Bank of Namibia Determination on Imposition of Administrative Penalties in the National Payment System (PSD-8)

N$6.60 WINDHOEK - 1 June 2017 No. 6319 GOVERNMENT GAZETTE OF THE REPUBLIC OF NAMIBIA CONTENTS Page GENERAL NOTICE No. 137 Bank of Namibia: Determination under the Payment System Management Act, 2003 (Act No. 18 of 2003), as amended ................................................................................................................................. 1

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General Notice BANK OF NAMIBIA No. 137 2017 DETERMINATION UNDER THE PAYMENT SYSTEM MANAGEMENT ACT, 2003 (ACT NO. 18 OF 2003), AS AMENDED In my capacity as Governor of the Bank of Namibia (The Bank), and under the powers vested in the Bank by virtue of Section 14 and section 16A of the Payment System Management Act, 2003 (Act No. 18 of 2003), as amended. I hereby issue this Determination on the Imposition of Administrative Penalties in the National Payment System (PSD-8), which Determination shall become effective on date of publication in the Gazette. I. W. Shiimi GOVERNOR BANK OF NAMIBIA Windhoek, 25 April 2017

2 Government Gazette 1 June 2017 6319 Payment System Determination (PSD-8) IMPOSITION OF ADMINISTRATIVE PENALTIES IN THE NATIONAL PAYMENT SYSTEM Arrangement of Paragraphs PART I Preliminary PARAGRAPH

1. Short Title
2. Application
3. Definitions
4. Authorisation PART II Statement of Policy
5. Purpose
6. Scope PART III Implementation and Specific Requirements
7. Assessment Principles
8. Administrative Sanctions
9. Imposition of an Administrative Penalty
10. Appendix PART IV OTHER REGULATORY REQUIREMENTS
11. Procedural Rules
12. Remedial Measures
13. Effective date
14. Enquiries PART I: PRELIMINARY
15. Short Title Imposition of Administrative Penalties in the National Payment System
16. Application This Determination shall apply to all authorised participants in the National Payment System.
17. Definitions In this Determination, words and phrases shall carry their ordinary meanings. Unless the context otherwise indicates, the words and expressions used herein shall have the same meaning assigned to them in the Payment System Management Act, 2003 (Act No. 18 of 2003), as amended and cognate expressions shall have corresponding meanings:

6319 Government Gazette 1 June 2017 3 3.1 “Act” – means the Payment System Management Act, 2003 (Act No. 18 of 2003), as amended. 3.2 “Administrative Penalties” – penalties imposed by the Bank without the intervention of a court, subject to right of appeal as per section 15 of the Act and then to the High Court. 3.3 “Administrative Sanctions” – refers to a warning, caution, instruction and an administrative penalty that may be imposed by the Bank to an authorised participant. 3.4 “Authorised Participants” – refers to payment system participants, service providers and payment instrument issuers, authorised by the Bank to operate in the National Payment System. 4. Authorisation Authority for the Bank to issue this Determination is provided in section 14 and section 16A of the Act. PART II: STATEMENT OF POLICY 5. Purpose 5.1 The purpose of imposing administrative penalties is to promote high standards of regulatory conduct by deterring authorised participants from committing contraventions and encouraging those who are non-compliant to take appropriate remedial action. Additionally, imposing administrative penalties also prevents, or at least, reduces recourse to costlier and time consuming enforcement actions such as criminal prosecution. The ultimate objective of this Determination is to promote awareness and enhance transparency of the procedure used to impose administrative penalties in the National Payment System. 5.2 This Determination provides and explains the following: (a) The guiding assessment principles and criteria to assess cases of delay in compliance by authorised participants; and (b) The procedure and process the Bank shall use to determine and calculate an appropriate administrative penalty amount. 6. Scope This Determination shall apply to all authorised participants in the National Payment System that have delayed to comply with any Directive, Determination, Guideline, Standard, Circular, Specification, Order or Notice issued by the Bank under section 13 and section 14 or any other section of the Act. PART III: ASSESSMENT AND IMPLEMENTATION 7. Assessment Principles 7.1 The Bank may consider the following principles when appraising or taking a decision to impose administrative penalties on authorised participants in the National Payment System:

4 Government Gazette 1 June 2017 6319 (a) The nature of the delay in compliance including the likelihood that the same or similar type of infringement will recur if an administrative penalty is not imposed by the Bank; (b) Whether or not the delay in compliance has been intentional, deliberate or a negligent action by the authorised participant; (c) The seriousness or severity of the delay in compliance including its impact and any other threat or potential threat that it might pose to the relevant authorised participant, other authorised participants and/or the entire National Payment System; (d) Whether the delay in compliance has the potential of hindering the Bank from ensuring the safety, security, efficiency and cost effective operation of the National Payment System; (e) The duration and frequency of the delay in compliance; (f) The behaviour of the authorised participant after the delay in compliance has been identified, including the degree of co-operation showed during the assessment; (g) Whether the authorised participant immediately brought the delay in compliance to the attention of the Bank and/or any other regulatory or law enforcement agencies; h) Whether the authorised participant has taken reasonable steps to put in place effective remedial action to discontinue the delay in compliance; (i) If prior actions taken by the Bank in the form of a notice, warning, meeting or order, proved ineffective to deter the delay in compliance; (j) Previous disciplinary records and compliance history of the authorised participant in its operations within the five-year period immediately before the delay in compliance; (k) Whether the relevant authorised participant derived any economic benefit from the delay in compliance or had any economic impact on any other third party; (l) The financial condition of the authorised participant, using the CAMELS rating, at the time of imposing the administrative penalty or during the offsite and onsite investigation; and (m) Whether the delay in compliance will or has the potential of introducing any risks in the relevant authorised participant’s business model, settlement and clearing abilities, risk management systems and eventually the National Payment System, these risks are outlined in Appendix I, Schedule 2 of this Determination. 7.2 The Bank may consider any other principle not listed under Section 7.1 of this Determination if it deems it material and appropriate when appraising or taking a decision to impose an administrative penalty.

6319 Government Gazette 1 June 2017 5 8. Administrative Sanctions 8.1 For the purpose of promoting and maintaining high standards of conduct and management in the National Payment System, the Bank may take a decision to impose any of the following administrative sanctions: (a) A warning and/or instruction to the relevant authorised participant not to repeat the conduct which led to the delay in compliance; or (b) Proceed to section 9 of this Determination. 8.2 The Bank will regard a delay in compliance as resolved if and when: (a) The authorised participant puts in place acceptable measures and/or controls to ensure that the delay in compliance will not occur again; or (b) The authorised participant has communicated to the Bank an acceptable proposed date and/or time on which the delay in compliance will be rectified; or (c) The resolution of the matter as per section 15 of the Act or the High Court. 9. Imposition of an Administrative Penalty 9.1 Whenever the Bank considers it appropriate to impose an administrative penalty against an authorised participant, it will, before taking such an action, issue to the authorised participant concerned, by hand or via mail, a notice of delay in compliance, which will contain: (a) The full details of the authorised participant; (b) The nature of the delay in compliance; (c) The administrative penalty amount that the Bank intends to impose; and (d) The right of the authorised participant to make a written representation within 14 business days after the notice is served to show cause as to why the administrative penalty should not be imposed. 9.2 If no satisfactory explanation is received after 14 business days from the date of the written notice, the Bank will, by written notice inform the authorised participant to pay to the Bank the administrative penalty within 30 business days of receipt of notice. 9.3 The Bank, as mandated by Section 16A (3) of the Act, may impose administrative daily penalties not exceeding N$100 000 for each day of non-compliance, which amount may not exceed N$1 000 000 in total for each case of non-compliance. 9.4 A daily administrative penalty amount will be calculated from the date the delay in compliance occurred or from the date the Bank becomes aware of the delay in compliance. 9.5 In the event that an authorised participant appeals against a decision taken by the Bank to impose an administrative penalty, the Bank shall reserve such a decision until the appeal process is concluded and waive the administrative penalty amount calculated during the appeal process.

6 Government Gazette 1 June 2017 6319 9.6 The amount of any administrative penalty imposed by the Bank will be calculated in accordance with: (a) The assessment principles outlined under section 7 of this Determination; and (b) The level of potential risk that an authorised participant has or will expose unto themselves or introduce into the National Payment System as outlined under appendix I, schedule 2 of this Determination. 10. Appendix Appendix I of this Determination provides three schedules. 10.1 The first schedule consists of the assessment principles listed under section 7 of this Determination coupled with the mitigating factors with various weights assigned to each principle and factor; 10.2 The second schedule provides a risk assessment matrix to measure the severity of each violation; and 10.3 The third schedule outlines the administrative penalty structure that will be used to derive the appropriate administrative penalty amount dependent on the scores obtained from schedule 1 and schedule 2. PART IV: OTHER REGULATORY REQUIREMENTS 11. Procedural rules When imposing administrative penalties, the Bank will follow the procedural rules provided under section 16A of the Act. 12. Remedial Measures 12.1 The Bank will follow the remedial procedure provided under section 15 of the Act when an authorised participant considers itself aggrieved by a decision taken and or an administrative penalty imposed by the Bank under this Determination. The Bank may also use any other relevant legislation in the interest of ensuring a safe, secure, efficient and cost-effective operation of National Payment System. 12.2 This Determination is not exhaustive and may be supplemented and/or amended from time to time. 13. Effective Date The effective date of this Determination shall become effective from the date of publication in the Gazette. 14. Enquiries All enquirers related to this Determination shall be directed to: The Director: Payment and Settlement Systems Department Bank of Namibia P.O Box 2882 Windhoek

6319 Government Gazette 1 June 2017 7 Appendix I Schedule 1: Assessment Principles Matrix Severity Levels Assessment Principles 0 1 2 3 4 5 Weight1 Severity Score Value (Weight X Severity) Intent Non-inten￾tional Should have known

Non￾malicious Intent

• Deliberate 5 Likelihood of reoccurrence None Unlikely - Likely - Significant likelihood 5 Hindrance None Low Impact Medium￾Low Impact Medium (Moderate) Impact High￾Medium Impact High Impact 4 Duration 0 months 3 months 6 months 12 months 1-2 years ≥2 years 4 Frequency Zero viola￾tions One viola￾tion - Several violations =<3

Numerous violations =>3 4 Previous disciplinary records and compliance history None Prior cautionary advices Prior warning for similar violations Minor cases of prior cautioning for similar violations =<3 Cases of prior cautioning for similar violations =>3 Prior regulatory actions / resolutions outstand￾ing 3 Continua￾tion after notification / warning No noti￾fication / warning received Ceased immedi￾ately Ceased shortly after noti￾fication Agree ceasing date with Bank after warning Unfavor￾able ceas￾ing date communi￾cated Continua￾tion after notifica￾tion / warning with no interven￾tion 4 Informed the Bank of Delay in Compliance Immedi￾ately Less than 24 hours Less than 2 Days Not later than 1 week After a Month After and Beyond 2 months 4 Co-operation with the regu￾lator Full co￾operation with timely responses and reme￾diation Significant co-opera￾tion by the participant

Moderate co-opera￾tion by the participant

No co￾operation by the participant 4 Economic benefit de￾rived No benefit Minimum benefit to relevant participant

Moderate benefit to relevant participant

Significant benefit to relevant participant 3 Negligence Oblivious - - Ignorant - Negligent 4 History of previous Ad￾ministrative Penalties None Prior cautionary advices Prior warning for similar violations Minor cases of prior cautioning for similar violations =<3 Cases of prior cautioning for similar violations =>3 Prior regulatory actions / resolutions outstand￾ing 3 Financial con￾dition of non￾compliant participant CAMELS 5 CAMELS 4 CAMELS 3 CAMELS 2 CAMELS 1 - 3 1 The weights assigned are normalised to give accumulated scores of not more than 100 maximum violation severity points (weight x severity / 4) per assessment.

8 Government Gazette 1 June 2017 6319 Severity Levels Mitigating Principles 0 1 2 3 4 5 Weight1 Severity Score Value (Weight X Severity) Voluntary in￾forming of the regulator of the contraven￾tion or delay in compliance Contra￾vention observed / detected by regula￾tor Contra￾vention reported by 3rd party

Delay in communi￾cating the contra￾vention / non-com￾pliance

Compre￾hensively informed regulator; full facts and im￾plications disclosed -3 Voluntary restitution or other correc￾tive actions No volun￾tary action taken Forced regula￾tory action needed.

Correc￾tive action taken. Partially effective

Correc￾tive action taken ap￾propriately and timely. -4 Effective compliance program No Program Risk Naïve Risk Aware Risk Defined Risk Managed Risk Enabled -5 Schedule 2: Risk Assessment Matrix The risk severity levels will be calculated by taking into account the seriousness, impact and potential threat of each incident. Severity Levels Risk Types 0 1 2 3 4 5 Weight1 Severity Score Value (Weight X Severity) Systemic Risk No Risk Low Risk Medium￾Low Risk Medium (Moder￾ate) Risk High￾Medium Risk High Risk 5 Settlement Risk No Risk Low Risk Medium￾Low Risk Medium (Moder￾ate) Risk High￾Medium Risk High Risk 5 Operational Risk No Risk Low Risk Medium￾Low Risk Medium (Moder￾ate) Risk High￾Medium Risk High Risk 4 Reputation Risk No Risk Low Risk Medium￾Low Risk Medium (Moder￾ate) Risk High￾Medium Risk High Risk 4 Liquidity Risk No Risk Low Risk Medium￾Low Risk Medium (Moder￾ate) Risk High￾Medium Risk High Risk 3 General Busi￾ness Risk No Risk Low Risk Medium￾Low Risk Medium (Moder￾ate) Risk High￾Medium Risk High Risk 3 Legal Risk No Risk Low Risk Medium￾Low Risk Medium (Moder￾ate) Risk High￾Medium Risk High Risk 3 Credit Risk No Risk Low Risk Medium￾Low Risk Medium (Moder￾ate) Risk High￾Medium Risk High Risk 3 1 The weights assigned are normalised to give accumulated scores of not more than 100 maximum violation severity points (weight x severity / 4) per assessment.

6319 Government Gazette 1 June 2017 9 Assessment Total Schedule 1 Subtotal Schedule 2 Subtotal Grand Total (Subtotal 1 + Subtotal 2) Schedule 3: Administrative Penalty Amount Violation Severity Points Lower bound Violation Severity Points Upper bound Admin. Penalty Lower bound N$ Admin. Penalty Upper bound N$ Suggested Admin. Penalty N$ 1 10 0 10,000.00 11 20 10,001.00 20,000.00 21 30 20,001.00 30,000.00 31 40 30,001.00 40,000.00 41 50 40,001.00 50,000.00 51 60 50,001.00 60,000.00 61 70 60,001.00 70,000.00 71 80 70,001.00 80,000.00 81 90 80,001.00 90,000.00 91 100 90,001.00 100,000.00

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