New Fintech Directive Causes Confusion

EghtesadOnline: The Central Bank of Iran was until now considered the only entity in charge of devising regulations for fintech companies, but President Hassan Rouhani’s Cabinet on May 23 announced its own regulations with the apparent aim of giving a boost to these firms, which has caused some confusion.

News ID: ۷۸۲۷۴۷

29 May 2018

As approved by the ministers, CBI is obligated to “devise and communicate the regulatory framework of micro bank payments, electronic wallets and payments based on a variety of technologies” within a maximum of one month from the time the Cabinet’s directive has been passed.

Banks and payment service providers have been obliged to “provide access to banking services for fintechs that have a license from their related guilds”.

The directive orders CBI to act in line with balancing the market strictly through policymaking and setting standards. In line with “promoting innovation in electronic payments”, CBI is mandated to create controlled innovative environments complete with banking infrastructures in innovative areas that are as yet unregulated, Financial Tribune reported.

Iran’s Minister of Information and Communication Technology Mohammad Javad Azari-Jahromi quickly hailed the directive as a recipe for fintech success.

“Through the government’s directive today, the CBI is obligated to end the monopoly of PSPs in three months and create a suitable and competitive environment for fintech businesses. As a result of this directive’s implementation, a considerable growth in financial technologies is expected in the country,” he said.

However, Milad Jahandar, the head of Iran’s Fintech Association, pointed out that the Cabinet directive has many ambiguities, the first of which being the fact that banks and PSPs have been obligated to facilitate access for fintechs that have already obtained a license from their guilds.

“In the payment sector, especially in case of fintechs, there are no specific guilds,” he told IBENA. “Eliminating monopoly in any area can be a good help for the development of businesses and the implementation method of this directive will have a huge impact on fintech companies, so in this vein we hope the situation does not end up creating more difficulties.”

He noted that in its regulatory frameworks concerning fintechs, CBI had not referred to any guild licenses, whereas the new government directive, which was communicated “without any consultation with or participation of fintechs”, suddenly upends everything.

Jahandar also criticized the fact that the government has effectively undermined CBI’s calculated process of releasing regulatory frameworks after consulting fintechs, and took issue with the fact that Iran is once again disregarding a successful international experience that allows fintechs to regulate themselves in a group fashion.

Nima Amirshekari, the head of Electronic Banking Department at the Monetary and Banking Research Institute, is of the belief that the government intervened because a number of problems in the payment sector–such as PSP’s monopoly, fees and revenues model–had caused headaches for other sectors.

“But it was much better if banks themselves and PSPs had started servicing fintechs much sooner rather than being forced to work with them as per a government directive,” he told IBENA.

Amirshekari voiced concern that this might lead to the creation of yet another monopoly and make things harder for fintechs.

Most probably, one payment company will be recognized as the entity responsible for supervising the operations of fintechs by issuing a permit, which will only tie up fintechs more and give too much power to that company.

“The truth is that requiring licenses from technologies that have yet to be fully understood is not a suitable approach,” he said, adding that since fintech operations have no pre-defined business models, requiring licenses from them will only waste time and create more roadblocks for them.

The Cabinet’s directive cast a shadow over CBI’s envisioned path for fintechs. The central regulatory entity has so far published three regulatory frameworks for the operations of fintechs, the latest of which concerned payment aggregators and was communicated in mid-February.

CBI’s fourth regulatory framework concerning fintechs, which offers electronic wallet and account information management services, is set to be unveiled in the coming months while two other documents to be published by the end of the current fiscal year in March 2019 will complete CBI’s overarching vision for fintechs and cryptocurrencies.