New regulations regarding Payment Financial Services: The new regulation of providers of Financial Technology of Payment Services

Jan 29, 2021 | English Blog

In order to reinforce the legal framework that regulates payment systems, promote the development of the financial services market, and promote financial innovation in Nicaragua, the Central Bank of Nicaragua (BCN by its acronym in Spanish) has issued the Regulation of Financial Technology Providers of Payment Services.

Its purpose is to regulate the authorization process for potential payment service providers and establish other provisions applicable to authorized providers.

Among the novel elements that the regulation introduces that lacked regulation until its issuance, we find the sale and exchange of currencies electronically, through the currency market platforms that allow the carrying out of sale, exchange and transfer operations of currencies and virtual currencies, using mobile applications, web browsers, or any secure interface.

In addition, the concept of electronic money is broadened as the annotation in an account or accounting record of the monetary value of a credit due to its issuer that is capable of being stored in a mobile device, a prepaid card or in another instrument defined by its issuer.

The new regulation includes the so-called “novel models”, which it defines as business models operated by banking and non-banking institutions that use support technologies for the provision of financial services, such as application program interfaces or API (Application Programming Interface), aggregators, distributed ledger technologies, big data analysis and cloud computing, machine learning, among others.

In this regard, the most relevant thing that we find in this new regulation is the introduction of virtual currency, indicating that this is a representation of value registered electronically, which is not issued by a central bank or public authority, nor is it necessarily connected to fiduciary money, and used among the public as a means of payment for all types of legal acts and whose transfer can be carried out only by electronic means.

Another aspect that deserves to be mentioned is the regulation related to financial technology providers of payment services, who in order to provide such services must be previously authorized by the BCN. Among the requirements to provide the aforementioned services, we have:

  1. Incorporate in the Republic of Nicaragua as a legal entity whose purpose is the provision of payment services, and register.
  2. Submit to the BCN, an application for a license to operate as a provider of financial technology for payment services in accordance with the format provided by the bank (Banks and microfinance institutions supervised by the national microfinance commission are exempt from this procedure, which only have to comply with the registration requirement).
  3. Certified copy of the public deed of incorporation, bylaws and amendments (if any).
  4. Certification from the corresponding corporate body, with the list of shareholders registered in the share registry book, and information required by the BCN, and the pertinent information on their final beneficiaries.
  5. Certification of the current board of directors registered in the public registry.
  6. Certified copy of the power of attorney granted to the legal representative, registered in the public registry and of his identity card.
  7. Copies of the contracts signed with agencies, transaction centers, affiliated businesses and institutions of the financial system with which it has relationships for the services it offers to the public, if the BCN so requires.
  8. Organization chart of the institution.
  9. Audited financial statements for the last two years certified by a certified public accountant, if applicable.
  10. Two bank or commercial references, issued no more than 30 days prior to the license application.
  11. Information of the person in charge of computer security (full name, position, type and number of identity document, e-mail).
  12. Certificates of judicial and police records of the legal representative, members of the board of directors, or of the entity’s management body, of the person responsible for computer security, general manager, and internal auditor stating that they have no criminal record in the three years preceding the filing of the application, with no more than 60 days of having been issued. If they have resided abroad for the last three years, the certificate must be issued by the corresponding body in the country of previous residence, and must be authenticated or apostilled as the case may be.
  13. The business plan that has to meet the requirements of Art. 7 of the regulation.
  14. Information on all the services that it offers or intends to offer, that are not regulated by the regulations.
  15. Manual / Policy for the prevention of ML / FT / FP approved by the corresponding corporate body for those who are bound subjects in accordance with the law.
  16. Certificate of registration before the Financial Analysis Unit (UAF by its acronym in Spanish) for those who are bound subjects in accordance with the law.

Once the procedure for obtaining the license has started with the presentation of the documentation to the BCN, it must be reviewed within 30 business days. Any information that the bank considers incomplete may be corrected or supplemented at the request of the bank, which may verify compliance with such requirements by the necessary means. The term for verification of the requirements may be extended by the BCN administration, which must be notified to the applicant.

Once the granting of the license has been approved, the service provider will be included in the registry that the BCN will keep for such purposes, and the license must be published by the provider in the official Gazzette within a period of no more than 90 calendar days for its due effects, subsequently notifying the BCN with a copy of the publication. The license will be valid indefinitely, and may be assigned, sold, transferred, and granted as a guarantee with prior authorization from the BCN.

In accordance with the regulations, an operating license will be required to offer any of the following services: Digital wallets, mobile points of sale, electronic money, virtual currencies, electronic currency trading and exchange, funds transfers.

The regulation leaves open the possibility for the BCN to authorize, at the request of financial technology providers of payment services, other payment services compatible or related to the services authorized in said regulation.

The obligations of financial technology providers of payment services are contemplated in Arts. 15 to 19, and refer primarily to the availability and immediate reimbursement of funds, whether in fiduciary money or virtual currency, security of transactions, availability of information for the client, and obligations of suppliers to the BCN.

Failure to comply with any of the obligations established in the regulations, depending on its severity, may make the supplier worthy of a fine that can range from two thousand to five thousand units of fine and corrective measures, fines that may be doubled in the event of recurrence, or provision of regulated services without authorization, or the suspension or revocation of the license by resolution of the BCN, against which there is room for the corresponding administrative remedies.

Finally, the regulations grant all those entities that provide regulated services a period of 180 calendar days to start the registration process and obtain the respective operating license.