Protecting Customers’ Mobile Money Funds in Civil Law Jurisdictions

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Mobile money is a payment and storage service that uses ‘e-money’—a form of stored value that is not a bank deposit. This briefing note focuses on mobile money provided by non-banks, such as a mobile network operator (the ‘provider’).

In this non-bank model, customers exchange cash for e-money either with an agent or directly with the provider. The customers’ cash (or funds) are held with the provider, and even if the provider deposits these funds with a bank, the funds are not generally protected by the depositor protection provisions that customers enjoy when depositing funds directly with a prudentially regulated bank. This briefing note explores how regulators can protect such customers’ funds from loss in a civil law jurisdiction. An earlier briefing note dealing with the protection of funds in common law jurisdictions can be found here.

Unlike in common law jurisdictions where trusts are available to protect customers’ funds, protection of customers’ funds in civil law jurisdictions is relatively difficult and complicated because the trust concept does not exist. This briefing note considers the three main options (legal instruments) that regulators in civil law countries can utilise to protect customers’ funds: proprietary option (fiduciary transactions), contractual option (mandate contracts) and regulatory interventions (direct regulation or insurance). 1 Analysis of the three options suggests that none of them can provide sufficient protection to customers’ funds independently, thus regulators should adopt a mixed strategy—flexibly using a combination of the three instruments.

The common law trust regulates together rights in personam (e.g., customer rights against the provider of e-money services) and rights in rem (e.g., customer rights over funds), whereas the civil law makes a sharp distinction between the Law of Obligations (for rights in personam) and the Law of Property or ‘Real’ Rights (for rights in rem). Consequently, civil law institutions conceived to regulate one type of right may fall short on the protection of other rights. To provide customers’ funds with similar protection to that provided by the common law trust, regulators should adopt strategies that flexibly combine private law solutions and regulatory institutions. On this basis, this briefing note examines three common legal instruments in civil law countries and analyses how each of them can help achieve the three functions (fund isolation, fund safeguarding and protection of customers’ interests) provided by the common law trust.

Originally Published: 
07/12/2015