The Covid-19 Pandemic has undoubtedly accelerated the growth of the electronic commerce (“e-commerce”) industry and the rise of cashless transaction in Malaysia. Cashless payment method including payments made via electronic money (“e-money”) was highly encouraged during the Covid-19 outbreak as it can effectively avoid physical contacts and facilitate social distancing. In fact, even before the Covid-19 Pandemic, Malaysians were no stranger to e-money. One of the most recognizable form of e-money which is widely used in Malaysia is the Touch n’ Go card.
Generally, e-money can be utilized by consumers to purchase goods and services from any third-party merchants who are willing to accept this form of cashless payment method. However, it may be a concern to the consumers and merchants of the security of the e-money stored in their electronic wallet (“e-wallet”) or physical card. In this article, we will discuss about the governing laws, regulatory approvals and the safeguards in place in relation to e-money transactions in Malaysia.
What is E-money?
- E-money is one of the payment instruments in Malaysia which is governed by the Financial Services Act 2013 (“FSA”) where it contains monetary value that is paid in advance by the user to the e-money issuer.
- It is defined under the Financial Services (Designated Payment Instruments) Order 2013 as a designated payment instrument, whether tangible or intangible that:
- stores funds electronically in exchange of funds paid to the issuer; and
- is able to be used as a means of making payment to any person other than the issuer.
- E-money can be issued in two forms, such as card-based which are prepaid cards and network-based which can be accessible via the internet, mobile phones or any other devices.
- An issuer of e-money (“EMI”) refers to any person that is responsible for the payment obligation and assumes the liabilities for the e-money being issued.
- Besides Touch n’ Go Sdn Bhd, some other examples of non-bank EMIs are AEON Credit Services (M) Bhd, BigPay Malaysia Sdn Bhd and ShopeePay Malaysia Sdn Bhd.
- According to the list of regulatee of Bank Negara Malaysia (“BNM”) for EMI, there are 47 non-bank EMIs and 6 bank EMIs which are approved by BNM (as of the date of this article).
What is the regulatory approval(s) or licence(s) required for the issuance of e-money in Malaysia?
- An approval by BNM pursuant to Section 11 of the FSA is required for the issuance of any designated payment instruments in Malaysia and this includes e-money.
What are the guidelines applicable to e-money issuers in Malaysia?
- On 21 July 2008, BNM issued a Guideline on Electronic Money (“Guideline”) which shall be adhered to and adopted by existing EMIs in Malaysia and the applicants seeking the approval of BNM as an EMI.
- This Guideline stipulates the operational requirements, specific requirements and minimum standards to be observed and complied by EMIs during the operation of their respective e-money schemes.
- The main regulatory objective in overseeing e-money operations is to promote the safety and reliability of e-money, and therefore enhance users’ and merchants’ confidence in the usage or acceptance of payments of e-money.
- Under the Guideline, the EMIs are divided into the following categories:
- Issuer of small e-money scheme – with purse limit not exceeding RM200 and outstanding e-money liabilities of less than RM1 million; and
- Issuer of large e-money scheme – with purse limit exceeding RM200 (maximum limit capped at RM1,500 or any such amount as approved by BNM) and outstanding e-money liabilities for six consecutive months amounting to RM1 million or more.
- EMI for small e-money scheme is required to place all funds collected in exchange of the e-money issued in a deposit account with a licensed institution, separated from its other accounts, and should be managed by the EMI in a manner akin to a trust account arrangement. The funds can only be used for the purpose of refunding to users and payment to merchants.
- EMI of large e-money scheme is specifically required under the Guideline to deposit all funds collected in exchange of the e-money issued in a trust account established in accordance with the Trustee Act 1949 with a licensed institution.
- Such requirement of establishing trust arrangements serves as a protection to safeguard the funds collected from the users in exchange of the e-money.
- According to the Guideline and the Financial Services (Minimum Amount of Capital Funds) (Approved Person) Order 2013, EMI of small e-money scheme is required to maintain the minimum capital funds of RM100,000 while EMI of large e-money scheme is required to maintain the minimum capital funds of RM5 million or 8% of its outstanding electronic money liabilities, whichever is higher.
- EMI shall adhere to the six principles as outlined in the operational requirements under the Guideline, which include:
- establishing adequate governance and operational arrangements;
- ensuring proper risk management is in place;
- ensuring that the risks of using e-money, and rights and responsibilities of all stakeholders are clearly defined and disclosed;
- ensuring prudent management of funds;
- ensuring timely refund of stored value in the e-money; and
- implementing adequate measures to prevent the use of e-money for money laundering and ensuring compliance with other requirements.
Will the current Guideline be repealed?
- BNM has on 11 June 2021 issued an exposure draft of the policy document on e-money (“Exposure Draft”) setting out BNM’s proposed regulatory requirements and guidance for approved EMI as well as future applicants seeking to be approved as an EMI.
- The deadline for the feedback from public on the Exposure Draft was 31 July 2021.
- The proposed contents in the Exposure Draft will only come into effect upon the issuance of the final policy document and it shall replace and supersede the current Guideline.
- The scope of the Exposure Draft is wider and more comprehensive than the current Guideline.
- In the Exposure Draft, BNM seeks to divide EMIs into the following categories:
- Eligible EMI;
- Standard EMI;
- Non-Bank EMI; and
- Limited Purpose EMI.
- Limited Purpose EMI is a new category of EMI introduced by BNM where such EMI is exempted from procuring BNM’s approval to issue e-money.
- The proposed contents of the Exposure Draft have also covered the enhanced requirements on governance, risk management, Information Technology (“IT”) as well as the regulatory processes.
BNM seeks to ensure the safety and soundness of e-money schemes in Malaysia via the issuance of the e-money Guideline and recently the Exposure Draft which will be implemented upon its finalization. It is a fact that there must be an adequate level of security and reliability in e-money schemes to preserve and enhance the confidence of consumers and/or merchants in the usage and acceptance of e-money.