HOW TO SET UP A PAYMENT SYSTEMS COMPANY IN UGANDA

Just like in Nigeria and many other African countries, payment products and services are well regulated in Uganda by the country’s apex bank, the Bank of Uganda (“BoU”), through its National Payment System Department (“NPSD”). The NPSD oversees the national payment system of the country with the objective of ensuring overall effectiveness and integrity of the payments space.

The mandate of the BoU to regulate the payment system is enshrined in the National Payment Systems Act, 2020 (“NPS Act”) which came into force in September 2020 as well as BoU’s Regulations (such as the NPS General Regulations 2021 which was later amended in 2022 to the review the fees; the NPS Sandbox Regulations 2021 and the NPS Agents Regulations 2021) all of which were all gazetted on March 5, 2021.  The foregoing regulatory framework gives the BoU a clear mandate for the regulation, supervision and oversight of payment and settlement systems in Uganda.

But unlike Nigeria and, perhaps few other African countries with more options of payment systems licences, the Uganda’s payment systems licensing framework provides for just three (3) major licences (apart from sandbox licence which is a temporary experiment of innovative products, services, models or delivery mechanisms in the payment systems ecosystem). Pursuant to the NPS Act 2020, eligible institutions that are duly registered companies in Uganda can apply to be licensed under three (3) licensing categories, namely: the operator of payment systems, the provider of payment services or the issuer of payment instruments subject, of course, to meeting the licensing requirements and reporting obligations set by the BoU.

These payment systems institutions and other companies licensed by the BoU are called Supervised Financial Institutions (“SFI“).

In this article, we have put together, in a question and answer format, what investors need to consider when seeking to set up a payment systems company in Uganda. They may not be exhaustive. So, any questions about the topic can be sent to admin@koriatlaw.com.

1. What are the types of payment licences that are available or grantable in Uganda?

As mentioned above, the National Payment Systems regime in Uganda provides for three (3) categories of payment licence:

(i) the payment systems operator licence,

(ii) the payment service provider licence, and

(iii) the issuer of payment instrument licence.

PAYMENT SYSTEMS OPERATOR LICENCE: Section 1 of the NPS Act defines a “Payment System Operator” as an entity operating a payment system and may include a participant to the system, a settlement agent, a central counter-party or a clearing house. The Operator’s licence is granted under section 9 of the NPS Act and regulation 11 (2) of the NPS Regulations 2021 to operators of payment system to provide e-fund transfer systems, clearing systems, settlement systems, and third-party systems such as aggregators, integrators, or payment gateways which facilitate the settlement of transfer funds.

The following services are the permissible activities of a Payment Systems Operator in Uganda:

(a)  Funds transfer systems including person to person payment systems, business to government payment systems, business to business payment systems, person to business payment systems or card processors with common rules and standardized arrangements for transfer of payment orders;

(b)  Clearing systems which is defined in section 1 of the NPS Act to cover transmitting, reconciling and confirming transfer orders prior to settlement and establishment of final positions for settlements;

(c)  Settlement systems including real time gross settlement systems, deferred settlement systems or central securities depository system to facilitate the settlement of transfer funds;

(d)  Third party systems including aggregator, integrator or gateway which facilitate the receiving of electronic payments from a customer without first settling up a merchant account; and

(e)  Any other class of a payment system operator as the BoU may determine.

PAYMENT SERVICE PROVIDER LICENCE: This licence is granted pursuant to section 9 of the NPS Act and regulation 11 (3) of the NPS Regulations 2021 to providers of payment services. Regulation 11(3) of the NPS Regulations 2021 provides that a Payment Service Provider licence shall be issued in respect of the following classes:

(a)  Electronic money issuer;

(b)  Payment services including tokens; and

(c)  Any other class of a payment service provider as the BoU may determine

It is noteworthy that “payment service” is defined in section 1 of the NPS Act to mean the following services:

(a)  Services enabling cash deposits or withdrawals;

(b)  Execution of payment transactions;

(c)  Issuance and acquisition of payment instruments; or

(d)  Any other services incidental to the transfer of funds.

The foregoing presupposes that the payment service provider licence would enable its holder to do a combination of the activities or services listed in regulation 11(3) of the NPS Regulations 2021 and those captured under the definition of “payment service” under section 1 of the NPS Act.

ISSUER OF PAYMENT INSTRUMENT LICENCE: This licence is granted pursuant to section 9 of the NPS Act and regulation 11 (3) of the NPS Regulations 2021 to an issuer of a payment instruments, such as payment cards, electronic devices, paper-based instruments and any other class of a payment instrument as the BoU may determine. An applicant may apply for two or more licenses in one application if the services they seek to offer fall in more than one of the licensing categories.

2. Can Foreigners set up a payment system company in Uganda?

Yes though foreigners (including foreign companies) who seek to operate in Uganda cannot apply directly for licence. Instead, they must incorporate a local company (or subsidiary in the case of a foreign company) through which they can apply to the BoU for the licence, subject to proof that the objects of the applicant company are in accordance with section 8(1) of the NPS Act and the extant Regulations.

A foreign company can also partner with locally licensed companies in Uganda subject to the prior approval of the BoU.

Please note that the existing shareholders/directors of the foreign company can become part of the new local company in Uganda but they will be required to satisfy the Fit and Proper requirements as stipulated in Regulation 3 and Schedule 2 of the NPS Regulations 2021. The application must include a List of the substantial shareholders including the beneficial owners.

Please note also that the applicant company must have five (5) directors, with at least two (2) Executive Directors both of whom must be resident in Uganda and knowledgeable in the strategy, products and risks of the business.

3. What are the requirements for incorporating a payments systems company in Uganda?

The first step in acquiring a payment systems licence is to register a company with the Uganda Registration Services Bureau (“URSB”). The requirements for registering a company with the URSB are as follows:

●  Duly completed companies’ registration form

●  Memorandum and Articles of Association

●  Statement of nominal share capital of the company– Form A1

●  Particulars of Directors and Secretaries – Form 20

●  Passport/ National ID (3 copies)

●  Full address of the registered or principal office of the company – Form A22

●  Declaration of Compliance with the requirements of the Companies Act

●  Evidence of payment of statutory fees.

4. What are the minimum capital requirements for obtaining Payment Systems Licences?

The minimum capital requirements for the three (3) category of licences discussed above are as follows:

5. What are the applicable costs for incorporating a payment systems company?

Below is a table showing the applicable costs for incorporation of payment systems company in Uganda:

6. What are the licensing requirements for a Payment Systems Company in Uganda?

There is a long list of requirements for setting up a payment systems company in Uganda. An applicant for a payment systems licence must apply to BoU in a prescribed form prescribed by the National Payment Systems Regulations, 2021 (“the Regulations”). The application shall be accompanied by the following:

●  Proof that the objects of the applicant company are in accordance with the provisions of the Act;

●  Certified true copy of applicant’s incorporation documents;

●  Evidence of holding the minimum paid up capital (of not less than the amount prescribed in the Regulations, including the projected level, quality of capital, balance sheet composition and growth plans);

●  Tax identification number and a copy of a tax clearance certificate;

●  A detailed description of the product or services and its operations;

●  A list of the substantial shareholders including the beneficial owners;

●  A business plan with financial projections for the first three years:

●  Organizational, governance and management structure: Applicants must note and ensure that key assurance functions such as Internal Audit and Risk are provided for with sufficient independence and powers;

●  Risk management framework with disaster recovery plan, cyber security plan and business continuity arrangements that are appropriate;

●  Policies and procedures for transacting with customers

●  At least two recommendation letters from persons of good repute attesting to the credibility of the directors, managers and substantial shareholders of the applicant to offer the services applied for;

●  A duly filled Fit and Proper Person Form for substantial shareholders, directors and managers as prescribed in Form B:

●  A certificate of good conduct for substantial shareholders including beneficial owners, directors and managers;

●  A credit reference report for substantial shareholders including beneficial owners, directors and managers: Applicants that are not registered on the Credit Reference Bureau should explicitly indicate so.

●  Source of funds with supporting documents: This could take the form of savings, salary, dividends or other sources of funds. Evidence of the sources shall be required.

●  Audited financial statements for the previous two years, where the applicant has an established business;

●  A certified true copy of a systems licence from the National Information Technology Authority, Uganda (“NITA-U”) (for Payment Systems Providers & Operators): This certification is executed by NITA-U in accordance with the Electronic Transactions Act, 2011 and must be submitted at the point of application and on an annual basis thereafter;

●  A copy of Anti-Money Laundering / Combating the Financing of Terrorism policy:

●  A copy of documented outsourcing arrangements (Service Level Agreements);

●  An agreement between the applicant and a financial institution where all charges, fees and penalties shall be recovered: This agreement should give Bank of Uganda power to directly levy any charges or penalties to the nominated financial institution.

●  Information on planned or existing participation in a domestic or foreign payment system;

●  A copy of Customer Service Agreement among others specifying the fees to be charged on a customer (for Electronic Money Issuer);

●  A list of other countries in which the applicant is licenced to engage in or provide other similar businesses if any;

●  Evidence of Business Premises in Uganda;

●  Proof of payment of prescribed fees

Please note that where a payment service provider or payment system operator wishes to issue a payment instrument, it must apply separately to the BoU in accordance with regulation 4 of the Payment Systems Regulations 2021 and fulfill the following requirements:

●  Duly completed Form C;

●  A copy of a licence either a payment service provider or a payment system operator (where the applicant is already licensed by BoU);

●  Description of the type of payment instrument intended to be issued;

●  Risk management framework that is appropriate to ensure safety and efficiency;

●  Terms and conditions of issuance of the payment instrument;

●  Copy of a merchant and agent agreement, where applicable

●  Pricing policy that includes the variables used to arrive at a price and the nature and amount of charges or fees imposed on customers;

●  Evidence of payment of prescribed fees; and

●  Any other information or document the BoU may require.

 7. What are the applicable costs of obtaining any of the payment systems licence?

Below is a table showing the applicable costs for licensing a payment systems company in Uganda:

Please note that the BoU will conduct checks on the applicant’s shareholders, directors and top management staff against the list of sanctioned persons at the Office of Foreign Assets Control of the United Nations, the European Union, or any such listing of sanctioned persons at a national, regional and domestic level.

Please note also that BoU may engage external professionals/experts to conduct due diligence on the applicant’s nominees.

8. Are there any requirements for the composition of the board, shareholders and management of a Payment Systems Company in Uganda?

Yes. Please note that an applicant must be incorporated as a limited liability company in Uganda with a minimum of two (2) shareholders. A person (or a company controlled by one person) shall not acquire more than 49% of the shares of a financial institution.

According to the Consolidated Corporate Governance Guidelines, 2022, every Supervised Financial Institution must have no fewer than five (5) directors duly vetted by the BoU, at least four (4) of whom must be Independent Non-Executive Directors (“INEDs”). The company must have at least two (2) Executive Directors (i.e. the Managing Director/Chief Executive Officer and one additional Executive Director) both of whom must be resident in Uganda and possess knowledge of the financial institution’s long-term strategy, products and risks of the business, have the ability to influence the institution’s policy, and shall be able to appropriately direct the business of the institution (“four eyes principle”).

Please note that the Chairperson of the Board must be an Independent Director, resident in Uganda.

Any individual who has the necessary qualifications, experience and competence can be appointed as a Board Member or as part of senior management. However, such an individual must also be of good moral standing. Applicants are encouraged to ensure that the Board comprises both executive and non-executive directors, with the required number of INDs.

In order to enhance the independence and objectivity of the Board, no more than 50% of the directors shall be employees of the company or any of its subsidiaries or affiliates, except in cases of subsidiaries of foreign-owned banks, and subject to satisfying the BoU that the employees are deemed fit and proper persons by the home country regulator of the financial institution.

In addition to the MD/CEO, BoU vets all substantial shareholders, directors, and senior managers under the “Fit and Proper Test”. Accordingly, a payment systems company must seek approvals for all its high-level officers. Relevant documentation must accompany the applications for approvals including the following:

–   Information sheet for the directors, shareholders and top managers,

–   Nominees’ curriculum vitae,

–   A copy of the incorporation documents and 3-year audited financial statements (for a corporate shareholder, with a breakdown of shares and a resolution to acquire shares in the payment systems company),

–   A statement of assets and liabilities of the persons to be vetted,

–   Two-character references from individuals other than relatives for each nominee to be vetted,

–   Tax clearance certificate(s),

–   A reference letter from a bank in Uganda,

–   Individual nominee’s credit references for the nominee,

–   Certified copies of all academic qualifications at University level and above, where applicable, as well as of professional qualifications or verifiable proof of membership of a professional body,

–   Data page of international passport or valid national identification document,

–   Two passport size photographs,

–   A certificate of good character from the Police or Interpol,

–   A duly filled Personal Declaration Form and a Potential Material Conflict of Interest Form for shareholders, directors and senior management staff,

–   A written confirmation by the nominating financial institution on whether or not the nominee is a politically exposed person, and the grounds for that categorisation or non- categorisation as the case may be;

–   A copy of the proposed job description in the case of nominees for executive manager;

Please note that a payment systems company must immediately notify BoU of any change in the composition of substantial shareholders, Directors and Heads of Departments or functions, as the case may be.

9. Are there other mandatory registrations for a payment systems company in Uganda?

In addition to the incorporation of a payment systems company by the URSB and licensing by the BoU, a payment systems company must also (simultaneously) register with and obtain certifications from other regulators, which are highlighted below.

(i) Registration for IT Certification by the National Information Technology Authority –Uganda (“NITA-U”);

(ii) Registration of data collectors, processors and controllers with the Personal Data Protection Office.

(iii) Registration with Financial Intelligence Authority (“FIA”);

(iv) Registration with National Social Security Fund (“NSSF”); and

(v) Registration with the Uganda Revenue Authority (“URA”).

10. What is the estimated timeline for completion of the process of incorporation and licensing?

The timeline for completion of the incorporation and licensing is around 10 to 12 months.

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