Until recently, electronic money services activity in Mongolia has been carried out by non-bank financial institutions licensed by the Financial Regulatory Commission (the “FRC”) in accordance with the Regulation for Electronic Money Services by Non-Bank Financial Institutions adopted by the FRC.
However, the regulatory framework for electronic money services activity has recently been revised and developed greatly in relation to the enactment of the National Payment System Law which took effect on 1 January 2018 and the subsequent adoption of the Electronic Money Regulation by the Bank of Mongolia with effect from 1 June 2018.
To begin with, the National Payment System Law provided with a legal definition for the term ‘electronic money’ and determined its mandatory characteristics. In accordance with the National Payment System Law, electronic money must contain all of the following characteristics simultaneously:
- monetary value of which is electronically stored;
- is backed by monetary assets;
- is accepted by third parties other than the electronic money issuer and/or its customers for payment; and
- is freely redeemable into monetary asset.
In addition to the above features, the National Payment System Law requires 1 electronic money to be permanently pegged to 1 MNT. Furthermore, each electronic money scheme must have a designated name identifiable from the other schemes pursuing the same activity.
Since electronic money is legally classified as a means of payment under the National Payment System Law, entities authorized by the Bank of Mongolia to issue payment means are allowed to issue electronic money on the basis of an additional specific permission granted by the Bank of Mongolia. Accordingly, the potential issuers of electronic money are no longer limited by non-bank financial institutions only. Under the Electronic Money Regulation, issuer of electronic money is defined as electronic money service provider and required to have a mandatory share capital of not less than MNT 2.5 billion which must be comprised of non-borrowed sources.
Prior to the enactment of the National Payment System Law, the role of the Bank of Mongolia with regards to issuance of electronic money was generally limited to providing with an opinion on the compliance of the technical requirements by the applicants for e-money issuance permission by the FRC. Now under the National Payment System Law, the Bank of Mongolia has become the sole regulatory and supervisory authority for issuing electronic money and providing services involving electronic money. Accordingly, the roles of the FRC with regards to permitting issuance of electronic money and conducting oversight on related electronic money services have been shifted to the Bank of Mongolia.
As a regulatory authority for payment service activities in general and electronic money services activity specifically, the Bank of Mongolia has recently adopted the Electronic Money Regulation which will come into effect on 1 June 2018. The Electronic Money Regulation provides with in-detail rules and requirements governing issuance of electronic money and conducting electronic money services activity in general. It sets forth, among others, specific requirements for electronic money service providers, determines types of electronic money services, defines rights and responsibilities of participants in the electronic money services activity, and regulates the procedure for granting permission to issue electronic money.
Pursuant to the Electronic Money Regulation, the following services are considered as electronic money services:
- Redemption of electronic money to monetary asset or monetary asset to electronic money; and
- Execution of payments and/or settlement of transactions in electronic money.
The main electronic money services above are further divided into the following sub-transactions:
- payment for goods and services in electronic money;
- transfer of electronic money to other customers;
- redemption of electronic money to monetary asset;
- redemption of monetary asset to electronic money and storing it in an account;
- checking account balance; and
- receiving account statement.
RESTRICTIONS FOR ELECTRONIC MONEY TRANSACTIONS
The Electronic Money Regulation imposes a number of restrictions on electronic money transactions. For instance, a customer is allowed to hold electronic money in an amount up to MNT 50 million. At this stage, it is not clearly prescribed whether a customer can hold electronic money in value of MNT 50 million in each account of various different electronic money schemes, aggregate value of which exceeds MNT 50 million.
Furthermore, the limit for per transaction is set at MNT 1 million and the daily transaction limit is MNT 3 million. These transaction limits presumably aim to keep the electronic money as a means of payment for small value transactions only.COLLATERAL ACCOUNT REQUIREMENTAs mentioned above, an electronic means of payment must be backed by monetary asset and pegged to MNT at a fixed rate of 1:1 to be recognized as electronic money. Accordingly, the Electronic Money Regulation requires the electronic money issuer to deposit monetary asset at a collateral account in an amount equal to the aggregate total value of electronic money issued by such issuer. In case the electronic money issuer is a bank, the collateral account must be maintained at the Bank of Mongolia. As for the electronic money issuers other than banks, the collateral account is required to be opened at a bank. It is prohibited under the Electronic Money Regulation to use the funds in the collateral account for any purpose other than redeeming electronic money into monetary asset. Thus, the collateral account or funds in it cannot be pledged.
HARMONY WITH OTHER RELEVANT LAWS
In connection with the increasing acceptance of electronic money as a means of payment and the development of its legal framework, a question arises as to whether the settlement of payments in electronic money violates the National Currency Law. The National Currency Law, adopted in 2009, strictly requires i) price or value of goods, works and services to be denominated and ii) settlement of payments to be conducted solely in Mongolian national currency, MNT.
Although electronic money is or required to be 100% backed by MNT and permanently pegged to MNT, the electronic money cannot be legally considered as the national currency, MNT. Because the most important legal feature of the national currency is that it must be issued and circulated into the monetary system by the Central Bank, the Bank of Mongolia. Electronic money is issued by authorized private entities upon a specific permission from the Bank of Mongolia, but not exactly by the Bank of Mongolia itself. Therefore, from a strict legal point of view, it can be argued that the settlement of payments in electronic money is in violation with the National Currency Law.
On other hand, the Central Bank Law, as amended in May 2017 in connection with the enactment of the National Payment System Law, permits that other means of payment substituting MNT can be used in settlement of payments with a permission from the Bank of Mongolia. As electronic money is issued upon a permission of the Bank of Mongolia as a means of payment, it can be said that it is qualified as a payment means substituting the national currency, MNT.
In light of the above, it is viewed that although the legal framework for electronic money services activity has been greatly developed in the recent past, a further harmony amongst the relevant legal acts, particularly with the National Currency Law, may still be required as execution of payments in electronic money would inevitably constitute a large part of electronic money transactions.
Finally, we add that electronic money should not be confused with so called cryptocurrencies as the latter group fails to have almost all of the mandatory characteristics of the electronic money. There are indeed sharp differences between the two starting from whether a cryptocurrency can, in fact, be considered as a form of money. Accordingly, the above rules governing the electronic money activity is by no means applicable to the cryptocurrencies.
BATTUSHIG.B, Partner (email@example.com, tel+976 331020)
ENKHSARUUL.J, Associate (firstname.lastname@example.org, tel+976 331020)
 The Law of Mongolia on National Payment System, enacted by the Parliament of Mongolia on 31 May 2017.
 The Law of Mongolia on Conducting Settlement in National Currency, enacted by the Parliament of Mongolia on 9 July 2009.
 Article 6.1 of the Central Bank Law.
 The Law of Mongolia on Central Bank, the Bank of Mongolia, enacted by the Parliament of Mongolia on 3 September 1993.