possibilities to create on their basisnew channels for selling any bank services. This Survey studies new legal prerequisites for the activity of bank agents in Russia.Insofar, a bank agent shall be understood to mean a legal entity or an individual entrepreneur, who on the basis of a paid-services contract concluded with a credit institution, participates in bank operations (transactions) performed by a credit institution with individuals, and also accepts money from individuals for the account of execution of obligations on such transactions, or pays money to individuals for the account of execution of obligations by a credit institution. For the purpose of this Survey it is necessary to study legal possibilities for attractingagents to perform all kinds of operations (services) provided by credit institutions: - depositary, i.e. operations to attract the funds of individuals to savings (deposit) accounts, - loan, i.e. operations on issuing loans; - payment, i.e. operations relating to making payments and executing money transfers; - investment, i.e. operations to manage funds and securities of individuals. The necessity to open (use) a bank account, i.e. concluding a bank account agreementbetween an individual and a bank, will be a major criterion for practical classification of theabove operations. Hence, all the services provided by banks to the clients thereof with theparticipation of bank agents are subdivided into two groups:4 5. - services for the provision of which it is required to open a bank account; - services for the provision of which it is not required to open a bank account. Among the four groups of operations (services) those should be singled out that inprinciple cannot be provided without the opening of bank accounts: services relating to deposits,and most likely, investment services (it is necessary to open a savings (deposit) account to safekeep securities). Loan operations may be performed with cash when a loan is issued and repaidwithout the opening of a bank account. This possibility is provided by law. However, in real lifesuch products are offered by microfinance institutions and rarely by banks. Payment services hold a special place in the activity of bank agents. One might say that inRussian practices bank agents grew out of the payment sphere. Similar processes occurred inthe markets of retail financial services in Brazil, Mexico and a number of other countries.Payment services are in greatest demand of the population, therefore the supply thereof at thetime of launching new business models produces the best possible commercial effect. Payment operations are the basis for offering other banking products, since both increditing and in operations on deposits there is a transfer (movement) of funds. Generally speaking, payments may be executed in non-cash form, that is, via bankaccounts, and without the opening of a bank account. In retail payment sector three models aredominating which have different legal basis: -payments via bank accounts with the use of bank cards; -money transfers without the opening of a bank account, for instance, payments for housing and utility services; - payments via payment agents for acceptance of payments of individuals and bankpayment agents (including payments via terminals), for instance, payments for mobilecommunications services, housing and utility services, etc. Absence of a law on the national payment system creates a considerable legal ambiguity.The State Duma adopted this draft law in the first reading on 10 December 2010. The law, mostprobably, will finally establish a legal regime for the functioning of the mobile payment systems,e-money and terminal payments. This Survey studies the Russian specifics of legal regulation of the banking activity andout-of-the-office (branchless) provision of services, in parallel analyses the current status of theretail financial market and gives an overview of the accumulated world expertise in the area.Only such an approach allows to form an integral picture of regu