Overview
Some jurisdictions have implemented alternate mechanisms to protect customer funds.
Advantages & Disadvantages
Private Insurance
Advantages
- Could provide protection in countries that lack deposit insurance scheme.
Disadvantages
- Cost and availability of insurance (and financial strength of private insurers) will vary from country to country.
Guarantee from Bank’s Parent Group
Advantages
- Could provide protection in countries that lack deposit insurance scheme.
Disadvantages
- Available only in countries with competitive banking sector and multinational banks.
- Strength of guarantee depends upon financial strength of parent group.
Float Diversification
Advantages
- Reduce total loss in event of bank failure.
Disadvantages
- If funds not protected, e-money issuer must cover losses through own capital.
Bank Strength Requirement
Advantages
- Reduce risk that funds are held in weak bank.
Disadvantages
- Bank failure difficult to predict.
- Signaling risk to market.
Minimum Capital Requirements
Advantages
- Ensure e-money issuers can cover losses and remain solvent.
Disadvantages
- High requirements could affect sustainability.
- Insufficient to cover losses in event of catastrophic bank failure.
Country Examples
Country Examples
Float held in Central Bank
Customer funds must be 100% backed by a non-remunerated deposit in the Central Bank.
Private insurance
As an alternative to setting aside funds equal to 100% of outstanding e-money liabilities, e-money issuers may obtain an insurance policy or some other comparable guarantee from an insurance company or a credit institution.
Float diversification and bank strength requirement
E-money issuers must diversify float among a minimum of four banks once it exceeds USD 43,200 in Tanzania and USD 910,000 in Kenya. Kenya also requires at least half of these funds to be held in “strong rated” banks.
Tanzania: Once the float exceeds TZS 100 million (approx. USD 43,200), no more than 25% of funds may be stored in a single bank.
