BCEAO Instruction No. 001-03-2021 on Supervision of Financial Market Infrastructures, Payment Means and Services

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The Governor
INSTRUCTION NO. 001-03-2021 DETERMINING THE PROCEDURES FOR THE SUPERVISION OF FINANCIAL MARKET INFRASTRUCTURES, PAYMENT MEANS AND SERVICES IN THE MEMBER STATES OF THE WEST AFRICAN MONETARY UNION (UMOA)

The Governor of the Central Bank of West African States, Having regard to the Treaty of the West African Monetary Union dated 20 January 2007, particularly Article 34; Having regard to the Statutes of the Central Bank of West African States annexed to the Treaty of the West African Monetary Union dated 20 January 2007, particularly Articles 9, 21 and 30; Having regard to Regulation No. 15/2002/CM/UEMOA of 19 September 2002 on payment systems in the member states of the West African Economic and Monetary Union, particularly Articles 3, 42, 131 and 247; Having regard to the Uniform Act on banking regulation, particularly Articles 2, 3, 4, 7, 42, 43 and 46; Having regard to the Uniform Act on decentralized financial systems regulation, particularly Article 6; Having regard to Instruction No. 008-05-2015 of 21 May 2015 governing the conditions and procedures for electronic money issuers in the member states of the West African Monetary Union.

HEREBY DECIDES:

Avenue Abdoulaye FADIGA
BP 3108 – Dakar - Sénégal
Tél. (221) 33 839 05 00 / Fax. (221) 33 823 93 35 courrier.bceao@bceao.int - www.bceao.int

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TITLE ONE: GENERAL PROVISIONS
Article 1: Definitions
For the purposes of this Instruction, the following terms shall mean:

1. Obligated entities: Financial Market Infrastructures managed by the Central Bank or a public/private entity, payment means issuers and payment service providers;
2. BCEAO or Central Bank: the Central Bank of West African States;
3. Payment means and services processing system: the set of rules, instruments, procedures and platforms enabling the initiation, routing and processing of payment instructions;
4. Payment means issuer or payment service provider: a bank, a banking-type financial institution or a duly authorized decentralized financial system, or an electronic money institution providing electronic payment means and services to its clients. Any legal entity authorized under current regulations to offer payment means and services;
5. Governance: the set of relationships between the owners of a Financial Market Infrastructure, the Board of Directors (or equivalent body), Management and other concerned parties, including Participants, Authorities and other stakeholders;
6. Manager or operator of Financial Market Infrastructures: the legal entity legally responsible for operating a Financial Market Infrastructure;
7. Financial Market Infrastructure or FMI: the multilateral system bringing together participating institutions, including the system operator, used for clearing, settlement or recording of payments, securities or other financial transactions. The term Financial Market Infrastructure covers Payment Systems, Central Securities Depositories, Securities Settlement Systems, Central Counterparties and Central Repos;
8. Technical partner: the entity that provides technical services, as well as hardware and software conditions for processing operations, to a payment means issuer or payment service provider;
9. Payments: the payment means and services as defined by Regulation No. 15/2002/CM/UEMOA of 19 September 2002 on payment systems in the member states of the West African Economic and Monetary Union, the Act on banking regulation and its implementing texts, particularly the Instruction regarding the classification, operations and legal form of banking-type financial institutions.
10. Supervision: a function exercised by the BCEAO aimed at promoting the efficiency and security of Financial Market Infrastructures as well as payment means and services;
11. WAEMU: West African Economic and Monetary Union;

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12. UMOA: West African Monetary Union;
13. UNION: WAEMU or UMOA.

Article 2: Subject Matter
This Instruction sets out the procedures for supervising Financial Market Infrastructures, payment means and services, as well as their processing systems, in the member states of the Union.

Article 3: Scope of Application
The provisions of this Instruction apply to:

• Financial Market Infrastructures managed by a public or private organization, consisting of their managers, participating institutions, clearing, settlement or recording rules for payments, securities or other financial transactions;
• Payment means issuers or payment service providers;
• Payments and processing systems for payment means and services.

TITLE TWO: PROCEDURES FOR SUPERVISING FINANCIAL MARKET INFRASTRUCTURES AND PAYMENT MEANS/SERVICES PROCESSING SYSTEMS
Article 4: Classification and Identification of FMIs
Within the framework of supervision implementation, FMIs are classified into two categories:

• Systemically important FMIs;
• Non-systemic FMIs, which are treated as payment means and services processing systems.
  The identification criteria for systemically important FMIs relate to:
• the type of operations cleared or settled by the relevant infrastructure;
• the volume and value of operations processed by this infrastructure;
• the number of participants or users of this infrastructure;
• settlement on the transaction platform originating from other FMIs and, more generally, the interdependence between this infrastructure and other payment and settlement systems.
  The Central Bank implements the aforementioned identification and classification criteria by publishing the list of systemically important FMIs.
  Non-BCEAO-managed FMIs meeting the identification criteria for systemically important FMIs are included in the scope of these provisions. The Central Bank notifies the managers of these FMIs of their supervision obligation, specifying in particular the principles and procedures applicable to them.

Article 5: Principles of Supervision of Systemically Important FMIs and Payment Means/Services Processing Systems
The Principles for Financial Market Infrastructures (PFMIs) issued by the Bank for International Settlements constitute the supervision framework for FMIs qualified as systemically important in WAEMU. The supervision framework for payment means and services processing systems covers the following PFMIs:

• Principle 1: Legal Basis. Contractual arrangements must provide a complete, clear and enforceable legal framework enabling the proper functioning of offered payment means and services. These rules must be compatible with current legislation in the Union. Compliance should ensure regulatory conformity of activities as well as payment means and services offered by the institution.
• Principle 2: Integrated Risk Management Framework. Operational and technical management must aim to control risks. In this regard, the payment means issuer and payment service provider ensure the establishment of a reliable system for identifying, assessing and controlling all risks related to their activities.
• Principle 3: Governance. Payment means and services processing systems must be equipped with sound, clear and transparent governance that promotes transaction efficiency and security.
  The BCEAO ensures the efficiency and security of FMIs as well as payment means and services processing systems in the Union.

Article 6: Implementation of Supervision of FMIs and Payment Means/Services Processing Systems
Supervision focuses on the efficiency and security of systemically important financial market infrastructures as well as payment means and services processing systems. It is structured around:

• analyzing the operation of FMIs as well as payment means issuance platforms and related service provision;
• evaluating their compliance with applicable PFMIs;
• monitoring the implementation of recommendations and directives, aimed at continuously improving FMI efficiency and security.
  The BCEAO requires the FMIs referred to in Article 4 above to conduct regular self-assessments of their compliance with the PFMIs mentioned in Article 5, paragraphs 1 and 2.
  Payment means issuers and payment service providers must conduct self-assessments of their processing systems, with regard to the principles set out in Article 5, paragraph 2.
  Self-assessments are carried out based on templates notified to obligated entities by the BCEAO.
  The Central Bank implements controls it deems appropriate. To this end, it conducts document-based and on-site analyses of FMIs and processing systems, in liaison with infrastructure managers, payment means issuers, payment service providers and their technical partners. It may conduct site visits to:
• confirm information provided;
• examine any specific file identified by itself;
• verify whether rules, procedures and recommendations are correctly applied by the obligated entity and whether identified risks are controlled.
  The Central Bank may carry out the aforementioned controls, optionally involving other supervisory authorities, using any expertise and requesting any information, without the concerned institutions being able to object.

TITLE THREE: PROCEDURES FOR SUPERVISING PAYMENT MEANS AND SERVICES
Article 7: Principles of Supervision of Payment Means and Services
Payment means and services are supervised based on: (1) the PFMIs referred to in Article 5, paragraph 2, retained for supervising payment means and services processing systems; and (2) specific regulatory compliance requirements set by the Central Bank.

Article 8: Implementation of Supervision of Payment Means and Services
The supervision framework for payment means and services is based on analyzing related risks, particularly in the field of innovations.
Innovations refer to any service or product whose implementation involves:

• the use of a new technology;
• the combination of one or more existing services or different solutions;
• second-generation financial services backed by electronic money, such as insurance, credit, savings and international transfers;
• any other process or combination of future payment means or services.
  The BCEAO reserves the right, if payment means or service examination conclusions require it, to order the issuer or provider to defer commercialization.
  The Central Bank conducts document-based and on-site controls with payment means issuers, payment service providers and their technical partners.
  It may carry out the aforementioned controls, optionally involving other supervisory authorities, using any expertise and requesting any information, without objection from the concerned institutions.

TITLE FOUR: OBLIGATIONS OF OBLIGATED ENTITIES
Article 9: Obligations of FMI Managers, Payment Means Issuers and Payment Service Providers
Obligated entities must establish a risk management framework adapted to the volume and complexity of their activities.
This framework is based on an organization, procedures and rules enabling sound governance, appropriate monitoring and control of efficiency, system security, payment instrument or service, associated risks, as well as applicable legal and operational provisions. Obligated entities implement the PFMIs mentioned in Article 5 above, as well as recommendations and directives from the Central Bank.

Article 10: Information Reporting Obligation
Obligated entities must provide the BCEAO with all information it requests in exercising its supervision mission.
Reporting formats are specific to each type of FMI, payment means and service. They are notified to obligated entities by the Central Bank.
Any incident affecting an FMI or payment processing system in the Union, namely an event causing a service interruption with a resolution time exceeding two (2) hours, must be reported to the BCEAO by the concerned obligated entity within twenty-four (24) hours. The declaration must be accompanied by a detailed report transmitted within three (3) calendar days following the incident. The BCEAO may request additional information as needed.

Article 11: Timeframe for Reporting Information to the BCEAO
Obligated entities report data related to FMIs, payment means and services according to the notified schedule, in compliance with current legislation and BCEAO-issued templates.
Payment means and service issuers failing to meet the obligations under the above paragraph within prescribed deadlines are subject to penalties set in applicable regulatory texts.
Late penalties are due from the date of receipt of the formal notice sent by the Central Bank. The Central Bank calculates penalties monthly.
Penalty revenues are collected by the Central Bank on behalf of the Public Treasury, the Deposit and Resolution Guarantee Fund, and the Financial Stability Fund. Distribution procedures are determined by the Central Bank. In case of non-payment within the indicated deadlines, the Central Bank reserves the right to apply Article 14 of this Instruction against the concerned obligated entity.

Article 12: BCEAO Interactions with Obligated Entities
The Central Bank holds periodic and ad hoc meetings with each obligated entity to exchange views on monitoring the implementation of recommendations and on themes related to the efficiency and security of WAEMU's payment infrastructure.

Article 13: Confidentiality Obligation
Information exchanged between the BCEAO and obligated entities is covered by professional secrecy.

TITLE FIVE: CORRECTIVE MEASURES AND SANCTIONS
Article 14: Corrective Measures
When the manager of a Financial Market Infrastructure managed by a private organization, a payment means issuer, or a payment service provider fails to comply with this Instruction, the BCEAO may impose corrective measures to be implemented within deadlines defined according to the severity of identified non-compliances. In the interest of public protection, the Central Bank may publish warnings to users of a payment means, service or FMI through appropriate channels when the related risk management framework is inadequate or when such payment means, service or FMI contravenes this Instruction.

Article 15: Sanctions
Without prejudice to corrective measures, when recommendations and obligations under Articles 6 and 10 are not implemented, the Central Bank may impose one of the following sanctions on the obligated entity:

• suspension of activities of the payment means issuer or payment service provider;
• prohibition of activities of the payment means issuer or payment service provider;
• suspension of all or part of FMI management activities;
• prohibition of all or part of FMI management activities.
  These decisions are published, at the expense of the obligated entity, in official journals or legal announcement newspapers of each member state of the Union and wherever necessary, at the BCEAO's discretion.

TITLE SIX: MISCELLANEOUS AND FINAL PROVISIONS
Article 16: Entry into Force
This Instruction repeals and replaces all prior provisions contrary to the same subject matter, particularly Instruction No. 127-07-08 of 9 July 2008 determining the procedures for BCEAO supervision of payment systems in WAEMU member states. It enters into force from the date of its signature and is published wherever necessary. Done in Dakar, on 12 March 2021 Tiémoko Meyliet KONE