Key Highlights
- RPSCS regulation came into force on 15.07.2021
- Allows financial service companies and FinTech’s to participate in retail payment services
- Ensures greater safety during retail digital payment
- Includes four-category licenses with nine types of payment services
The Central Bank of UAE (CBUAE), vide Circular No.15/2021 dated 06.06.2021, issued the Retail Payment Services and Card Schemes (RPSCS) Regulation and stipulated the rules and conditions for acquiring and maintaining a licence for the provision of the retail payment services and card scheme operation.
The regulation was enforced on 15 July 2021, with a one-year time limit for transition, to all existing payment service providers and card schemes for obtaining the relevant licences.
Earlier to this regulation, UAE banks used to be the sole provider of retail digital payment services. However, since the introduction of this new regulation, other financial service providers including FinTech’s can now participate in providing such services.
CBUAE has rolled out this regulation to ensure safety, soundness and efficiency of retail payment services, enhance the reliability of card schemes and public confidence in Card-based payment transactions, create a level playing field for market participants through innovation, helping service providers adopt an effective and risk-based licensing requirement and promoting UAE’s status as a leading payment hub.
Key elements of the licensing regime
The key elements of the RPSCS regulation are as under.
1. The regulation mandates that no entity can provide or promote any retail payment service listed in the regulation without a CBUAE licence. The CBUAE licensed banks are exempted, however, need to notify the CBUAE if they plan to undertake retail payment services.
2. An entity intending to provide Retail Payment Services shall need to apply for one of the four listed categories of License, category 1,2,3 & 4, depending on the types of the Retail Payment Services in the UAE. The regulation specifies licensing of nine types of services as below.
- Payment account issuance services
- Payment instrument issuance services
- Merchant acquiring services
- Payment aggregation services
- Domestic fund transfer services
- Cross-border fund transfer services
- Payment token services
- Payment initiation services, and
- Payment account information services
3. The principal business of the payment services provider (PSP) must be aligned with the retail payments service for which it is granted a payments licence.
4. For ancillary services beyond the scope of its licence, an entity must obtain approval of the CBUAE. A separate entity, duly approved by the central bank, needs to be created for this purpose.
5. The RPSCS regulation excludes its application to the payment transactions involving stored value facilities (SVFs), commodity or security tokens, virtual asset tokens, remittances or currency exchange operations.
6. RPSCS doesn’t cover Payment transactions made between payment service providers and settlement agents, central counterparties, clearing facilities and central banks, or payment transactions and related services between a parent undertaking and its subsidiary or between subsidiaries of the same parent undertaking as long as no intermediary is involved in these payment transactions. Technical support operations involving digital payments are also kept out of the purview of the regulation.
Condition and procedure for licensing
Article 4 deals with the licensing condition and stipulates that at the time of submission of application, PSPs seeking RPSCS license need to fulfil the Legal Form and meet the respective initial capital requirements per License Category specified in Article 6. They should also submit the necessary documents and information specified in the Central Bank application form as provided by the Licensing Division.
Article 5 for Licensing Procedure sets out that the licensing of Applicants shall be subject to the procedure envisaged in the Central Bank’s Licensing Guidelines and it is preferred that PSP management meets with the Central Bank’s Licensing Division before submitting a formal application.
Applications for CBUAE license under any of the Payments Category can only be made by a company incorporated per Commercial Companies Law. The regulation doesn’t throw much light on the eligibility criteria of companies incorporated in the non-financial free zones. Companies in financial free zones in DIFC and ADGM may not apply for payment services licenses.
Initial capital requirements
The regulation specifies the initial capital requirements for each type of licence, with the minimum levels determined based on the average monthly value of payment transactions and the sole exception being the payment initiation services and payment account information services, where an initial capital requirement of a minimum of AED 100,000 is required irrespective of the average monthly value of transactions.
The CBUAE expressly reserves the right to impose higher aggregate capital fund requirements if considered necessary.
Value of payment transactions exceeding AED 10 million for three consecutive amounts, attract higher aggregate capital fund requirement for a PSP and as determined by the CBUAE.
Card scheme
Card schemes are also regulated by RPSCS regulation that requires them to get a licence from the CBUAE. The conditions for these licences as well as the ongoing requirements of licensed card schemes are specified in article 18 of the regulation.
A card scheme may be a private or public sector entity with similar ongoing requirements as those specified for payment services including governance, risk management, reporting, auditing requirements, etc. CBUAE, however, is very discrete in issuing card scheme licenses.
Wage protection system
The RPSCS regulation also specifies participation and accessibility criteria to the wage protection system and allows PSPs to submit applications to the CBUAE to participate in and be given access to the system once approved by the Central Bank.
Conclusion
RPSCS Regulation can be seen as a regulatory enhancement journey of the UAE Central Bank for setting high standards of safety in digital payment systems. The new regulation also promotes competition and innovation and facilitates easier access to banking services in case of the non-availability of traditional banking services.
