Regulation of the Issue of Multi-purpose Stored Value Cards

The Banking Ordinance provides the Monetary Authority with the power to regulate the issue of multi-purpose stored value cards. The regulatory regime aims to ensure the soundness of multi-purpose card schemes and the soundness of the issuers.

The Ordinance provides that:

• licensed banks are deemed to be approved to issue or facilitate the issue of multi-purpose cards;

• a special purpose vehicle whose principal business is or will be the issuing or facilitating the issue of multi-purpose cards may apply for authorisation as a deposit-taking company in order to be approved to conduct that business;

• the Monetary Authority may declare a stored value card, or a class of cards, not to be a "multi-purpose card" for the purposes of the Ordinance, hence exempting these cards from the approval requirements; and

• the issue of single-purpose card does not require approval under the Ordinance.

In addition to the issuer of a card, the Ordinance also introduces the concept of a "facilitator" who is defined in section 2(11) as a person who facilitates the issue of a multi-purpose card by the provision to the issuer of valuable consideration the value of which determines, whether in whole or in part, the extent to which the issuer may provide the undertaking referred to in the definition of multi-purpose card. This definition would cover an "originator" who creates electronic value and sells it to other banks for storage on cards issued by them. (This function is similar to a note-issuing bank which prints bank notes and sells these to other banks for distribution to their customers.) However, a person who provides ancillary services which assist the issuer of a multi-purpose card, such as advertising, payment collection services or electronic data network facilities, will generally not be considered to be acting as a facilitator for the purposes of the Ordinance.

In developing this regulatory framework, the Monetary Authority seeks to strike a balance between the need to maintain the stability of the payment system (and thus of the financial system as a whole) and the desirability of not stifling developments which would promote competition and innovation.

In keeping with the first objective, and bearing in mind that direct access to the payment system in Hong Kong is confined to licensed banks, it is intended that only licensed banks should have the ability to issue multi-purpose cards which are unrestricted in terms of the goods and services which they can be used to purchase. Such cards have "generally accepted purchasing power" and are thus a close approximation to money. In keeping with the second objective, however, it is intended that non-bank issuers should have the opportunity to apply for approval to issue multi-purpose cards which are more limited in scope.

The Hong Kong Monetary Authority (HKMA) has issued a Guide to Authorization to describe the principles and criteria that the HKMA will use in exercising his power under the Ordinance for the authorisation of multi-purpose stored value card schemes.

In overseeing the safety and efficiency of retail payment systems operations, the HKMA has been encouraging the industry to adopt a self-regulatory approach through the issuance of, and compliance with relevant codes of practices. Octopus Cards Limited, the system operator of Octopus card, has issued a Code of Practice for Multi-purpose Stored Value Card Operation (PDF, 101KB). The Code, which is a non-statutory code issued on a voluntary basis, takes effect on 4 August 2005. The HKMA has endorsed the Code, and will review it from time to time and monitor the compliance. The Code is intended to promote the general safety and efficiency of multi-purpose stored value card operation by setting out the guiding principles for card issuers, system operators and merchant acquirers to follow in their daily operations; and through this, to foster general public confidence in the multi-purpose stored value card operation.