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Regulate Electronic Financial Services to Stem Electronic Fraud [opinion]Sep 13, 2011 (The Monitor/All Africa Global Media via COMTEX) -- This article is a rejoinder to the article "New Robbery Wave now Targets ATMs" carried by the Daily Monitor Newspaper August 27, 2011 pp 1 and 3. The information communication technology revolution has changed Uganda's financial services landscape. Products such as Automatic Teller Machines, telephone banking, electronic money transfers, electronic commerce, electronic purse/plastic money/debit and credit cards, electronic funds transfer, and Real Time Gross Settlement are now household items in the financial sector. Electronic financial services though cheaper, faster and generally more conveniently delivered, are inherently more risky. Financial services business is essentially managing financial and non-financial risks done through analysing, processing and disseminating risk profile of clients, products, businesses, markets and countries. These risks are diverse and deepen with advancement of technology, complexity of transactions and sophistication of products. They include credit, interest rate and liquidity among others. Financial markets utilise customer information base in their possession, their expertise, experience and technology in deciding which clients to deal with lend or sell products to. However, financial transactions driven by the technology revolution are growing fast across different markets. As a result, there is an increase in hacking of ATMs, deposit accounts and diversion of money transfers in domestic and international financial transactions. Countries may comparatively operate contradictory inadequate or inappropriate laws for the private sector and financial markets. Ugandan electronic financial services operate without adequate and appropriate legal backing. Electronic finance rules, regulations and provisions are scattered over various laws do not adequately and appropriately cover the clients from the above mentioned risks. For a long time, Ugandan banks illegally accepted and lent foreign exchange deposits before capital account liberalisation and the enactment of the foreign Exchange Act, 2004. Microfinance institutions collected deposits illegally and providers of leasing and hire purchase operate fractious regulatory arrangements if at all. Savings and Credit Cooperatives (Saccos) are operating without appropriate regulation and supervision. Pyramid schemes have ravaged the country and a number of credit institutions transact off balance sheet foreign exchange business unauthorised by BoU. The need for electronic financial services regulation is emphasised by the emergence of online "Forex Trading" as reported in the Daily Monitor Newspaper of Tuesday March 8, 2011.This type of trading is clearly a pyramid scheme business which could result in domestic financial instability with knock on effects in foreign money markets. The risk for Uganda is even higher due to lack of anti money laundering regulatory framework. Unregulated and under regulated electronic financial services may cause colossal losses to Ugandans. The Subprime mortgages derivatives bubble that led to the global credit crunch was largely caused by greedy bankers duping unsophisticated investors, borrowers and inadequate regulation and supervision. The bubble burst, the world economy went in recession, investment decreased and unemployment soared. Uganda financial markets regulation has long practiced a culture of "business as usual" largely underwritten by the liberalist argument against over regulation in order to avoid stifling financial innovation. The recent global financial crisis just like the great economic depression of 1933 underscores the lesson that the market left on its own can lead to economic crisis and many times requires intervention to promote market efficiency and minimise market distortions. One is left wondering whether in the case of Uganda's bank failures of the 1900's, building societies' collapse of the late 1980's, client sacking pyramid schemes and the money sharks ravaging Kampalans to mention but a few financial hazards, the laid back regulators and supervisors were accomplices and beneficiaries of financial markets inefficiency and distortions or were just incompetent or both? Useful regulators and supervisors are alert and use market intelligence to anticipate market developments and optimally preempt systemic risk that makes clients face colossal losses. Concerned authorities should provide appropriate finance regulation before fate clobbers its consumers. This has deprived our market of much needed dollars aggravating an already precarious situation. The writer is a member of the Daily Monitor Panel of Experts |