Overview

Uzbekistan has substantially updated its regulations regarding payments, payment systems and payment services, in particular to meet the diversity of payment preferences in the digital era and to pave the way for electronic money and digital wallets. The new regulations also clarify whether companies need to be licensed for providing payment services in Uzbekistan.

Adoption of the Law “On Payments and Payment Systems” (the “Payments Law”) marks the end of a legal lacuna regarding the regulation of payment systems and providers of payment services by consolidating them within one law. In addition, pursuant to the Payments Law, the central bank has approved the Rules on the Issuance and Circulation of Electronic Money in Uzbekistan, which is effective as of April 29, 2020 (the “e-Money Rules”).

Among other important changes, the Payments Law made two remarkable changes in the legislation with the introduction of the following concepts:

1. Payment organizations, payment agents and subagents as subjects that provide payment services; and
2. Electronic money (e-money).

These concepts may be an impetus for a more transparent regulation of the payment services market, and open up possibilities for international companies to enter the internal payment market of Uzbekistan.

Who is a Payment Services Provider (PSP)?

Before the adoption of the Payments Law, the status of local companies providing payment services was not identified in the legislation. Payments were only allowed through bank cards and bank accounts in the local banks. Therefore, payment service providers were acting as an intermediary between banks and businesses, complicating the process and increasing the cost of the transactions.

The Payments Law has increased the list of entities that can provide payment services, and categorized them in the following way:

• Central Bank of the Republic of Uzbekistan;
• banks;
• payment organizations;
• payment agents; and
• payment sub-agents.

Who needs a license to provide payment services?

Banks and payment organizations need to secure a license from the central bank, whereas payment agents and sub-agents operate based on an agency agreement with the licensed banks or payment organizations and do not need a license.

Depending on the scope of the authorized activities, PSPs might be subject to different levels of supervisory and regulatory requirements.

Arguably, the concept of “payment organizations” is one of the most important concepts introduced by the Payments Law, since this status allows the legal entities to provide all the payment services provided by the banks, save for accepting cash for crediting to the bank account, issuance of bank cards and electronic money. In particular, the non-bank companies will require a license for their following payment services activities:

• money remittance;
• merchant acquiring companies.

Under the regulation, it is a criminal offence for someone to provide payment services unless they are a PSP, which is punishable by imprisonment, a fine or both. Since the effective date of the Payments Law in February, six of the local PSPs have obtained a license as a payment organization. It should be noted that local banks can provide payment services based on their banking license.

E-Money & e-Wallets

The second important aspect of the Payments Law was the introduction of the e-money concept. E-money is defined as an unconditional and irrevocable obligation of the issuer of the e-money, which is stored in an electronic form (in the e-wallet) and accepted as means of payment within a certain payment system.

Who is the issuer of e-Money?

The issuance of the e-money is only within the authority of the local banks. Nevertheless, the payment organizations can be the operators of the payment system. Operators of the payment system can set the rules of the issuance of e-money and for the interaction with the subjects of the payment system such as owners of the e-money, businesses and issuing banks within the payment system. The e-Money Rules allow the payment system to have multiple issuing banks that will be issuing the e-money, thereby mitigating the risk of exposure to only one bank.

What are the key requirements to use of e-Money?

The following restrictions apply to e-Money activities:

1. Only e-Money issued in Uzbekistan can be accepted as a means of payment;
2. E-Money should be denominated in the national currency – Uzbek soums;
3. E-Money is issued only after the contribution of the equivalent amount in Uzbek soums to the issuer bank;
4. A payment organization acting as an operator of payment services will be subject to additional reporting and supervision requirements of the central bank.

In general, the new regulations bring legal certainty and opens up new possibilities in the Uzbek market for foreign companies that would like to provide payment services in Uzbekistan. Please contact us if you have any questions regarding the potential impact of these new regulations on your business.