The National Payment System Bill, 2011

National Payment System Bill, 2011

THE NATIONAL PAYMENT SYSTEM BILL, 2011

ARRANGEMENT OF CLAUSES

Clause

PART I—PRELIMINARY

1―Short title and commencement.

2―Interpretation.

PART II—PROVISIONS ON DESIGNATION

3―Designation of payment system.

4―Amendment to constitution and rules of designated payment systems.

5―Inspection of constitution and rules of designated payment systems.

6―Designation of payment instrument.

PART III—PROVISIONS RELATING TO OPERATORS

7―Recognition of a payment system management body.

8―Objects, etc of recognised payment system management body.

9―Effecting settlement.

10―Clearing provisions.

11―Payments to third parties.

12―Authorisation of Payment Service Providers (PSP’s)

13―Application for authorisation

14―Renewal of authorisation

15―Revocation of authorisation

16―Netting agreements and rules.

PART IV—PROVISIONS ON REGULATIONAND SUPERVISION

17―Powers and functions of the Central Bank.

18―Prohibition of issuance of payment instruments.

19―Participation by the Central Bank.

20―Provision of information to the Central Bank.

21―Settlement of disputes.

22―Power of Central Bank to advise and direct.

23―Audits and inspection.

24―Reports.

PART V—MISCELLANEOUS

25―Utilization of assets of a designated payment system participant.

26―Retention of records.

27―Use of confidential information for personal gain.

28―Priority of certain instruments on winding up.

29―Misleading advertisements

30―Relief from prosecution.

31―Regulations and guidelines.

32―Transition.

33―Savings.

A Bill for

AN ACT of Parliament to make provision for theregulation and supervision of payment systems andpayment service providers, and for connectedpurposes

ENACTED by the Parliament of Kenya, as follows—

PART I — PRELIMINARY

Short title andcommencement.

1. This Act may be cited as the National PaymentSystem Act, 2011, and shall come into force on such dateas the Minister may, by notice in the Gazette, appoint.

Interpretation.

2. In this Act, unless the context otherwise requires—

“bank” has the meaning assigned to it in the BankingAct(Cap. 488);

“business day’ means any day, other than a Sunday, apublic holiday declared in accordance with the PublicHolidays Act(Cap. 110), or a day declared to be a bank holiday underthe Banking Act(Cap. 488), on which the institutions and theCentral Bank are open to the public for carrying onbusiness functions;

“Central Bank” means the Central Bank of Kenyaestablished under the Central Bank of Kenya Act(Cap. 491).;

“Central Bank of Kenya settlement system” means asettlement system established and operated by, or underthe control of, the Central Bank;

“Central Bank of Kenya settlement systemparticipant” means—

(a) the Central Bank;

(b) a bank, an institution or a branch of a foreigninstitution; or

“clear” means the exchange of payment instructions,and “clearing” shall be construed accordingly;

“clearing, netting and settlement agreements” meanswritten agreements with regard to clearing, netting orsettlement concluded between the Central Bank of Kenyasettlement system participants or settlement systemparticipants;

“designated payment instrument” means a paymentinstrument designated in accordance with section 6;

“designated payment system” means a paymentsystem designated in accordance with section 3”;

“designated payment system operator” means anoperator of a designated payment system”;

“designated payment system participant” means aperson who is-

(a) a participant in a designated payment system; or

(b) a designated payment system operator;

“failure to settle” means the inability of a settlementsystem participant to meet its settlement obligations in aclearing house;

“institution” means a bank, mortgage financecompany or a financial institution as defined in theBanking Act(Cap. 488), or a deposit-taking microfinance business asdefined in the Microfinance Act, (No. 19 of 2006)or any other bodywhich the Minister may, in consultation with the CentralBank, declare, by notice in the Gazette, to be an institutionfor the purposes of this Act;

“Minister” means the minister for the time beingresponsible for matters relating to finance;

“netting” means the determination of the net paymentobligations between two or more settlement systemparticipants within a payment clearing house or thedetermination of the net settlement obligations between two or more settlement system participants within asettlement system;

“payment clearing house” means an arrangementbetween two or more Central Bank settlement systemparticipants, excluding a designated payment system operator, governing the clearing of payment instructions between those Central Bank settlement systemparticipants;

“payment clearing house system operator” means aperson, other than a designated payment system operator,who clears on behalf of any two or more Central Banksettlement system participants;

“payment instrument” means any instrument, whethertangible or intangible, that enables a person to obtainmoney, goods or services, or to otherwise make payment;

“payment instruction” means an instruction to asettlement system participant to transfer funds or make apayment;

“payment obligation” means an indebtedness that isowed by one settlement system participant to another as aresult of the clearing of one or more payment instructions;

“payment service provider” means:-

(i) a person, company or organisation acting asprovider in relation to sending, receiving,storing or processing of payments or theprovision of other services in relation topayment services through any electronicsystem;

(ii) a person, company or organisation whichowns, possesses, operates, manages or

controls a public switched network for theprovision of payment services; or

(iii) any other person, company or organization that processes or stores data on behalf ofsuch payment service providers or users ofsuch payment services;

“payment system” means a system or arrangementthat enables payments to be effected between a payer and abeneficiary, or facilitates the circulation of money, andincludes any instruments and procedures that relate to thesystem;

“payment system management body” means a bodyrecognized by the Central Bank in accordance with section7 ;

“person” includes any legal entity including a trust;

“settlement” means discharge of settlementobligations;

“settlement instruction” means an instruction given toa settlement system by a settlement system participant orby a payment clearing house system operator on behalf ofa Central Bank settlement system participant to effectsettlement of one or more payment obligations, or todischarge any other obligation of one system participant toanother system participant;

“settlement obligation” means an indebtedness that isowed by one settlement system participant to another as aresult of one or more settlement instructions;

“system operator” means a person, other than adesignated payment system operator, authorized in termsof section 8 (2) (c) to provide services to any two or morepersons in respect of payment instructions;

“settlement system” means a system established andoperated by the Central Bank for the discharge of paymentor settlement obligations, or the discharge of payment andsettlement obligations, between system participants in thatsystem;

“settlement system participant” means—

(a) a Central Bank of Kenya settlementsystem participant; or

(b) a designated payment systemparticipant; and

“systemic risk” means the risk that failure of one ormore settlement system participants, for whatever reason,to meet their payment obligations or their settlementobligations may result in any or all of the other settlement system participants being unable to meet their respectivepayment or settlement obligations.

PART II—PROVISIONS ON DESIGNATION

Designation of apayment system

3. (1) The Central Bank may, by notice in the Gazette,designate a payment system for the purposes of this Act, ifit is of the opinion that―

(a) the payment system poses systemic risk;

(b) the designation is necessary to protect theinterest of the public; or

(2) The notice designating a payment system undersubsection (1) shall specify―

(a) the payment system that is the subject of thedesignation;

(b) the operator of the payment system that is thesubject of the designation; and

(3) The Central Bank shall give a written notice ofdesignation of a payment system to the operator of thepayment system that is the subject of designation.

(4) The Central Bank may revoke or vary anydesignation made under this section by –

(a) amending or revoking any condition to which thedesignation may be subject; or

(b) making the designation subject to a new conditionor conditions.

(5) In determining whether or not to revoke or vary adesignation, the Central Bank may have regard to any orall of the following matters –

(a) failure by the designated payment system tocomply with any condition to which thedesignation may be subject;

(b) whether or not the designated payment system hasceased to operate;

(c) whether or not the designated payment systemoperator has knowingly furnished information ordocuments which are false or misleading in any material respect to the Central Bank in connectionwith the designation of the system;

(d) whether or not it is in the public interest to revokethe designation;

(e) any other matter that the Central Bank may deemappropriate.

(6) The revocation of a designation or the variation ofthe conditions to which a designation is subject shall not-

(a) have retroactive effect;

(b) affect the validity or enforceability of the rules ofthe designated payment system, nor shall it affectany payment to or out of the account of a payment

system participant or netting or settlement thattook place, prior to the coming into effect of suchrevocation or variation.

(7) Revocation of designation of a payment system orvariation of conditions thereof, if any, shall be by notice inthe Gazette, and advice thereof shall be given in writing tothe designated payment system operator.

(8) Without prejudice to Section 32 (1), an operator ofa payment system shall, upon advice by the Central Bankto that effect, and within such period as the Bank mayprescribe, apply for the designation of the payment systemunder this Act.

(9) A person who, upon receipt of advice from theCentral Bank in accordance with subsection (8)-

(a) fails or refuses to apply for designation of apayment system in accordance with the advice; and

(b) continues to operate a payment system that has notbeen designated under this Act commits an offence.

Amendment toconstitution andrules ofdesignated

4. No amendment to the constitution of anydesignated payment system, or to the rules governing thesystem, shall have effect until they have been approved bypayment system. the Central Bank.

Inspection ofconstitution andrules ofdesignatedpayment system.

5. The constitution of every designated paymentsystem and the rules governing the system, together withany amendment to that constitution and those rules, shallbe kept at—

(a) the offices of the Central Bank; and

(b) the head office in Kenya of every participantin the system,

and shall be open for inspection by members of the publicat all times during normal office hours.

Designation ofpaymentinstrument.

6. (1) The Central Bank may, by notice in the Gazette,designate a payment instrument for purposes of this Act, ifthe Bank is of the opinion that –

(a) the payment instrument is of widespread useas a means of making payment and mayaffect the payment systems of Kenya;

(b) the designation is necessary to protect theinterests of the public; or

(2) The notice designating a payment instrumentunder subsection (1) shall specify-

(a) the payment instrument that is the subject ofthe designation;

(b) the issuer of the payment instrument that is thesubject of the designation; and

(3) Where a payment instrument has been Gazettedfor designation, pursuant to subsection (1) and (2), theissuer of that payment instrument shall comply with suchrequirements as the Central Bank may specify.

(4) The Central Bank shall give a written notice ofdesignation of a payment instrument to the issuer of thepayment instrument that has been designated pursuant tosection 6(1).

(5) The Central Bank may revoke or vary anydesignation of a payment instrument granted under section6(1) if, in the opinion of the Central Bank, the issuer of designated payment instrument has-

(a) contravened any of the provisions of this Act orregulations made thereunder;

(b) contravened any restriction or condition towhich the designation is subject;

issued by the Central Bank under this Act;

(d) made a false, incorrect or misleading statementin the documents or information submittedunder subsection (3);

(e) ceased issuing the payment instrument for acontinuous period of six months;

(f) goes into liquidation or is wound up or isotherwise dissolved;

(g) it is in the public interest to vary or revoke thedesignation;

(h) there exists any other ground which in theopinion of the Central Bank warrants variationor revocation.

(6) The Central Bank shall, before making a decisionto revoke the designation under subsection (5), offer theissuer of a designated payment instrument a reasonableopportunity to make representations.

(7) The revocation of a designation or the variationof conditions to which a designation is subject shall nothave retroactive effect.

(8) Revocation of designation of a paymentinstrument or variation of conditions thereof, if any, shallbe by notice in the Gazette, and written advice thereofshall be given to the designated payment instrument issuer.

(9) Without prejudice to section 32 (1), an issuer ofa payment instrument shall, upon written advice from theCentral Bank to that effect, and within such period as theBank may prescribe, apply for the designation of thepayment instrument under this Act.

(10) A person who, upon receipt of advice by theCentral Bank in accordance with subsection (9) -

(a) fails or refuses to apply for designation of apayment instrument in accordance with theadvice commits an offence and is liable, onconviction, to a fine not exceeding onemillion shillings, or to imprisonment for aterm not exceeding five years, or both; and

(b) continues to issue a payment instrument thathas not been designated under this Act,commits an offence and is liable to a fine notexceeding five hundred thousand shillings orto imprisonment for a term not exceedingthree years or both.

PART III—PROVISIONS RELATING TOOPERATORS

Recognition of apayment systemmanagementbody.

7. (1) The Central Bank shall, upon designation of apayment system under this Act, automatically recognize the management body of such payment system.

(2) A payment system management body recognized pursuant to the provisions of this section shall be subject tothe guidelines that may be issued by the Central Bankfrom time to time.

(3) Where a payment system management bodyrecognised under subsection (1) oversees only onedesignated payment system, the recognition of thepayment system management body shall stand revokedupon revocation of designation of the payment system:

Provided that, where a recognised payment systemmanagement body manages several designated paymentsystems, the revocation of designation of any one of thepayment systems shall not affect the recognition status ofthe payment system management body with respect to thepayment systems whose designation has not been revoked.

Objects, etc of recognized payment systemmanagementbody.

8. (1) A recognised payment system managementbody shall manage and regulate, in relation to its members,all matters affecting payment instructions, and inconnection with those objects, shall—

(a) provide a forum for the considerationof matters of policy and mutualinterest concerning its members;

(b) act as a medium for communicationby its members with the Government,

the Central Bank, any financial orother exchange, other public bodies,authorities and officials, the newsmedia, the general public and otherprivate associations and institutions;and

co-operation among them.

(2) In addition to any other provisions, the rules of arecognised payment system management body shallempower that body—

(a) to admit members and to regulate,control and with the approval of theCentral Bank terminatemembership;

(b) to constitute, establish or dissolveany body, committee or forum consisting of its members and whichhas an impact on, interacts with,has access to or makes use of anypayment, clearing or settlementsystems or operations;

(i) recommend for approval bythe Central Bank criteriasubject to which any person

is to be granted limitedmembership of the paymentsystem management body or

is to be authorized to act as asystem operator or apayment clearing housesystem operator within apayment system; and

(ii) authorize that person to actas a system operator orpayment clearing house

system operator inaccordance with that criteria;and

(d) to recommend for approval by theCentral Bank criteria subject to and

in accordance with which a memberwho is also a Central Banksettlement system participant maybe authorized to—

(i) allow a bank, an institutionor a branch of a foreigninstitution that is not aCentral Bank settlementsystem participant to clear;or

(ii) clear on behalf of a bank, aninstitution or a branch of aforeign institution that is nota Central Bank settlementsystem participant:

Provided that the member shall settle paymentobligations on behalf of such bank, an institution or branchof a foreign institution referred to in subparagraphs (i) and(ii).

Effectingsettlement.

9. (1) Settlement shall be effected by payment ofmoney or by means of entries passed through the CentralBank settlement system or a designated payment system.

(2) A settlement that has been effected by payment ofmoney or by means of an entry to the credit of the accountmaintained by a settlement system participant in theCentral Bank settlement system or a designated paymentsystem shall be final and irrevocable.

(3) An entry to or payment out of the account of adesignated payment system participant to settle a paymentor settlement obligation in a designated payment systemshall be final and irrevocable.

Clearingprovisions.

10. (1) A person shall not clear payment instructionsunless that person is—

(a) a Central Bank settlement systemparticipant; or

(b) a bank, an institution or a branch of aforeign institution that is allowed to

clear in terms of section 8 (2) (d) (i).

(2) A person who contravenes the provisions ofsubsection (1) commits an offence and shall be liable, onconviction, to a fine not exceeding five hundred thousandshillings or imprisonment for a term not exceeding threeyears, or both.

Payments to thirdparties.

11. A person may, as a regular feature of that person’sbusiness, accept money or payment instructions from anyother person for purposes of making payment on behalf ofthat other person to whom that payment is due, if—

(a) the first-mentioned person is the Central Bank,a bank, an institution or a branch of a foreigninstitution, a payment service provider or adesignated payment system operator; or

(b) the first-mentioned person is the PostalCorporation of Kenya established under thePostal Corporation of Kenya Act,(No. 3 of 1998)theKenya Post Office Savings Bank establishedunder the Kenya Post Office Savings BankAct(Cap. 493B), a building society established under theBuilding Societies Act(Cap. 489); and

(c) the money is accepted or payment is made inaccordance with directives issued by theCentral Bank from time to time in accordancewith section 22.

Authorisation ofpayment serviceprovider.

12. (1) No person shall, in Kenya conduct the businessof a payment service provider except an authorized payment service provider.

(2) A person who contravenes the provisions ofsubsection (1) commits an offence and shall, on convictionbe liable to a fine not exceeding five hundred thousandshillings, or to imprisonment for a term not exceedingthree years, or to both.