REPUBLIC OF DJIBOUTI

UNITY-EQUALITY-PEACE

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PRESIDENCY OF THE REPUBLIC

Law No. 118/AN/15/7th Legislature

Establishing a National Payment System, its Regulation, and its Supervision.

THE NATIONAL ASSEMBLY HAS ADOPTED

THE PRESIDENT OF THE REPUBLIC PROMULGATES

THE LAW WHOSE CONTENT FOLLOWS

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Having regard to the Constitution of September 15, 1992;

Having regard to Law No. 118/AN/11/6th Legislature of January 16, 2011, repealing Law No. 91/AN/05/5th Legislature of January 16, 2005, establishing the Statutes of the Central Bank;

Having regard to Law No. 119/AN/11/6th Legislature of January 16, 2011, relating to the constitution and supervision of credit institutions and financial auxiliaries;

Having regard to Law No. 110/AN/11/6th Legislature of May 25, 2011, relating to the fight against the financing of terrorism;

Having regard to Law No. 111/AN/11/6th Legislature of May 25, 2011, relating to the fight against terrorism and other serious offenses;

Having regard to Law No. 112/AN/11/6th Legislature of May 25, 2011, supplementing Law No. 196/AN/02/4th Legislature on money laundering, confiscation, and international cooperation regarding proceeds of crime;

Having regard to Book 3 of the Commercial Code on Company Law;

Having regard to Decree No. 2016-109/PRE of May 11, 2016, appointing the Prime Minister;

Having regard to Decree No. 2016-110/PRE of May 12, 2016, appointing members of the government;

Having regard to Circular No. 201/PAN of June 26, 2016, convening the fifth public session of the First Ordinary Session of the year 2016;

The Council of Ministers heard in its session of November 24, 2016.

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FIRST PART

GENERAL CONSIDERATIONS

SECTION 1: TITLE AND SCOPE

This Law is referred to as the "Law on the National Payment System." It applies throughout the Republic of Djibouti and covers any payment service and system operated partially or entirely within the country.

SECTION 2: DEFINITIONS OF TERMS

Article 1: Definitions

Within the framework of this law and unless the context requires a different meaning,

a) "Agent" refers to any natural or legal person duly authorized to exercise their activity on behalf of a bank or a payment service provider.

b) "Bank" refers to a credit institution, in accordance with the definition in Article 3 of the Banking Law No. 119/AN/11/6th Legislature.

c) "Bill of exchange" is a instrument by which a "drawer" mandates their debtor, known as the "drawee," to pay a certain sum of money to a third party, known as the "payee," on a specific date. The amount for which it is issued corresponds to a claim (the provision) held by the drawer against the drawee; it must be liquid and due on the date fixed for payment. The bill of exchange is subject to mandatory formal conditions specified in Article L.2272-110 of the Commercial Code.

d) "Central Bank" refers to the Central Bank of the Republic of Djibouti (BCD).

e) "Central Counterparty" (CCP) refers to the entity that interposes itself between buyers and sellers, taking on the role of buyer from every seller and seller to every buyer within the framework of a settlement system.

f) "Central Securities Depository" (CSD) refers to the entity within which registered securities are immobilized. The CSD allows for the processing of this type of transaction through dematerialized management. Securities can be held at the CSD either in dematerialized form (i.e., electronic format) or in physical form. The CSD also provides custody and asset management services.

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g) "Check" refers to an instrument by which a person called the "drawer" orders a banker or an assimilated establishment, the "drawee," to pay on demand a determined sum either to their own benefit, or to a third party, the "payee," or bearer, or to their order. The check is subject to formal conditions specified in Art. L.2271-111 of the Commercial Code.

h) "Electronic check" refers to a check in digital representation (image) of the front and back of the paper (physical) check, which is generated, filled out, and signed within a secure system, thereby guaranteeing a minimum level of security standards, in accordance with the requirements of the Central Bank.

i) "Clearing" refers to the process of transmitting, reconciling, and/or confirming instructions for fund transfers or securities prior to settlement, which includes clearing instructions and the definition of final settlement positions.

j) "Clearing House" refers to any entity that provides clearing or settlement services for a system, including the Central Bank.

k) "Settlement System" refers to a set of procedures under which participants submit and exchange information relating to the transfer of funds or securities to other participants through a centralized system or in the same location, and which includes mechanisms for calculating participant positions bilaterally or multilaterally to facilitate the settlement of their obligations.

l) "Close-out netting" refers to a clearing agreement under which, following a predefined event by the parties to the agreement, all or part of the operations covered by the clearing agreement may be terminated, meaning that the value at maturity becomes due.

m) "Collateral" refers to an asset delivered by the provider of the collateral to secure an obligation to the taker. Collateral agreements can take various legal forms; collateral can be obtained using the method of transfer of ownership or pledge.

n) "Credit Card" refers to a card authorizing its holder (whose name is inscribed on the front of the card) to charge goods or services to the holder's account in the form of credit subject to repayment over a specified period of time.

o) "Payment Card" refers to any card issued by a credit institution or by an institution or service authorized to issue it, allowing its holder to withdraw or transfer funds.

p) "Debit Card" refers to any card issued by an establishment, institution, or service authorized to issue it, allowing exclusively its holder to withdraw funds.

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q) "Transfer" refers to the entire chain of transfers necessary to effect payment to the beneficiary, starting with the payment order from the payer. The term encompasses any payment order issued by the Bank or by the Payer's Payment Service Provider, or by an intermediary, intended to execute the payer's payment order.

r) "Debit Card" refers to a card or access method by which money is automatically deducted from an account to pay for goods or services.

s) "Debit Transfer" refers to the series of transfers initiated by the beneficiary (established on the payer's consent towards the beneficiary) to the beneficiary's payment service provider or that of the payer. The term encompasses any payment order issued by the Bank or by the payment service provider of a beneficiary, or by the intermediary, and intended to execute the payment order.

t) "Electronic Money" refers to any electronic, magnetic, or other hardware or software device (SIM card or software), capable of storing monetary value representing a claim on the issuer, which is issued against the receipt of funds for the purpose of carrying out payment transactions, and which is accepted by persons other than the issuer.

u) "Electronic Presentment of Checks" refers to the electronic transmission, by an establishment authorized to draw a check, of a check image and its payment data, to the beneficiary's institution to which it is drawn.

v) "Electronic Transfer" refers to any fund transfer initiated by a person by instruction, authorization, or order issued to a Payment Service Provider for the purpose of debiting or crediting an account domiciled with this provider electronically. This includes, non-exhaustively, transfers made at point of sale terminals, ATM operations, direct deposits, cash withdrawals, or transfers made by telephone, internet, cards, or any other device.

w) "Gross Settlement" refers to the settlement of funds or securities transfer instructions processed individually, instruction by instruction.

x) "Multilateral Clearing" refers to an agreement between three or more parties to offset each other's obligations.

y) "National Payment System" refers to the set of services related to the sending, receiving, and processing of payment orders or money transfers in local currency or foreign currency, including:

i. The issuance and management of payment instruments,

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ii. Clearing and settlement systems, including those capable of managing securities, as well as the arrangements and procedures related to these systems and services, such as links, and

iii. Payment service providers, including system operators, various stakeholders, and any third party acting on their behalf, either as agents or under outsourcing contracts, whether partially or entirely, as long as they operate entirely or partially within the territory of the Republic of Djibouti.

z) "Net Settlement" refers to a settlement procedure under which the final settlement of transfer instructions occurs on a net basis at a specific time or in several distinct occurrences determined in advance during the processing day.

aa) "Net Termination Value" refers to the net amount obtained after offsetting obligations between parties, in accordance with the settlement rules issued by the Central Bank or under the clearing agreement concluded between the parties.

bb) "Clearing Agreement" refers to a written agreement aimed at converting multiple claims or obligations into a single net claim or a single net obligation. This includes bilateral clearing, multilateral clearing, novation clearing, close-out netting, payment clearing, or a combination of all of the above.

cc) "Novation Clearing" refers to a clearing agreement between parties to effect a series of operations with an account of sums due where the rights and obligations of the parties relating to the account are extinguished upon their confirmation and replaced by a single new amount payable by one party to the other.

dd) "Clearing" refers to the definition of net payment obligations or the definition of the net termination value of settlement obligations between two or more participants within a system.

ee) "Operator" refers to the Central Bank or any other entity duly authorized (approved) by the Central Bank to manage a system.

ff) "Participant" refers to a party who, according to the rules of a system, is authorized to exchange, clear, and settle amounts directly or indirectly through the system with other participants. A direct participant is a participant in a given system, which is responsible for the settlement of its own payments, those of its clients, and those of indirect participants on whose behalf it effects settlement.

gg) "Payment Instrument" refers to any instrument, tangible or intangible, allowing a person to obtain money, goods, or services, make payments, or transfer money. This includes, non-exhaustively, checks, fund transfers issued by a

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physical or electronic device (ATMs, point of sale terminals, Internet, mobile telephony), payment cards, including those capable of storing electronic money.

hh) "Payment Service Provider" refers to any entity that offers Payment Services.

ii) "Payment Services" refers to:

i. Services allowing the deposit and withdrawal of cash,

ii. the execution of payments,

iii. the issuance and/or acquisition of payment instruments,

iv. the provision of services for sending and receiving funds, as well as

v. other functional services for the transfer of money.

This also includes the issuance of electronic money and electronic money instruments. The term does not include the exclusive provision of online services nor telecommunications or network access services.

jj) "Payment System" refers to any system or mechanism for processing, clearing, and/or settling funds.

kk) "Real-Time Gross Settlement" (RTGS) refers to a settlement that executes the final settlement of funds, payment obligations, and dematerialized operations of securities and instruments on a case-by-case basis and in real time, as they occur during normal working hours.

ll) "Money Transfer Services" and "Remittance Services" refer to a payment service that accepts cash or other payment instruments (including electronic money instruments) in one location, and pays the corresponding sum in cash or in another form to a beneficiary located in another physical location, via communication, message, transfer, or any other clearing network of which it is part.

mm) "Settlement Agent" refers to an entity that provides accounts to participants of a system to hold funds and settle transactions between participants of a system.

nn) "Settlement Rules" refers to the basic rules on which payment obligations are calculated or settled. They include measures to be taken in the event that a participant risks being unable to meet its obligations towards a payment system, the clearing house, the central counterparty (CCP), or other participants. These rules also cover the settlement of securities obligations.

oo) "Settlement System" refers to a system established and managed by the Central Bank or any other system for the execution of payment obligations as well as the settlement of securities-related obligations.

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pp) "Settlement" refers to the act of discharging obligations by transferring funds or securities between two or more parties.

Unless otherwise provided, the term "system" in this law refers indistinctly to a payment, clearing, and/or settlement system.

SECOND PART

POWERS AND DUTIES OF THE CENTRAL BANK

SECTION 3: GENERAL POWERS

Article 2:

In accordance with Article 7 of the BCD Statutes, the Central Bank must regulate and supervise the National Payment System as a whole to reduce potential risks and gaps.

To this end, it must:

(a) Develop policies for the modernization of the National Payment System;

(b) Approve Payment Service Providers and System Operators in accordance with the terms of this law and any subsequent implementing measures;

(c) Clearly define the conditions, standards, rules, and/or general or individual procedures in accordance with this law and any other complementary implementing measures relating to approved entities and their activities, and ensure that these conditions, standards, rules, and procedures are duly applied;

(d) Act as a forum to examine policy and mutual interest issues regarding the national payment system; and

(e) Carry out other payment, clearing, or settlement system-related tasks, or the issuance of payment instruments, enabling it to exercise its responsibilities.

SECTION 4: OPERATIONAL ROLE OF THE CENTRAL BANK

Article 3:

The Central Bank may grant facilities for the needs of payments, clearing and settlement systems, operators, or their participants.

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In this regard, the Central Bank may:

(a) Create, own, manage, and participate in the ownership or management of settlement, payment, and clearing systems;

(b) Play the role of Central Counterparty for participants;

(c) Hold cash accounts for operators and participants, usable for clearing and settling transfers in a system;

(d) Hold securities accounts for operators and participants, which can be used to ensure the proper functioning of systems;

(e) Grant intraday credits, the amounts of which are determined by the Central Bank, to entities participating in settlement, payment, and clearing systems in compliance with Article 30 of Law No. 118/AN/11/6th Legislature or any other provision successively modifying this provision. Sufficient collateral must be provided to the Central Bank for this purpose; and

f. Act as the Central Securities Depository for government securities.

SECTION 5: COOPERATION WITH OTHER AUTHORITIES

Article 4:

The Central Bank must cooperate with other competent public bodies whose responsibility is to regulate and supervise financial institutions and other entities involved directly or indirectly in the provision and operation of payment services in the Republic of Djibouti, or to regulate, control, and supervise the country's capital markets. In this regard, the Central Bank has the power to conclude memoranda of understanding.

Article 5:

The Central Bank has the power to cooperate with other monetary authorities and international organizations responsible for regulating and supervising payments. This also includes the power to conclude memoranda of understanding.

SECTION 6: CREATION OF THE NATIONAL PAYMENT SYSTEMS COUNCIL

Article 6:

The Central Bank has the power to establish a National Payment Systems Council (hereinafter referred to as "the Council") by directive.

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Article 7:

The objective of the Council is to advise the Central Bank on the regulation and supervision of the national payment system, notably, non-exhaustively, on the creation of operational and technical standards and other considerations relating to payment services, clearing, and settlement of payments and securities.

Article 8:

The Central Bank is responsible for issuing relevant measures to define the Council's charter, which must include, non-exhaustively:

(a) The composition and number of Council members

(b) The scope and general objectives

(c) The sources of the Council's operating budget

THIRD PART

LICENSES

SECTION 7: LICENSING PRINCIPLE

Article 9:

No one may offer payment services or manage a system unless duly approved to do so by the Central Bank. The Central Bank's powers in granting licenses also include the suspension or revocation of the license under certain circumstances.

Article 10:

To obtain a license from the Central Bank, the applicant may be required to have a minimum capital. The amount of capital is defined based on the type of service offered, the average value of payments, the total value, and other factors that the Central Bank deems appropriate.

Article 11:

The Central Bank may substitute the licensing requirement with simple registration where the provider offers payment instruments that do not involve specific risks for the market or that are unlikely to compromise competitiveness.

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Article 12:

Banks that already offer payment services under a general banking license are not required to obtain a new license to offer payment services or issue new payment instruments under this law. However, they are required to comply with operational requirements, reporting, and communication requirements that may be imposed by the Central Bank; they are also subject to the supervision requirements for entities approved under this law. They are required to obtain a license to manage systems.

Article 13:

To obtain a license, an application must be submitted to the Central Bank, in accordance with the terms and conditions provided by the regulations issued by it regarding payment, upon payment of the prescribed one-time fees.

Article 14:

A license or right acquired under this law, in whole or in part, is not transferable, except in cases prescribed by the Central Bank; any transfer contrary to this law is considered null and void.

Article 15:

A license granted under this law may be renewed in this manner and subject to the payment of these fees and/or other payments prescribed by regulation, and in the absence of regulation, according to administrative orders or other directives issued by the Central Bank.

Article 16:

For the purposes of this law, the Central Bank has the power to modify the conditions of a license granted under this law, by substitution, addition, omission, or any other modification it deems appropriate. When the Central Bank decides, of its own accord, to modify the conditions of a license, it must serve notice to the license holder to inform them of the reasons for the proposed modification, and grant a period of 15 days, during which the holder may submit their comments regarding the proposed modification. Upon receiving any comments, the Central Bank takes them into consideration and decides whether to validate or modify the proposed amendment.

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Article 17:

The Central Bank may, at the request of the holder, modify the conditions of a license if it considers that the proposed modification is justified and relevant.

FOURTH PART

SUPERVISION

SECTION 8: INDIVIDUAL AND GENERAL MEASURES OF THE CENTRAL BANK

Article 18:

The Central Bank may, at any time, recommend general standards and criteria by regulation or recommendations to ensure the operation of payment services or the proper functioning of systems; these general measures may be addressed to all entities or a specific category.

Article 19:

At any time, the Central Bank may issue directives to approved payment service providers or system operators regarding governance, management, operation, customer relations with systems; and any other aspect favoring the application of this law.

Article 20:

In the exercise of its functions under this law, the Central Bank may, if it deems it necessary, examine, with or without prior written notice, the premises, devices, equipment, machinery, accounting books, or any other document, account, or transaction of a participant in the payment system, an approved operator, or an issuer of payment instruments, as well as all its establishments in the country or internationally.

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SECTION 9: SYSTEM RULES

A

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