and finance ENSight

Bank of Uganda releases Agent Banking

Regulations
by Phillip Karugaba and Tracy Kakongi

The Bank of Uganda recently released the Financial Institutions (Agent Banking) Regulations, 2017 (the “Regulations”
effecting the 2016 amendments to the Financial Institutions Act, 2004 that introduced agent banking as a new delivery
channel for offering banking services. The Regulations provide a framework for offering agent banking services.

Agent banking is the conduct, by an approved person, of financial institution business on behalf of a financial institutio

Key provisions under the Regulations

Obligations of the financial institution

Under the Regulations, a financial institution is required to obtain approval from the Central Bank to provide agent ban
services. The financial institution must furnish the Central Bank with the strategy for agent banking, including the numb
of agents per district for a 12-month period, the services intended to be provided through the agents, and the draft
agency agreement between the financial institution and the agent. 
The financial institution must have structures in place to support agent banking. These include a management policy o
the agent network, an agent training and supervision policy, and a liquidity management and risk management framew
The financial institution must also satisfy the Central Bank that the proposed technology platform to run agent banking
capable of processing instructions issued electronically in real time.

Financial institutions offering the service are required to conduct a due diligence on every person appointed as an age
and have agent selection due diligence policies and procedures in place. The Regulations prescribe the form for a
financial institution to conduct a suitability assessment for its agents.

Obligations of the agent

The agent is required to have operated an account in a financial institution licensed by the Central Bank. It must have a
licensed business, a physical address, and adequate and secure premises, and must have been engaged in the busine
for at least 12 months. 

The agents are prohibited from using in their name the words “bank”, “financial institution”, “financial intermediary” or
of their derivatives, unless permitted by law to do so.

The Regulations set out prohibited activities. These include an agent offering financial institution business on its own
accord, except where it is the agent’s principal business at the time of the engagement; rendering services not stipulat
under the agent agreement; carrying out a transaction where the system is down or in the customer’s absence; chargi
fees directly to customers; undertaking cheque deposits or encashment of cheques; and distributing cheque books, d
cards and credit cards.

The agency agreement

The Regulations prescribe certain provisions that must be included in the agency agreement. One of the most significa
is the requirement for a provision stating that the Central Bank can direct the termination of the agreement as it deems
appropriate, despite it not being a party to the contract.
The agent principal relationship is non-exclusive and under the Regulations the agent cannot be prohibited from
conducting agency banking with other financial institutions.

Persons eligible to act as agents

Sole proprietorships, partnerships, companies, cooperative societies, microfinance institutions, and any other entity
approved by the Central Bank are eligible to act as agents for financial institutions
The Regulations prohibit financial institutions’ employees, affiliates or associates from conducting agent banking.

Powers of the Central Bank

The Central Bank is also required to vet and approve each person selected by a financial institution to act as its agent
purposes of conducting agent banking.

Although the financial institution is required to ensure that its agents comply with the Regulations, the Central Bank
maintains a supervisory role over the agents and has the power to request any information from an agent at any time
where it deems it necessary, as well as the power to carry out an examination of the agent, conduct a special audit of
service, direct the termination of an agency agreement or direct the institution to take measures against the agent. 

The Central Bank also has the power to impose any remedial or administrative measures where a financial institution f
to comply with the Regulations. This includes, but is not limited to, suspension and prohibition from engaging in any
further agent banking.

Consumer protection

The Regulations provide for consumer protection mechanisms by setting minimum standards of customer protection a
risk management for the identification of a customer. These include the requirements to issue a receipt or
acknowledgment of the transaction, put in place proper signage indicating the parent bank, a list of services offered, a
a written notice that no charges or fees are levied at the agent location.

Anti-money laundering and combating of financing of terrorism

The Regulations require financial institutions to train their agents on anti-money laundering and combating of financing
terrorism, as provided for under the Anti-Money Laundering Act, 2013 and the Anti-Terrorism Act, 2002, and set limits
this purpose, which the Central Bank has the power to revise. In addition, the agency agreement should set out the an
money laundering and counter-financing of terrorism arrangements, including a requirement to report suspicious
transactions to the financial institution.

Conclusion
Branch network expansion in brick and mortar is currently a huge cost to financial institutions. The Agent Banking
Regulations nearly offload branch expansion costs from the financial institutions onto willing third parties to serve as
agents. If the success in Kenya is anything to go by, Uganda is set on a new, dynamic path in its quest for financial
inclusion.

Tracy Kakongi is a legal assistant at ENSafrica in Uganda.