Standards for Supervision of Non-Banking Institutions for Payment with Electronic Money

This regulation governs how non-bank companies offering electronic money through mobile phones must operate in Honduras. It establishes capital requirements, fund segregation, user protection, and supervision standards. It aims to promote safe digital financial services access for low-income people in urban and rural areas.

Whereas, in accordance with the provisions of the GRAND NATIONAL AGREEMENT FOR ECONOMIC GROWTH WITH SOCIAL EQUITY (2010-2014), the Government of the Republic of Honduras has committed to strengthening and reactivating credit for Micro, Small and Medium-sized Enterprises of the Social Sector of the Economy (MIPYME-SSE), for which savings, credit and fund management are contemplated; for a Technical Assistance program that allows implementing a pilot program of financial inclusion in the country, with the purpose of creating mechanisms so that banks and institutions offer greater access to the population with lower incomes and effective service to MIPYME-SSE.

Whereas, based on what is stated in the preceding Recital (1), the President of the Republic of Honduras, in October 2015 and within the framework of the Regional Financial Inclusion Forum, launched the National Strategy for Financial Inclusion (ENIF), which has as its general objective to ensure that excluded persons have access to a wide range of financial services provided under favorable conditions and tailored to their characteristics and needs, as well as that such persons have financial education and sufficient technical capacities to optimize access to and use of financial services for the purpose of reducing poverty.

Whereas, the provision of payment services through the use of mobile devices such as cellular telephony and other media offers advantages such as immediacy, convenience, security and cost reduction, which represents a potential scheme to promote financial inclusion among persons with limited resources or low incomes in urban and rural areas of the country.

Whereas, the National Congress, by means of Legislative Decree No. 46-2015, published in the Official Gazette La Gaceta on September 14, 2015, approved the Law of Payment Systems and Settlement of Securities, which has as its objective to regulate the proper functioning of payment systems and settlement of securities, which include clearing and settlement operations carried out through these systems. Likewise, in the aforementioned Law, it identifies among such payment systems, that related to transactions through mobile devices using electronic money, which is defined as monetarily demandable money consisting of the amount paid that meets the following characteristics: 1) stored in an electronic wallet; 2) accepted as a payment facilitator by natural or legal persons; 3) issued for an amount equal to funds received; 4) convertible into cash at any time; 5) does not constitute a deposit; and 6) does not accrue interest.

Whereas, in compliance with the provisions of Article 29 of the Law mentioned in the preceding Recital (4), the Central Bank of Honduras (BCH), by means of Agreement No. 06/2016 dated February 11 and April 21, 2016, approved and reformed respectively, the Regulation for the Authorization and Operation of Non-Banking Institutions that Provide Payment Services Using Electronic Money, whose objective is to regulate the operation of non-banking institutions, both private and public, that carry out transfers and payment operations for goods and services through the use of mobile devices, with resources from their users, converted into electronic money, in the national territory. Likewise, Article 31 of said Regulation establishes that it shall correspond to the National Commission of Banks and Insurance (CNBS), to supervise that Non-Banking Institutions that Provide Payment Services Using Electronic Money, comply with the provisions of the aforementioned Regulation, as well as with other provisions on the matter issued by the BCH and the CNBS.

Whereas, in accordance with the provisions of Article 13, numerals 1) and 2) of the Law of the National Commission of Banks and Insurance, it corresponds to this Regulatory Entity to issue the standards required to review, verify, control, monitor and audit supervised institutions, so that they comply with current legislation and international agreements and practices, ordering such measures as may be appropriate.

Whereas, it is in the interest of the National Commission of Banks and Insurance (CNBS) to facilitate financial inclusion through the regulation and supervision of services provided by non-banking institutions that issue electronic money, with the purpose of promoting the social and economic development of the country. Therefore, based on Articles 1, 6, 13, numerals 1), 2), 4), 19, 13), 14 numeral 3), 51, 52 and 26 of the Law of the National Commission of Banks and Insurance, Article 54 of the Law of the Central Bank of Honduras, Articles 1, 3, 19, 20, 24 and 29 of Legislative Decree No. 46-2015 containing the Law of Payment Systems and Settlement of Securities, and Article 31 of the Regulation for the Authorization and Operation of Non-Banking Institutions that Provide Payment Services using Electronic Money; IT RESOLVES: 1. To approve the following: STANDARDS FOR THE SUPERVISION OF NON-BANKING INSTITUTIONS THAT PROVIDE PAYMENT SERVICES USING ELECTRONIC MONEY CHAPTER I GENERAL PROVISIONS Article 1.- Purpose and Scope The present Standards have as their purpose to establish the supervision guidelines that shall be applicable to operations carried out by Non-Banking Institutions that Provide Payment Services Using Electronic Money, duly authorized to operate by the Central Bank of Honduras (BCH). Article 2.- Definitions In addition to the concepts established in the Regulation for the Authorization and Operation of Non-Banking Institutions that Provide Payment Services Using Electronic Money, approved by the BCH, for purposes of the present Standards, the following shall be understood as: A. BCH: Central Bank of Honduras. B. Commission: National Commission of Banks and Insurance. C. CTM: Mobile Transaction Circuit. D. LSF: Law of the Financial System. E. Pending Payment Obligations: Total amount of the balances of electronic wallets in the CTM. F. Solvency Equity: Sum of subscribed and paid-in share capital, capital reserves established in the Commercial Code, and any other reserve that may be required by the Commission in the normal conduct of operations of the INDEL, as well as accumulated profits or losses of the current fiscal year and prior periods. G. Risk Management and Internal Control System: Set of policies and procedures established by the INDEL for the purpose of guaranteeing security, reliability and operational efficiency, through the identification, measurement, management and control of risks associated with its operations and activities, all in compliance with applicable legal provisions. H. Outsourcing: Contract by which a company provides services to another. These services could be provided by institutions belonging to the same financial or economic group, in which case they must be provided under non-preferential conditions, that is, under market conditions. CHAPTER II CAPITAL, SOLVENCY EQUITY AND INVESTMENT GUIDELINES FOR FIDUCIARY RESOURCES Article 3.- Separation of Accounts The INDEL shall maintain segregated their liquid assets from the resources they receive from their authorized agencies and transaction centers for the operation of electronic money. For these purposes, the clearing mechanisms or tools to be used must be established in the Manual of Procedures and Operation of the CTM, which shall comply with at least the following: a) Resources that enter the operating accounts of the INDEL, from sales of electronic money to its agencies and authorized transaction centers, net of commission payments, must be transferred immediately to the trusts constituted as clearing mechanisms or tools. The INDEL may not issue electronic money in favor of the authorized agency or transaction center, until the cash has been transferred to such mechanisms or tools; b) Debits shall be permitted exclusively as a consequence of an operation carried out within the CTM that results in a decrease in the total sum of the balances of all electronic wallets within the CTM; and, c) The INDEL shall maintain detailed records of credits and debits of individual accounts of CTM participants, which must have their corresponding counterpart in the central or master account used by the INDEL for these operations. Article 4.- Minimum Share Capital The INDEL shall maintain at all times the minimum capital requirement in force established by the BCH. Any increase or decrease in capital shall be considered at the request of the BCH, which may require the prior opinion of the Commission. Article 5.- Solvency Equity The INDEL shall maintain at all times a solvency equity equal to or greater than the minimum capital required by the BCH. Article 6.- Investment Limits by Instrument The investment of resources in trusts constituted by the INDEL as a guarantee of pending payment obligations in the CTM must be carried out by the trustees, observing the following guidelines: a) Up to sixty percent (60%) of the funds that make up the trusts in short-term securities, issued and guaranteed by the Central Government through the Ministry of Finance, by the BCH or any other security that has the guarantee of the State of Honduras. Short-term shall be understood as securities with maturities equal to or less than six (6) months; b) Up to twenty percent (20%) of trust resources in medium-term securities issued by the Central Government through the Ministry of Finance or any other security that has the guarantee of the State of Honduras. Medium-term shall be understood as securities with maturities greater than six (6) months but less than eighteen (18) months; c) Up to sixty percent (60%) of trust resources in immediate availability deposits constituted in financial system institutions supervised by the Commission; d) Up to thirty percent (30%) of trust resources in certificates of deposit, issued and guaranteed by financial system institutions supervised by the Commission. These certificates may not have a term greater than twelve (12) months; and, e) Other instruments previously authorized by the Commission. The investment limit set forth in subparagraph c) above shall be at least twenty percent (20%) of the total fiduciary resources. The Commission, upon reasoned request from the trustee, may exceptionally and when economic or financial circumstances warrant, expand the aforementioned limits, subject to favorable opinion of the BCH. Article 7.- Limits per Issuer Investments of trust resources in instruments covered under subparagraphs c) and d) of the preceding Article, issued by the same entity of the financial system, may not exceed the lesser of the following limits: 1. Twenty percent (20%) of trust resources; or, 2. Thirty percent (30%) of the capital and capital reserves of the financial system institution. Notwithstanding the foregoing, the trustee shall evaluate the financial and liquidity indicators available publicly by the Commission for each of the financial system institutions, so that they serve as a basis for making investments; likewise, it must document the analysis process it conducts for the selection of institutions in which it makes investments. Article 8.- Investment Prohibitions It is prohibited for the trustee to invest in long-term instruments the resources corresponding to trust resources constituted by the INDEL as a guarantee of pending payment obligations in the CTM, as well as to constitute any type of encumbrance on these. For these purposes, long-term shall be understood as instruments with maturities greater than eighteen (18) months. This prohibition shall not apply to surpluses generated by the trusts. CHAPTER III USERS Article 9.- Disclosure of Information The INDEL must provide its users with truthful, clear, complete and timely information about the products and services it provides; this information must relate at minimum to: a) The form of access; b) Charges and/or commissions; c) The complaint resolution system; d) Procedure for reporting loss, theft, robbery or destruction of the mobile device; e) Potential associated risks; and, f) The names of authorized agencies and transaction centers. The information described above must be kept current and available to users in physical form, in the main offices of the INDEL and in the establishments of its network of authorized agencies and transaction centers, as well as electronically through its website. The information described in the above numerals shall be the minimum information that must be considered by the INDEL in the performance of any medium or opportunity used for the dissemination of its products and services, regardless of the procedure followed. Article 10.- Publication of Charges and/or Commissions The INDEL shall publish no later than January thirty-first (31) of each year, the charges and/or commissions in force applicable to its products and services, through means of massive communication, effective and verifiable of public access by its users. The foregoing is without prejudice to the obligation that the INDEL will have to publish through the media described in the preceding paragraph, any modification to the charges and/or commissions applicable to its products and services. Publication of these modifications must be made fifteen (15) calendar days prior to the tariff change taking effect. Article 11.- User Service The INDEL shall enable agile, effective, expeditious mechanisms that guarantee proper attention to its users, such as telephone or electronic means, among others, properly training its personnel in matters such as user rights and obligations, transparency, characteristics of products and services offered and the scope of its service, among others. The training provided to personnel on the topics specified above must be developed in their personnel files, which must be available to the Commission at all times. For such training, it must extend to the agencies and transaction centers authorized by the INDEL. The foregoing is without prejudice to the obligation that the INDEL will have to enable in its offices or branches a user service area. Article 12.- Handling of User Complaints Complaints presented by users in relation to the products and services offered by the INDEL must be resolved by it in accordance with the process and deadline established in the current regulations on transparency issued by the Commission. However, those complaints related to mobile devices must be presented at the office of the device provider or to the corresponding authorities. The INDEL shall have the obligation to inform users about the procedures and channels enabled for the presentation of complaints. Article 13.- Loss, Theft, Robbery or Destruction of Mobile Device In cases of loss, theft, robbery or destruction of the mobile device, the user shall be obliged to immediately notify the INDEL, which in turn must maintain a record of notification of such circumstance and must provide the user with a reference number of the notification evidencing the report. Upon notification by the user, the INDEL must proceed immediately to block or cancel access to the electronic wallet in the CTM to prevent misuse by unauthorized third parties. In this case, the user's responsibility shall cease once the user makes the notification to the INDEL. For these purposes, the INDEL shall establish clear, efficient and timely procedures for reporting any of the circumstances described in this Article, as well as enable the channels for its report or notification, which must be available twenty-four (24) hours and seven (7) days of the week. For these cases the INDEL must inform users about the procedure to follow for the reactivation of their electronic wallet. The steps related to blocking or reactivation of electronic wallets in cases of loss, theft, robbery or destruction of the mobile device shall be directed by the INDEL at no cost to the user. Article 14.- Identification of Authorized Agencies and Transaction Centers The INDEL must have mechanisms that allow its users to properly identify authorized agencies and transaction centers, placed in a visible location of the facilities, their identification and the announcement of services that can be performed before them, as well as the costs associated with these services, provided this does not threaten the integrity and safety of users and/or authorized agencies and transaction centers. Additionally, it must inform the public, through electronic means, such as its website, about the list of authorized agencies and transaction centers. The INDEL must submit to the Commission within ten (10) business days after the close of each semester, a list containing the opening, closing and modifications of authorized agencies and transaction centers, detailed with the full name, address and telephone number of each one. Article 15.- Transparency Without prejudice to what is established in the present Standards, the INDEL is obliged to comply with the provisions issued by the Commission regarding attention and protection of the financial user, transparency, financial culture, dissemination of information, contracts and charges and/or commissions, that are applicable, according to its business line. CHAPTER IV CORPORATE GOVERNANCE, RISKS AND AUDIT Article 16.- Corporate Governance The INDEL shall be subject, to the extent applicable, to the provisions issued by the Commission regarding corporate governance, in accordance with its business line. The provisions required of the INDEL in this matter shall be evaluated jointly with the Commission. Article 17.- Risk Management and Internal Control The INDEL shall design and implement a risk management and internal control system that allows it to manage the risks associated with the operation of the products and services it provides, subject to the provisions issued by the Commission regarding comprehensive risk management, operational risk, technological risk and business continuity and money laundering risk and terrorism financing, in aspects applicable to it, inherent to the risks of its business line. The provisions required of the INDEL in these matters shall be evaluated jointly with the Commission. The INDEL shall be responsible to the Commission for the functions or processes that may be subject to outsourcing, for which it must include in service provision contracts, clauses regarding the authority that the Commission will have, when appropriate, to supervise the authorized agencies and transaction centers through which the INDEL provides its services. The provision stated in the preceding paragraph includes the authority that the Commission will have, when appropriate, to supervise the authorized agencies and transaction centers through which the INDEL provides its services. Article 18.- Annual Audit Plan The INDEL shall have an Internal Auditor, who, among other responsibilities, must prepare an Annual Audit Plan, which must be approved by the Board of Directors, Board of Trustees or equivalent body. Such plan must be in accordance with the volume and complexity of the INDEL's operations and must contain at minimum the following information: a) Objectives and scope of Internal Audit programs; b) Criteria for risk evaluation, in order to determine the processes and areas that require greater attention; c) Follow-up to requirements and recommendations made by the Commission and the external audit firm; d) Evaluation of legal and regulatory provisions that apply to it; e) Evaluation of the risk management and internal control system; f) Review of information systems and evaluation of the effectiveness of their controls; g) The schedule of activities to be performed and probable dates for submission of reports; and h) The human, technical and logistical resources available for plan compliance. Such plan must be submitted to the Commission no later than January thirty-first (31) of each year. Any modification made to this plan must be communicated to the Commission no later than five (5) business days after its approval, accompanied by the minutes of the Board of Directors, Board of Trustees or equivalent body. The Internal Auditor appointed by the INDEL must comply with the provisions issued by the Commission regarding Internal Audit. Article 19.- Submission of Reports The Internal Auditor of the INDEL must submit to the Commission within twenty (20) days after the close of each quarter, a report containing at least the following aspects: a) Objectives and activities developed; b) List of the main reports prepared during the respective quarter, indicating whether they derive from programmed or non-programmed activities, date and brief summary of content; c) Evaluation of the status of the activity or operation as of the date of the report, identifying detected risks and their impact, as well as evaluation of the procedures and controls used, both at the internal level of the INDEL and those carried out by authorized agencies and transaction centers; and, d) Corrective measures recommended and/or adopted to remedy identified problems or deficiencies, as appropriate. Article 20.- Preparation and Submission of Financial Statements The INDEL must submit to the Commission in the first ten (10) business days of each month, its financial statements, which must be prepared based on International Financial Reporting Standards (IFRS). Such submission shall be made by the two-month period through channels enabled for such purposes by the Commission. Article 21.- External Audit The INDEL shall annually contract an external audit firm to audit its financial statements, which must be published in a newspaper of national circulation no later than March thirty-first (31) of each year. For these purposes, the INDEL shall observe the current provisions issued by the Commission regarding the hiring and scope of work of external audit firms. The INDEL may only contract firms that are registered in the Registry maintained for these purposes by the Commission and that are registered in categories A or B. Article 22.- Prevention of Money Laundering and Financing of Terrorism The INDEL shall be subject to legal and regulatory provisions regarding Money Laundering and Financing of Terrorism. Notwithstanding the foregoing, for purposes of user identification, the INDEL may use the simplified identification regime established by the Commission for basic account operations. For proper due diligence in customer identification of electronic wallets issued for affiliated companies, the INDEL must apply the identification regime corresponding to the risk level represented by the affiliated company. In cases where the INDEL enables subscription of service contracts with users through electronic means, it may not enable use of the contracted product or service until it has verified the identification data provided by the user at the beginning of the contractual relationship. Such verification process must not exceed fifteen (15) calendar days, counted from the date of subscription of the contract. When the INDEL, in the verification process, identifies errors, differences or has doubts about information provided by the user at the identification or product opening stage, it shall be empowered to temporarily suspend the contract, and must inform the user of such situation, returning the money in case the electronic wallet was opened, and must additionally evaluate the possibility of making a Suspicious Operations Report (ROS) to the Financial Intelligence Unit of the Commission, following the procedure established in the corresponding regulations. The enabling of electronic wallets for affiliated companies through electronic means is prohibited. CHAPTER V FINAL PROVISIONS Article 23.- Submission of Information The INDEL shall have the obligation to submit to the Commission, on Monday of each week the daily balances of the fiduciary patrimony and total pending payment obligations in the CTM, corresponding to the immediately preceding week. Likewise, they must submit within the first ten (10) business days following the close of each month, reports on the operations carried out in the CTM as well as the incidents reported in it. The formats of the information to be reported, as well as the means of transmission, shall be defined in the Data Reporting Manual that the Commission issues for these purposes. The foregoing is without prejudice to the obligation that the INDEL will have to respond to any periodic or occasional information requests made by the Commission or the BCH. Article 24.- Infractions and Sanctions Infractions to the provisions of the present Standards shall be sanctioned in accordance with what is established in the Law of Payment Systems and Settlement of Securities, Law of the Financial System, the Sanctions Regulation and other applicable legal or regulatory provisions issued by the BCH and the Commission. Article 25.- Supervision Cost The INDEL shall be subject to the supervision, inspection, monitoring and audit of the Commission, by virtue of which it must make contributions equivalent to one percent (1%) of annual gross income generated by services provided, calculated based on the immediately preceding year, and in accordance with the procedure established in Article 34 of the Law of the National Commission of Banks and Insurance and other provisions issued by the Commission on this matter. Article 26.- Compliance Period Entities that as of the effective date of the present Standards are in the process of obtaining authorization to constitute themselves as INDEL before the BCH, must submit to the Commission within thirty (30) business days following the granting of authorization by the BCH, an implementation program signed by the legal representative of the INDEL and approved by the Board of Directors, Board of Trustees or equivalent body, detailing the deadlines and responsible area, among others. The program shall be sent to the Commission, which may issue observations regarding it, if deemed necessary. Such plan shall not exceed one hundred twenty (120) calendar days. Article 27.- Communication of Revocation and Cancellation from BCH to the Commission The BCH shall communicate to the Commission the Resolution it issues relating to the revocation and/or cessation of operations of an INDEL, so that the Supervisory Entity may incorporate these as they take effect, so that the INDEL does not carry out new operations and that if there are pending payment operations in the CTM, they are made effective to users within the deadline established by the BCH. In the event that the Commission verifies that the INDEL did not comply with the cessation of operations ordered by the BCH, it shall communicate to the competent judicial bodies for the corresponding legal effects. Article 28.- Submission of Accounting Manual The INDEL must submit to the Commission, for its authorization, the Accounting Manual based on International Financial Reporting Standards (IFRS), which will be used for the recording of its operations; such Manual must be sent within a maximum period of sixty (60) business days counted from the authorization Resolution issued by the BCH. This Manual shall be prepared taking as reference the nomenclature, dynamics and descriptive accounts already developed by the Commission for the rest of supervised institutions. Article 29.- Unforeseen Cases Cases not provided for in the present Standards shall be resolved by the Commission through Resolution, in accordance with the current legal and regulatory framework. Article 30.- Effective Date The present Standards shall take effect as of the day following their publication in the Official Gazette La Gaceta. 2. To instruct the Management of Information Technology and Communications (GTIC) of this Commission, to conduct the development of the data capture system, reports and the data reporting manual, referred to in Article 23 of the Standards approved through this Resolution. 3. To communicate this Resolution to Non-Banking Institutions that Provide Payment Services Using Electronic Money (INDEL) and to the Central Bank of Honduras (BCH), for the corresponding legal effects. 4. This Resolution shall be immediately effective as of the business day following its publication in the Official Gazette La Gaceta. Approved unanimously. Signed by) ETHEL DERAS ENAMÓRADO, President, JOSÉ ADONIS LAVAIRE FUENTES, Principal Commissioner, JORGE A. FLORES, Alternate Commissioner, MAURA JACQUELINE PORTILLO G., General Secretary. And for the corresponding purposes, this is issued in the city of Tegucigalpa, Municipality of the Central District, on the fourth day of the month of July of two thousand sixteen. MAURA JACQUELINE PORTILLO G. General Secretary 22 J. 2016