Law No. 1/07 of May 11, 2018 on the National Payment System

REPUBLIC OF BURUNDI

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PRESIDENT'S OFFICE

LAW NO. 1/07 OF MAY 11, 2018 ON THE NATIONAL PAYMENT SYSTEM

THE PRESIDENT OF THE REPUBLIC,

Having regard to the Constitution of the Republic of Burundi;

Having regard to the Law of June 29, 1962 on the Maintenance in Force of Certain Legislative and Regulatory Acts Enacted by the Tutelary Authority;

Having regard to Law No. 1/02 of February 4, 2008 on the Fight Against Money Laundering and the Financing of Terrorism;

Having regard to Law No. 1/34 of December 2, 2008 on the Statutes of the Bank of the Republic of Burundi;

Having regard to Law No. 1/09 of May 30, 2011 on the Code of Private and Publicly Participated Companies;

Having regard to Law No. 1/01 of January 16, 2015 on the Revision of Law No. 1/07 of April 26, 2010 on the Commercial Code;

Having regard to Law No. 1/10 of August 12, 2016 Governing Conventional Movable Securities in Burundi;

Having regard to Law No. 1/17 of August 22, 2017 Governing Banking Activities;

Having regard to Law No. 1/27 of December 29, 2017 on the Revision of the Penal Code;

Having regard to Law No. 1/05 of January 23, 2018 on the Insolvency of Merchants in Burundi;

The Council of Ministers having deliberated;

The National Assembly and the Senate having adopted;

PROMULGATES:

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CHAPTER I: GENERAL PROVISIONS

Article 1: Definition of Terms and Expressions

In this law, the terms and expressions listed below mean:

1. Settlement Agent: an entity that makes settlement accounts available to participants in Systems, through which transfer orders in these Systems are settled/paid, and which, where applicable, grants credit to these participants for settlement purposes;

2. Bank: a bank within the meaning of the law governing banking activities;

3. Central Bank: the Bank of the Republic of Burundi;

4. Beneficiary of the Guarantee: an entity that benefits from a financial security within the framework of a financial guarantee contract, with or without transfer of ownership;

5. Close-out Netting Clause: a provision of a financial guarantee contract or any other agreement containing a financial guarantee agreement under which the occurrence of a triggering event, whether through a netting operation, novation, or otherwise, leads to the following effects:

   a. The obligations of the parties are accelerated so that said obligations become immediately due and expressed as an obligation to pay an amount representing their value, or are extinguished and replaced by an obligation to pay such an amount; and/or

   b. The obligations of each party will be determined vis-à-vis the others in such a way as to generate a net balance resulting from the netting, payable by the party owing the higher amount to the other.

6. Netting: a conversion of claims and obligations resulting from transfer orders issued or received between participants into a single net claim or obligation so that only a net claim can be demanded or a net obligation can be due. Netting includes bilateral and multilateral netting, whether with or without novation;

7. Settlement Account: an account in the books of a settlement agent, used for the deposit of funds and financial instruments, and for the settlement of transfer orders between participants in a System;

8. Relevant Account: with respect to collateral registered in an account, the register or account that may be maintained by the beneficiary of the guarantee, in which entries are made and through which the collateral is provided to the beneficiary;

9. Financial Guarantee Contract: is a contract allowing the transfer of a right over funds or securities, notably by way of pledge or repurchase, to guarantee the proper performance of an underlying obligation, such as the repayment of a loan. It may be a financial guarantee contract with transfer of ownership, such as a "repo" repurchase agreement, or a financial guarantee contract without transfer of ownership, such as a pledge.

10. Financial Guarantee Contract with Transfer of Ownership: an agreement under which the grantor of the guarantee transfers full ownership of the financial security to the beneficiary of the guarantee in order to guarantee or secure, in another form, the performance of the guaranteed obligations, for example a repurchase agreement ("repo");

11. Financial Guarantee Contract without Transfer of Ownership: an agreement under which the grantor of the guarantee transfers possession and not full ownership of the financial security to the beneficiary of the guarantee in order to guarantee or secure, in another form, the performance of the guaranteed obligations, notably by way of a pledge or chattel mortgage contract;

12. Grantor of the Guarantee: an entity that provides a financial security within the framework of a financial guarantee contract, with or without transfer of ownership;

13. Dematerialization: the replacement of an original check, bill of exchange, promissory note, or security by a substitute or by information relating to the initial instrument, in electronic form, with or without delivery of the original instrument.

14. Payment Instrument Issuer: any entity that provides payment instruments to users to make payments;

15. Cash: cash credited to an account in any currency, or any other similar claim entitling the holder to the restitution of money, such as money market deposits;

16. Financial Institution: a financial institution within the meaning of the banking law;

17. Triggering Event: a default or similar event agreed upon by the parties and whose occurrence, under a financial guarantee contract or by law, allows the beneficiary of the guarantee to realize the financial security or appropriate it, or triggers the application of a close-out netting clause.

18. Pledge: In financial matters, a contract by which the grantor hands over financial means or cash to the creditor as security for his debt, so that the beneficiary of the guarantee obtains possession or control of the collateral assets.

19. Financial Guarantee: a financial security materialized by cash, account deposits, financial instruments, or precious metals within the framework of a financial guarantee contract;

20. Collateral Registered in Account: constitute types of collateral represented by securities, which are registered in a register or in an account maintained by an intermediary or on its behalf and relating to financial instruments and precious metals provided within the framework of a financial guarantee contract.

21. Microfinance Institution: an entity authorized by the Central Bank to carry out microfinance activities in Burundi.

22. Financial Instruments: securities or contracts, some of which are negotiable on regulated markets, others exclusively used to anticipate financial or monetary profitability or risk;

23. Microfinance: an activity carried out by legal entities that practice credit and/or savings collection operations and offer specific financial services for the benefit of populations largely operating outside the traditional banking circuit.

24. Payment Instruments: include all instruments that, regardless of the medium or technical process used, including by electronic money, telephone, and other information and communication techniques, allow a person, whether or not holding a payment account, to make payments and/or transfer funds in favor of another person or in their favor. These instruments are checks, bills of exchange, promissory notes, electronic money, stored on a prepaid card or on a server, transfers, direct debits, credit and debit cards, or any other means allowing persons to make payments, with the exception of banknotes and coins;

25. Notify or Notification: to inform or act of informing by registered letter;

26. Operator: the entity responsible for managing the System;

27. Transfer Order:

    a. any instruction given by a participant in a System to make a sum of money available to a recipient by means of an entry in the electronic register or an electronic transfer to the settlement account of a participant, or any instruction that results in the acceptance or execution of a payment obligation as defined by the operating rules of the System, or

    b. an instruction given by a participant in a System to transfer the ownership of one or more financial instruments or the right to one or more financial instruments to another participant by means of an entry in a register, or in another form;

28. Participant: type of institutions/entities eligible to participate in a System. The term refers to the Central Bank, a foreign Central Bank, local and foreign banks, financial institutions, microfinance institutions, the National Post Office (RNP), a settlement agent, an operator, or any entity that can participate in the System.

It is up to each System to determine, in its rules, who can participate in the System, under what conditions and under what status: direct participant, indirect participant, or sub-participant.

29. Repurchase Agreement (Repo): an operation by which a person sells financial instruments to the creditor for cash in exchange for a loan granted by the latter and simultaneously undertakes to repurchase from said creditor, at a later date, the financial instruments or equivalent financial assets, for an agreed sum.

30. Insolvency Proceedings: any collective measure provided for by Burundian legislation or the legislation of another country for the purpose of either liquidating an entity or reorganizing it, when such a measure involves the suspension or limitation of transfers or payments. In Burundi, insolvency proceedings include the declaration of bankruptcy, judicial or voluntary liquidation of companies, voluntary or forced liquidation organized by the law governing banking activities. It also includes the composition agreement and divestment, when they have the effect of causing a suspension or limitation of transfers or payments.

This notion is defined with respect to liquidation procedures in the broad sense existing in Burundi, but also with respect to procedures having a similar effect of limiting or suspending payments provided for in the legislation of foreign countries. Given that system participants are generally banks and financial institutions, it will be necessary to refer, in Burundi, to the insolvency procedures described in the law governing banking activities.

31. Real Time Gross Settlement (RTGS): a payment and gross settlement system in real time, for high-value or urgent amounts, in which the settlement of payment operations between financial institutions occurs individually (transaction by transaction) and continuously.

32. Statutes of the Central Bank: the law on the Statutes of the Bank of the Republic of Burundi;

33. Durable Medium: any instrument allowing the storage of information and easy reference to it in the future for a period of time appropriate to the purposes for which the information is intended, and which allows the identical reproduction of stored information;

34. National System: a set of instruments, procedures, and rules for the transfer of funds, notably through automated clearing (ACH - Automated Clearing House), Real Time Gross Settlement (RTGS), securities processing and settlement retention, and card or mobile phone payments.

35. Clearing System: a System responsible for calculating the net positions resulting from transfer orders that one or more participants, mainly banks, issue in favor of one or more other participants or receive from them, so that it results in a single net claim or obligation, i.e., a credit or debit balance, and/or acting as a central counterparty for financial transactions. The settlement of these net balances generally takes place in the Real Time Gross Settlement (RTGS) System;

36. Payment System: a System resulting from a formal agreement between participants, which ensures the processing and settlement of transfer orders for funds introduced into the System by said participants, generally banks, on the basis of common rules and standardized procedures that determine in particular how transfer orders must be introduced into the System, when they are irrevocable and unconditional, and how transactions are settled, etc.

37. Securities Settlement System: a centralized System resulting from a formal agreement between participants in the System, allowing the transfer of securities between said participants, according to common rules and standardized procedures for the execution of transfer orders for financial instruments and funds between participants;

Article 2: Scope of Application

This law determines the basic rules relating to the regulation and supervision, by the Central Bank, of Systems, the issuance and use of payment instruments, the protection of Systems, and financial guarantee contracts.

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CHAPTER II: OPERATIONAL ROLE AND REGULATORY AND SUPERVISORY POWER OF THE CENTRAL BANK

Article 3: Operational Role of the Central Bank

In order to promote the solidity, efficiency, and effectiveness of the Payment System, the Central Bank may provide facilities to Systems, the operators of these Systems, as well as to participants in these Systems.

In this regard, the Central Bank is authorized to:

1. establish, organize, and manage Systems and participate in them;

2. maintain accounts for operators and participants, which may be used for settlement in Systems;

3. hold in account, for operators and participants, financial instruments and precious metals that may be used for settlement in Systems;

4. grant intraday or longer-term credit to banks and other financial institutions or other entities participating in Systems, in the form of cash or financial instruments covered by adequate collateral determined by the Central Bank.

Article 4: Obligation of Authorization

No entity may, under penalty of sanction, set up and/or manage a System, or issue payment instruments, in Burundi, without having obtained the authorization issued for this purpose by the Central Bank.

Article 5: Criteria and Authorization Procedure Applicable to Systems

5.1. The authorization criteria for entities wishing to establish or manage a System in Burundi are as follows:

a. The System must be established and operated by a company with its registered office in Burundi;

b. The rules of the System must be governed by Burundian law;

c. The operating rules of the System must be detailed and adequate with regard to the nature, volume of activities, and number of participants envisaged, and define in particular the following:

• the conditions for admission and exclusion of participants in the System;

• the rights and obligations of participants arising from their participation in the System;

• the time at which a transfer order is introduced into the System;

• the time from which a transfer order can no longer be revoked by a participant in this System or by a third party;

• the mode of settlement of transfer orders;

• the settlement procedures applicable in ordinary and crisis situations;

• risk management procedures;

• the competent jurisdiction in case of dispute;

d. The directors, administrators, and shareholders of the company operating the System must provide all necessary guarantees of honorability, competence, and expertise;

e. The organization, structure, and capital of the company operating the System must be adequate with regard to the operations envisaged;

f. The rules of the System must be expressly approved by the Central Bank, before the start of the System's activities. All subsequent modifications to these rules must also be submitted for express approval by the Central Bank, before they enter into force.

The Central Bank may, by regulation, clarify or specify the authorization criteria provided for above and impose additional authorization criteria.

5.2. The authorization procedure applicable to any entity wishing to establish or manage a System in Burundi.

To this end, the candidate operator must submit an application for authorization to the Central Bank, attaching the following documents and information:

a. its statutes;

b. the identity and curriculum vitae of its directors and administrators;

c. a description of its internal organization, internal control, and audit;

d. the identity of its shareholders;

e. a financial plan for the next three years;

f. an activity plan describing the type of transactions it intends to process in the System and the expected volumes, as well as any other commercial activities envisaged;

g. the draft rules of the System;

h. the manual intended for System users;

i. the identity of potential participants in the System;

j. any other document required by the Central Bank.

The Central Bank may, by regulation, clarify or specify the authorization procedure and/or require additional documents or information.

Article 6: Criteria and Authorization Procedure Applicable to Payment Instrument Issuers

The Central Bank determines, by regulation, the modalities of authorization relating to entities wishing to issue payment instruments, in accordance with the relevant laws in force in this matter.

Article 7: Cases of Withdrawal or Suspension of Authorization Concerning Systems

The Central Bank may at any time decide to withdraw or suspend the authorization granted to a System operator if:

1. the operator has not started and begun to manage the System within twelve months from the date on which the authorization was granted to it,

2. the operator has ceased to operate the System for a continuous period of more than one month,

3. the operator obtained the Central Bank's authorization based on incorrect information or by other irregular means,

4. the applicable authorization criteria or regulations issued by the Central Bank in accordance with Article 5.1.f) are no longer respected,

5. the company owning or operating the System is subject to insolvency proceedings.

6. the operation of the System endangers the stability of the Burundian financial system;

In the cases referred to in points 1, 3, and 5 above, the Central Bank proceeds with the withdrawal of the authorization.

The Central Bank must, immediately after its decision on the withdrawal or suspension of the authorization, notify this decision to the operator or the issuer of the payment instruments.

Upon withdrawal or suspension of authorization, the Central Bank publishes a notice relating thereto in the manner it deems appropriate.

Article 8: Systems Established or Managed by the Central Bank

Systems established or managed by the Central Bank do not need to be authorized. However, these Systems must comply with the same supervision rules, as well as the standards imposed on any other similar System.

Article 9: Regulatory and Supervisory Power of the Central Bank

The Central Bank supervises Systems, the issuance and use of payment instruments, in accordance with its statutes.

The Central Bank may issue regulations relating to the establishment, operation, and supervision of Systems in order to promote their solidity, safety, and efficiency.

It may further, in pursuit of this objective, issue regulations relating to the issuance and use of payment instruments, in accordance with and in respect of the relevant laws in force.

The Central Bank may also give instructions to Systems, operators, payment instrument issuers, and participants to act or refrain from acting in the manner it prescribes.

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CHAPTER III: PROTECTION OF SYSTEMS

Article 10: Finality of Payments and Settlements within a System

Insolvency proceedings opened against a participant shall have no retroactive effect on its rights and obligations arising from, or related to, its participation in a System prior to the moment of the opening of this insolvency proceedings by the competent authority as provided for in Article 11.

For the purposes of this law, the moment of the opening of insolvency proceedings against a participant in a System is the moment when the operator of this System is informed of the opening of the insolvency proceedings.

The following operations remain valid, enforceable, opposable to the liquidator and/or third parties, and cannot in any case be contested at the System level:

1. transfer orders, payments, and settlements resulting from such transfer orders that have been regularly introduced into the System, in accordance with its rules, prior to the moment of the opening of the insolvency proceedings, even if the payment or settlement took place after the moment of the opening of the insolvency proceedings;

2. the netting of transfer orders, debts, and obligations resulting from these transfer orders when these orders have been regularly introduced into the System, in accordance with its rules, prior to the moment of the opening of the insolvency proceedings, even if the netting took place after the moment of the opening of the insolvency proceedings.

A transfer order introduced into a System cannot be revoked by a participant, nor by a third party, including the liquidator, outside the System, for an amount equivalent to the transfer, in case of fraud, error, or any other similar factor.

Article 11: Information Mechanisms Relating to the Opening of Insolvency Proceedings Against a Participant or Operator

1. When insolvency proceedings against an operator or a participant are opened by a court, the clerk's office informs the Central Bank on the same day, by the fastest means.

2. When insolvency proceedings against an operator or a participant are opened by the Central Bank, it states in its decision the precise moment at which its decision takes effect.

3. Once informed in accordance with the first paragraph or its decision taken in accordance with the second paragraph, the Central Bank immediately notifies the opening of the insolvency proceedings to other domestic Systems and their operators as well as to foreign Systems and operators, if cooperation agreements provide for it.

4. The Central Bank immediately communicates to domestic Systems and operators any i