National Payment Systems Act

Section Interpretation Section In this Act, unless the context otherwise requires— " aggregator " means a payment service provider who facilitates electronic receipt and payment for goods and services; " book entry " means a transaction which is effected by credit and debit entries; " book entry securities collateral " means a financial instrument provided under a financial collateral arrangement and for which proof of title is an entry in a register or account maintained by or on behalf of an intermediary; " cash " means money credited to an account in any currency or a similar claim for the repayment of money market deposits; " central bank " means the Bank of Uganda established under section 2 of the Bank of Uganda Act, Cap. 51 ; " clearing " means the process of transmitting, reconciling and confirming transfer orders prior to settlement and establishment of final positions for settlement; " clearing system " means a set of rules and procedures that participants must comply with in presenting and exchanging data or documents relating to transfer of funds or securities to other participants at a single location and includes a mechanism for calculating participants mutual positions, potentially on a net basis, with a view to facilitating the settlement of their obligations in a settlement system; " close-out netting provision " means a provision of a financial collateral arrangement or of an arrangement of which a financial collateral arrangement forms part, by which, on the occurrence of an enforcement event , whether through the operation of netting or set-off or otherwise— (a) the obligations of the parties are accelerated so as to be immediately due, and expressed as an obligation to pay an amount representing their estimated current value, or are terminated and replaced by an obligation to pay such an amount; or (b) an account is taken of what is due from each party to the other in respect of obligations to pay an amount representing their estimated current value, and a net sum equal to the balance of the amount is payable by the party from whom the larger amount is due to the other party; " collateral provider " means a person providing financial collateral under a title transfer arrangement or a security interest ; " collateral taker " means a person provided with financial collateral under a title transfer arrangement or a security interest ; " controlling interest " means any person who has the power to, directly or indirectly, influence the direction of the management of the licensee , whether through the ownership of shares or securities, voting, partnership or other ownership interests, agreement or otherwise; " currency point " has the meaning assigned to it in the Schedule; " delivery versus payment " means a security settlement mechanism which links a securities transfer and funds transfer in such a way to ensure delivery occurs only if the corresponding payment occurs; " electronic device " includes computer, card, mobile handset; " electronic money " means a monetary value represented by a claim on the issuer, which is— (a) stored on an electronic device ; (b) issued upon receipt of funds in an amount not less in value than the monetary value received; (c) accepted as a means of payment by undertakings other than the issuer; and (d) prepaid or redeemable in cash . " electronic money issuer " means a payment service provider who is licensed to issue electronic money under section 47 of this Act; " enforcement event " means an event of default or any similar event agreed upon by the parties, the occurrence of which entitles the collateral taker to realise a financial collateral arrangement or the occurrence of which bring into effect a close-out netting provision ; " financial collateral " includes cash or a financial instrument ; " financial collateral arrangement " means an arrangement of transfer of title or a security interest as financial collateral , whether or not the transfer of title or security of interest is covered by an agreement or general terms and conditions, applicable to a financial collateral ; " financial institution " means a company licensed by the central bank to carry on or conduct financial institutions business in Uganda and includes a commercial bank, merchant bank, mortgage bank, post office savings bank, credit institution, a building society, an acceptance house, a discount house, a finance house, an islamic financial institution or any institution which is classified as a financial institution by the central bank ; " financial instrument " includes domestic or foreign shares in companies, securities equivalent to shares in companies, bonds and other forms of debt instruments, including units in collective investment undertakings, money market instruments and related claims or rights which are negotiable on the capital market, and any other securities which are ordinarily dealt in and which give the right to acquire any such shares, bonds or other securities by subscription, purchase or exchange or which give rise to a cash settlement other than payment instruments; " insolvency proceedings " means any measure to wind up or reorganise an entity, or declare a person bankrupt where such measure involves suspending of, or imposing of limitations on transfers or payments in accordance with the Insolvency Act, 2011, Part XI of the Financial Institutions Act, 2004 or the law of insolvency of another country where the entity was incorporated; " interoperability " means a set of procedures or arrangements that allow participants in different payment systems to conduct and settle payments or securities transactions across those payment systems while continuing to operate only in their own payment systems; " licensee " means a person issued a licence under this Act; " Minister " means the minister responsible for finance; " netting " means offsetting of obligations between or among the participants in the netting arrangement to reduce the number and value of payments or deliverables needed to settle a number of transactions; " participant " means a member of a payment system as defined in the rules of that payment system ; " payment instrument " means any device or set of procedures by which a payment instruction is issued for purposes of making payments or transferring money and includes cheques, bills of exchange, promissory notes, electronic money , credit transfers, direct debits, credit cards and debit cards or any other instrument through which a person may make payments, with the exception of banknotes and coins; " payment order " means an instruction sent by a payer or payee directing the execution of a payment transaction; " payment service provider " means a person who is licensed under section 9 of this Act to provide a payment service; " payment service " means— (a) services enabling cash deposits or withdrawals; (b) execution of payment transactions; (c) issuance and acquisition of payment instruments; or (d) any other service incidental to the transfer of funds; " payment system " means a system used to effect a transaction through the transfer of monetary value, and includes the institutions, payment instruments, person, rules, procedures, standards, and technologies that make such a transfer possible; " payment system operator " means an entity, alone or with other entities which is in charge of the operation of a payment system and may include a participant to the system, a settlement agent , a central counterparty or a clearing house; " portfolio " means an investment held by a person or an entity; " sandbox " means a temporary experiment of innovative financial products, services, business models or delivery mechanisms in the payment systems ecosystem; " security interest " means a legal or equitable interest or a right in security, other than a title transfer arrangement arising by way of security including a pledge, a mortgage, a fixed charge, a floating charge, a lien or any other similar security; " securities settlement system " means a formal arrangement amongst three or more participants, with common rules and standardised arrangements for the execution of securities transfer orders between the participants; " settlement account " means an account in the books of a settlement agent used to hold funds and financial instruments and to settle transfer orders between participants in a system; " settlement agent " means an entity providing to participants of a payment system , settlement accounts through which transfer orders within that payment system are settled and extend credit to those participants for settlement purposes; " systemic risk " means the risk that the inability of one or more participants to perform as expected shall cause other participants to be unable to meet their obligations when they become due; " title transfer arrangement " means an arrangement, under which a collateral provider transfers legal or beneficial ownership of financial collateral to a collateral taker for the purpose of securing or otherwise covering the performance of guaranteed obligations; " transfer order " means— (a) an instruction by a participant to place at the disposal of a recipient an amount of money by means of a book entry or electronic transfer on the accounts of a participant ; (b) an instruction which results in the assumption or discharge of a payment obligation as defined by the rules of that payment system ; or (c) an instruction by a participant to transfer the title to, or interest in a financial instrument by means of a book entry on a register, or otherwise.

Section Application of the Act Section This Act applies to— an operator of a payment system ; a payment service provider ; and an issuer of a payment instrument . This Act shall not apply to securities deposited or held in the Securities Central Depository established under the Securities Central Depository Act, 2009 and traded at the Uganda Securities Exchange.

Section Objects of the Act Section The objects of this Act are— to provide for the safety and efficiency of payment systems; to prescribe the framework to govern the oversight and protection of payment systems; to provide for financial collateral arrangements; to regulate operators of payment systems; to regulate payment service providers; to regulate the issuance of electronic money ; and to provide for the oversight of payment instruments.

Section Finality and irrevocability of payments Section A payment instruction or settlement shall be valid and enforceable by and against a payment system operator or participant , and shall be final and irrevocable from the time the payment instruction or settlement is determined under the rules of that payment system to be final. Notwithstanding any other law to the contrary, an order shall not be made by any court for the rectification or stay of a payment instruction or settlement that is determined by the rules of the payment system to be final and irrevocable. Notwithstanding subsection (1) and (2), a payment system operator or payment service provider shall with the approval of the central bank , prescribe the manner of recovering an equivalent amount of transfer arising from a payment instruction or settlement made in the case of fraud, mistake, error or similar vitiating factors.

Section Settlement Section Where a participant is unable to maintain a settlement account in accordance with subsection (1), the participant shall appoint another participant who has opened a settlement account as a settlement agent to— Every participant in a payment system shall open and maintain settlement accounts in the books of the central bank or an authorised settlement agent , including the maintenance of minimum balances, on such terms and conditions as the central bank or payment system operator may specify. settle all obligations due from the first participant to any other participant ; or receive all claims from the first participant from the other participant . Where a participant appoints another participant under subsection (2) (a), the participant shall, before any obligation is settled on its behalf, give the payment system operator notice in writing of the appointment, accompanied by a written confirmation from the participant that is appointed. An electronic money issuer that holds a trust account with more than one financial institution or Microfinance deposit taking institution, shall ensure that all settlement transactions between the accounts of the respective financial institutions are done through the interbank payment and settlement system or any other means that the central bank may determine. A settlement effected in accordance with subsection (1) and (2) is final and irrevocable. The final discharge of any indebtedness between participants in a clearing and settlement system shall take place through the central bank or a financial institution . Where it is established that any amount, right or property already paid or transferred was not in fact due, it shall constitute a fresh debt owed by the payee or transferee, as the case may be, to the person who made the payment or transfer.

Section Protection of settlement accounts Section The balances on settlement accounts with a payment system shall not be attached, assigned or transferred for the purposes of satisfying any debt or claim.

Section Effect of commencement of insolvency proceedings Section Notwithstanding the commencement of insolvency proceedings , the following transactions are valid, enforceable and binding against third parties, including the central bank or insolvency practitioner— Where a participant is wound up, placed under statutory management, or an insolvency practitioner or similar official is appointed, any provision contained in a written netting agreement and the payment system rules shall be binding upon the central bank or insolvency practitioner or statutory manager, as the case may be, in respect of any payment order or settlement obligation— Insolvency proceedings commenced against a licensee or participant shall not have retrospective effect on the rights and obligations of a licensee or participant arising from, or in connection with the participation of that licensee or participant in the payment system before the commencement of the insolvency proceedings . For the purpose of this Act, insolvency proceedings against a licensee or participant shall be deemed to commence when the licensee or participant is informed of the insolvency proceedings . cash or securities transfer orders, when entered into a payment system in accordance with the rules of that payment system prior to the commencement of the insolvency proceedings , even if the payment or securities transfer took place after the commencement of the insolvency proceedings ; and the netting of cash or securities transfer orders, and of the debts and obligations resulting from a transfer order where the cash or securities transfer orders were entered into a payment system in accordance with the rules of that payment system prior to the commencement of the insolvency proceedings , even if the netting took place after the commencement of the insolvency proceedings . which was determined through netting under subsection (3) (b), before the commencement of the insolvency proceedings ; and which is to be discharged on or after the date of the winding up order, statutory management order or the appointment of an insolvency practitioner, as the case may be or the discharge of which was overdue on the date of the winding-up order, receivership order or appointment of the statutory manager, as the case may be. A transfer order entered into a payment system shall not be revoked by a participant or by a third party, including the central bank or insolvency practitioner, from the moment of irrevocability defined by the rules of that payment system .

Section Credit or debit of settlement account Section Notwithstanding the commencement of insolvency proceedings against a licensee or participant in a payment system , a payment system operator or a settlement agent may, if authorised under a contract— use the money and financial instruments available on the settlement account of the participant to settle outstanding transfer orders; and make use of any net debit balance the participant may owe after netting , to allow for final settlement of the obligation. Notwithstanding the commencement of insolvency proceedings against a licensee or participant in a payment system , a payment system operator or a settlement agent may, if authorised under a contract, make use of credit lines granted to the participant and realise any collateral provided with the aim of securing those credit lines.

Section Notification of insolvency proceeding to central bank Section Where insolvency proceedings are commenced against a participant , the participant shall immediately and in any case not more than two hours after service of the petition for insolvency proceedings , notify a payment system operator and the central bank , of the commencement of the insolvency proceedings . A participant against whom insolvency proceedings are commenced shall not participate in any payment system , other than for purposes of discharging payment obligations in accordance with the rules of that payment system .

Section Electronic money issuance and circulation Section A payment service provider licensed as an electronic money issuer shall— submit in electronic form to the financial institution holding the trust account, the customer information indicating— The central bank shall make regulations to govern the issuance of electronic money and in particular, the regulations shall provide for— issue electronic money only after an equivalent amount of cash is deposited in the trust account or a special account opened in accordance with section 49 and 51 of this Act respectively; the names of the customer whose funds are in the trust account; balances of the electronic money account; any other information as the central bank may prescribe; and comply with such requirements, as the central bank shall prescribe by regulations. [Please note: numbering as in original.] A customer may redeem electronic money value or purchase electronic money through an agent of an electronic money issuer . liquidity requirements; fair competition; customer due diligence and handling of consumers; the transaction limits; and compliance with the Anti-Money Laundering Act, 2013 or any other law.

Section Establishment of a subsidiary legal entity Section A payment service provider , other than an entity solely established to issue electronic money , a financial institution or microfinance deposit taking institution, that intends to issue electronic money shall establish a subsidiary legal entity for that purpose. A subsidiary legal entity or an entity solely established to issue electronic money referred to in subsection (1), shall apply to the central bank for a licence to issue electronic money and the central bank shall if satisfied with the application grant a licence to issue electronic money .

Section Trust accounts Section An electronic money issuer licensed under section 48 (2), shall submit an application to the central bank in the prescribed form to open a trust account in a financial institution or a microfinance deposit taking institution to facilitate issuance of electronic money. An application referred to in subsection (1), shall be accompanied with the list of the proposed names of trustees that the electronic money issuer intends to appoint to manage the trust account and the corporate and management structure of the electronic money issuer . Where the central bank is satisfied with the list of the proposed names of the trustees, the corporate and management structure referred to in subsection (2), the central bank shall issue in writing, the approval of the trustees and the corporate and management structure. An electronic money issuer approved under subsection (3), shall open a trust account with a financial institution or microfinance deposit taking institution for the purpose of maintaining funds of a customer. For purposes of this section, trustees appointed by a subsidiary legal entity or an entity solely established to issue electronic money and approved by the central bank is a body corporate. Interest earned on a trust account or special account referred to in section 49 and 51 of this Act respectively shall be credited to an interest account opened for that purpose in the financial institution or microfinance deposit taking institution in which the trust account or special account is held and shall be distributed for the benefit of the customers as determined by the central bank.

Section Duties of the trustees Section The trustees referred to under section 49 (5), shall— manage the trust account and the interest account on behalf of the customer; establish safeguard measures to protect the funds deposited on a trust account from risks that may occasion loss to beneficiaries of the funds; monitor the trust accounts to ensure that the funds in the trust account are equal in value to the electronic money issued; ensure that interest earned on the trust account is distributed for the benefit of the customer in accordance with section 49 (6); and perform any other duty as the issuer of electronic money may prescribe.

Section Special accounts Section A payment service provider who is a financial institution or microfinance deposit taking institution and who intends to issue electronic money shall with the approval of the central bank , open and maintain a special account in its books of account. A payment service provider referred to in subsection (1) shall submit an application for approval to open and maintain a special account to hold deposits received from a customer who purchases electronic money and to facilitate issuance of electronic money .

Section Protection of trust and special account Section The balances of the trust account and the special account shall not be attached, assigned or transferred for the purposes of satisfying any debt or claim.

Section Duties of electronic money issuer Section An electronic money issuer shall— mitigate concentration risk on holding a trust account by placing the funds in different financial institutions or microfinance deposit taking institution, as may be prescribed by the central bank ; ensure that any interest accrued in the trust account or special account is effected directly to benefit the customer or used for other purpose relevant to the payment system ecosystem as may be prescribed by the central bank ; not commingle the funds deposited on a trust account or special account with any other funds; publish audited financial statements of the electronic money issuer ; submit a report on the operations of the trust account or special account to the central bank , on a monthly basis or such other intervals as the central bank may prescribe; honour withdrawals of cash or transfer of funds from the trust account or special account on demand; monitor the creation of electronic money in order to verify that the electronic money created is backed up by funds deposited in the trust account or special account; reconcile the electronic money value in the trust account or special account with the electronic money issued; and perform any other duty as the central bank may prescribe.

Section Permissible transactions Section Electronic money may be used for— domestic payments; domestic money transfers; bulk transactions; including payments of salaries, benefits and pensions; cash -in and cash -out transactions; merchants or utilities payments; cross border payments or transfers; savings products, in partnership with an institution licensed to offer savings products or services with the approval of the central bank ; credit products in partnership with an institution licensed to offer credit products or services, with the approval of the central bank ; insurance products in partnership with a licensed insurer; or any other transaction approved by the central bank .

Section Prohibited activities Section An electronic money issuer which is not a financial institution or microfinance deposit taking institution shall not engage in— An electronic money issuer shall not— receiving and taking deposits within the meaning of the Financial Institutions Act, 2004 and the Micro Finance Deposit-Taking Institutions Act, 2003; over the counter transactions unless full identification of the depositor is obtained, recorded and transmitted to the receiver; or any other activity, other than an activity which it is licensed to undertake. count or issue airtime as electronic money ; or use airtime for permissible transactions referred to in section 54 . An electronic money issuer who contravenes this section commits an offence and is liable on conviction, to a fine not exceeding one thousand currency points.

Section Account types and transaction limits Section The central bank shall, by regulations prescribe different categories of electronic money accounts and the permissible transaction limits on each category of account.

Section Dormant account Section An electronic money account that does not have a registered transaction for nine consecutive months shall be considered dormant. An electronic money issuer shall, in relation to an account referred to in subsection (1), give notice to the customer of at least one month before the period specified in subsection (1), that the electronic money account shall be suspended unless there is a transaction on the account. At the expiry of the notice referred to in subsection (2), the electronic money issuer shall block the electronic money account and shall not permit further transactions until the account is reactivated by the customer. The electronic money issuer shall within five working days after blocking of the electronic money account, give notice to the customer that the electronic money account is blocked and provide instructions on the process of reactivation of the account. Where the account is not reactivated within six months after it has been blocked, the electronic money issuer shall close the electronic money account. Upon closure of the electronic money account under subsection (5), the trustees shall transfer the balance of an electronic money account and identifying information to the central bank . The central bank shall refund any unclaimed balances to the account holder of an electronic money account or, if the account holder is dead, his or her legal representative, upon a request made within seven years after the dormant account is transferred to the central bank . The central bank shall after the expiration of the period prescribed under subsection (7), transfer the unclaimed balances to the Consolidated Fund.

Section Audit trail Section An electronic money issuer shall install a system comprising inbuilt control mechanisms, as may be prescribed by the central bank for a complete audit trail.

Section Customer due diligence requirements Section An electronic money issuer who seeks to open an account for a customer shall comply with the minimum customer due diligence requirements. The minimum customer due diligence requirements under subsection (1), shall be prescribed by regulations.

Section Liquid assets requirements Section The liquid assets shall remain unencumbered and shall be in form of— An electronic money issuer shall keep one hundred per cent of the electronic money held in a trust account or a special account in liquid assets. cash balances held on a trust account or special account maintained with a financial institution or a micro finance deposit-taking institution on accreditation basis and withdrawable on demand; treasury bills and bonds; or any other liquid asset as may be determined by the central bank . For purposes of subsection (2), the central bank may place a lien over the liquid assets.

Section Prohibitions under this part Section An electronic money issuer shall not terminate or transfer their licence to another person or entity without the written approval of the central bank . An electronic money issuer shall not terminate the business of issuing electronic money without prior approval of the central bank . An electronic money issuer shall not change its name, controlling interest or ownership without the approval of the central bank . A person who contravenes this section commits an offence and is liable on conviction, to a fine not exceeding one thousand currency points.

Section Submission of returns Section A licensee shall submit returns relating to the operations of the payment system or electronic payment service as may be prescribed by the central bank . A person may access the information obtained under subsection (1) in accordance with the Access to Information Act, 2005.

Section Retention of payment system records Section A payment service provider shall maintain a record of all payment transactions and information obtained or generated in the operation or administration or management of the payment system for at least ten years. The records kept under subsection (1) shall be in the format in which it was originally generated, sent or received or in a format which can be demonstrated to accurately represent the information originally generated, sent or received. Subject to subsection (1), a person who intends to destroy payment transaction records shall apply to the central bank for approval.

Section Protection of customer information Section A licensee or the central bank shall protect the privacy of a participant and customer information and not disclose information of a participant or customer unless the disclosure is made in compliance with the law, an order of a court or with the express consent of the system participant or customer.

Section Consumer protection in payment system Section The central bank shall, in prescribing the requirements of consumer protection under subsection (1), be guided by the following principles— A payment service provider shall comply with the requirements of consumer protection as may be prescribed by the central bank . transparency; accountability; data protection; protection against unfair trade practice that disenfranchises the consumer; full disclosure of the information relating to the services offered; confidentiality; and dispute resolution mechanism. A payment service provider shall not mislead a consumer in any advertisement or purport to offer a service that is not approved in accordance with this Act. A person who contravenes the provisions of subsection (3) commits an offence and is liable on conviction to a fine not exceeding three hundred and fifty currency points or imprisonment not exceeding two years or both.

Section Minimum capital requirements Section The central bank may by regulations, prescribe minimum capital requirements for a licensee under this Act. The minimum capital requirements referred to under subsection (1), shall be maintained unimpaired by losses or other adjustments.

Section Availability of payment system services Section A payment system operator shall ensure that services are available to the users of that payment system throughout the prescribed operational period.

Section Data centre Section An electronic money issuer , shall establish and maintain its primary data center in relation to payment system services in Uganda.

Section Protection from liability Section An officer of the central bank shall not be held personally liable in respect of any act done in good faith, and without negligence in the performance of the functions in this Act.

Section Cessation of business Section The notice under subsection (1) shall be accompanied by a cessation plan indicating— A licensee that intends to cease to carry on the business for which it was licensed shall give notice of cessation of business to the central bank and shall publish the notice in a newspaper of wide circulation for at least thirty days before the dale of cessation. that the cessation has been approved by the controlling interest ; the procedure for paying all the customers; the mitigation plan for any adverse effects of the cessation of business on the payment system ecosystem; and any other matter as the central bank may prescribe.

Section Cooperation between regulators Section For the avoidance of doubt, the central bank shall cooperate with the Capital Markets Authority on— The central bank shall cooperate with Government agencies whose functions are relevant to payment systems. the integration of payments and securities settlement systems; and the establishment of cross-border securities settlement systems.

Section Power to make regulations Section Without prejudice to the general effect of subsection (1), regulations made under this section may— Regulations made under this section may in respect of any contravention of any of the regulations— The Minister shall, in consultation with the central bank , by statutory instrument, make regulations for the better carrying into effect of this Act. prescribe the forms, licensing requirements, fees payable or other matters required to be prescribed under this Act; relate to participating in payment systems; regulate agents of payment systems providers; specific time of effecting transfer of the funds on customers account; regulate trust accounts and special accounts management; prescribe consumer protection requirements; and prescribe anti-competitive practices. prescribe a penalty of a fine not exceeding two hundred and fifty currency points or imprisonment not exceeding two years or both; in the case of a continuing contravention, prescribe an additional penalty not exceeding fifty currency points, in respect of each day on which the offence continues; prescribe a higher penalty in respect of a second or subsequent contravention; or provide that a court which convicts an offender may forfeit to the state any document or other item involved in the commission of the offence. The regulations made under this section shall be laid before Parliament for information.

Section Amendment of Schedule Section The Minister may, with the approval of Cabinet, by statutory instrument amend the Schedule to this Act.

Section Transitional provision Section A person referred to in subsection (1), who continues to— A person who, before the commencement of this Act, obtained a written approval of the central bank to operate a payment system or issue a payment instrument or carry out any activity for which a license is required under this Act, shall within six months of commencement of this Act apply for a licence in accordance with this Act. operate a payment system ; issue a payment instrument ; issue electronic money ; or issue any other payment system services.