Digital financial services (DFS) provided by banks and mobile network operators (MNOs) through agents can help advance financial inclusion by overcoming access barriers to traditional bank branches in developing countries. Agents in developing countries play a pivotal role in facilitating DFS, as they are responsible for the primary DFS functions of cash-in and cash-out. DFS, like other financial services, are exposed to risks such as fraud. It is necessary to understand where liability rests in the principal-agent relationship in the event of disputed transactions (which can arise due to agent negligence, theft or violation of customer privacy; or from customer misdemeanours). A sound legal and regulatory framework to govern agent and principal liability is important. Regulations are necessary to deter agent wrongdoing without dis-incentivizing prospective agents.
This briefing note identifies the primary areas to be considered when structuring agent liability and outlines key factors for consideration when crafting a legal and regulatory framework to govern the use of DFS agents. Through a brief analysis of agent liability regimes in Fiji, Kenya and Malawi, this note highlights the importance of having in place a clear and functional regulatory structure and underscores the need to rebalance economic incentives through the principal-agent contract. In summary, this note advocates the adoption of rules that make principals vicariously liable for the actions of their agents, coupled with an explicit agreement as to agent penalties and rewards, and supported by a functional approach to regulation.