Clifford Chance

Kenya regulates digital lending and payments

The Central Bank of Kenya (Amendment) Bill, 2020 was recently published, seeking to regulate digital money lenders. We reported on a bill of the same name last year in our August 2020 edition, the provisions of which were far broader. This bill seeks to require all digital money lenders, i.e. entities offering credit facilities via mobile money lending applications, to apply for licences from the Central Bank of Kenya.

One issue with the bill is that it does not make provision for existing digital money lenders to obtain licences, which could lead to disruption of services. It is also unclear from the bill whether banks and financial institutions, already subject to an existing licencing scheme, would need to obtain separate licences as digital lenders too.

There is also change afoot for the Kenyan digital payments sector, with the central bank calling for comments on its draft Kenya National Payments System Vision and Strategy, 2021-2025. The Strategy seeks to foster innovation in the space by providing clear API standards and mandating data portability, in keeping with trends towards open banking globally.

After the meteoric rise of mobile money in Kenya over recent years, the time is right for regulation in digital payment and lending. It is crucial, however, that the regulatory frameworks cohere with one another, and enable a smooth transition for existing market players.  

The Central Bank of Nigeria prohibits cryptocurrency transactions

In early February, the Central Bank of Nigeria (CBN) released a letter addressed to banks and other financial institutions prohibiting dealing in cryptocurrencies and facilitating payment for cryptocurrency exchanges. The CBN further instructed all banks and financial institutions to identify individuals and entities who transact in cryptocurrency or operate cryptocurrency exchanges, and to close the accounts of such persons or entities.

The decision was met with a public outcry. Nigerians are avid users of cryptocurrency, self-reporting as the most likely to use or own cryptocurrency in a survey of 74 countries, and boasting the world's third largest cryptocurrency trading volumes after the US and Russia. The CBN, however, explained that as cryptocurrencies are issued by unregulated and unlicensed entities, they cannot be used as legal tender in Nigeria under existing law. Attention was also drawn to the volatility of cryptocurrencies, which the CBN said could threaten the stability of financial systems.

The Nigerian Senate deliberated on the CBN's decision, with some senators expressing reservations about the prohibition. A month later, however, the ban remains in place.

Ghana introduces Cybersecurity Act 2020

Ghana has passed the Cybersecurity Act 2020, which establishes the Cyber Security Authority, protects the country's critical information infrastructure and regulates cybersecurity.

The Act also addresses offences against children and the general public online, and empowers security and law enforcement agencies to combat cybercrime. Ghana's Minister of Communications explained that the Ministry was planning to launch a cybercrime and security incident reporting system to provide various channels for incident reporting, including online portals, phone lines, SMS and a dedicated app. 

US House Committee hears proposals for guarding the gatekeepers

On 25 February, the House Committee on the Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law held its first in a series of hearings regarding proposed legislative remedies for the competition issues detailed in the subcommittee's reports on digital markets published last autumn. This first hearing focused on gatekeeper power and lowering barriers to entry. The gatekeepers under discussion were Google, Apple, Facebook and Amazon. The subcommittee heard testimony from various antitrust experts as well as the CEO of a mapping company.

There was bipartisan support from the subcommittee for various proposals, such as data portability and interoperability. Structural separation was discussed but is not as widely supported by Republicans on the committee. Separately, other legislation has been proposed, such as the merger control legislation proposed by Senator Klobuchar.

While legislators cannot yet agree on structural remedies, some say it is only a matter of time. The acting Chairwoman of the US Federal Trade Commission, Rebecca Slaughter, stated during a virtual conference that the likelihood of a large technology company being broken up over the next decade is "very high". She referred in particular to the agency's antitrust lawsuit against Facebook, launched in December 2020.

Twitter tells users five strikes and you're out

Over the last year, Twitter has grown increasingly comfortable with applying labels to tweets and blocking users in accordance with its policies, with the notable example of Donald Trump's permanent suspension in January. This month, Twitter extended its moderating powers a step further. Any tweet sharing misleading information in relation to Covid-19 vaccines will receive a label directing readers to information from health officials, and the user will receive a "strike". The strikes correspond to suspensions of increasing length, culminating in a permanent ban after five strikes.

Facebook and Instagram announced a similar policy in February, following pressure from Democrats in Congress. Assessing the public health accountability of the major online platforms reopens wider questions of content moderation and freedom of speech online. Joe Biden supports reform to Section 230 of the Communications Decency Act, with a view to imposing more extensive liability on platforms for unlawful user-generated content, as covered in our September 2020 edition.

People's Bank of China to trial distributed ledgers in currency exchange

In February, the People’s Bank of China (PBOC) announced plans to launch the Multiple Central Bank Digital Currency Bridge, a collaboration between authorities in China, UAE, Hong Kong and Thailand. The Bridge's first project will be to develop a prototype distributed ledger technology to facilitate cross-border foreign exchange payments. The project is not to be confused with PBOC's ongoing development of a Central Bank Digital Currency, also known as the digital yuan, which will not rely on distributed ledger technology for payment validation.

Staying with PBOC, the bank has commenced a public consultation on proposed regulations for payment service providers, like Ant Group's Alipay and Tencent's Wechat Pay. The draft rules include antitrust provisions, allowing PBOC to request the break-up of a payment service provider if it "severely hinders the healthy development of the payment service market". With its digital yuan in the works, PBOC has an interest in ensuring that market conditions allow for a fair fight with the Alipay-Wechat Pay duopoly: the two currently process 95% of digital payments in China.

Facebook's news blackout Down Under

In Australia, a controversial new law has come into effect, reimagining the relationship between social media and its traditional counterpart. The News Media and Digital Platforms Mandatory Bargaining Code passed through the Australian Houses of Parliament in February. It addresses a perceived power imbalance between big tech and the news industry by requiring Google and Facebook to pay publishers for news content shared on their platforms.

In the weeks prior to passage of the law, Facebook argued that the proposed Code "fundamentally misunderstood" its relationship with publishers, and began blocking Australian users from sharing news links. They lifted the ban a week later after a publish backlash in response to its wide effect – the ban had covered women's shelters, emergency services and public health pages alike. A compromise was struck with legislators at the eleventh hour, under which the platforms will have more time to reach deals with publishers before compulsory arbitration procedures kick in.

As Australia settles into its new normal, the rest of the world watches on with interest. Canada is in the process of drafting similar legislation, while UK ministers are mulling their options: see below.

Among the more curious features of the Code is its adoption of "baseball arbitration" as a dispute resolution mechanism between platform and publisher. Our client briefing is available here.

Social media: UK considers Australian approach to compensating news publishers

The CMA's Digital Markets Unit has been mooted as a future enforcement agency in a UK version of the Australian Mandatory Bargaining Code, discussed above. UK Government ministers have said that they are looking "very closely" at how the UK could make Facebook compensate media outlets for content on its sites, including through a Digital Competition Act emulating the Australian approach.

In its recent policy paper, the CMA makes an explicit commitment to establish a bespoke digital enforcement unit from April this year. The unit will oversee regulation of digital markets, and the CMA has said it hopes to "deliver a step-change in the regulation and oversight of competition in digital markets and in turn drive dynamic innovation".

Data protection: European Commission recommends adequacy decisions for transfers to the UK

On 19 February, the European Commission published two preliminary approvals, known as adequacy decisions, for transfers of personal data to the UK, one under the General Data Protection Regulation (GDPR) and the other under the Law Enforcement Directive (LED).

The new EU-UK Trade and Cooperation Agreement (TCA) entered into force on 1 January 2021 and included an interim regime to allow the continued flow of data between the EU and UK. This interim period expires on 30 June 2021, effectively acting as a deadline for the adoption of an adequacy decision.

Before the adequacy decisions can be formally adopted by the European Commission, the European Data Protection Board (EDPB) must issue an opinion and Member States must give their green light. Once adopted, the decisions will be valid for four years and can be renewed if the level of protection in the UK continues to be considered "adequate".

Věra Jourová, Vice President of the European Commission, sounded a note of caution: “we included clear and strict mechanisms in terms of both monitoring and review, suspension or withdrawal of such decisions, to address any problematic development of the UK system after the adequacy would be granted.”

Digital Markets Act: Reports published by panel of economists and EDPS

The European Data Protection Supervisor (EDPS) and a panel of economists have published reports on the Digital Markets Act (DMA) proposed by the European Commission last December.

The work of the economists was commissioned by the European Commission's Directorate General for Communications Networks, Content and Technology (DG CONNECT). The panel endorses the vision encapsulated in the DMA, including the designation of large gatekeeper platforms and a series of ex ante obligations they should comply with. According to the economists, information asymmetry between platforms and regulators remains an issue in the effective implementation of the obligations.

In his opinion, the EDPS makes some specific recommendations to help ensure that the DMA complements the GDPR effectively, for example by specifying in Article 5(a) that gatekeepers must provide end-users with a solution of easy and prompt accessibility for consent management, or clarifying the scope of the data portability envisaged in Article 6(1)(h) and rewording Article 6(1)(i) to ensure full consistency with the GDPR.

For more on the DMA, our client briefing is available here.

Artificial intelligence: Norwegian Competition Authority publishes market research on pricing algorithms

The Norwegian Competition Authority (NCA) published research on monitoring and pricing algorithms, and their effects on competition. The NCA's press release expressed concerns that algorithms can make market behaviour more predictable. Where a critical mass of market players engage in this practice, the resulting price stability may come at the expense of genuine competition leading to better prices and availability of goods for consumers. This is most true in markets already conducive to coordination, i.e. where the number of competitors is low and demand is inelastic.

In February, Saudi Arabia launched its first instant payment system (IPS). Globally, IPSs are beginning to replace legacy banking systems, which typically take one to three business days to process and settle payments between banks. Commentators in Saudi Arabia say that the transition will make the monetary supply chain more efficient, while also reducing the use of cash, thereby limiting the size of the shadow economy. The change is also expected to be a boon for the local fintech industry, on the basis that the system will lower the cost of funding for e-wallet players.

Meanwhile in the UAE, Dubai free zone KIKKLAB has become the first government entity to accept payment in cryptocurrency. The economic zone, which offers incorporation services to companies registering for business in Dubai, began accepting payment in Bitcoin, Ethereum and Tether (USDt) in February. The move complements the UAE's national strategy on blockchain, with its aim that 50% of government transactions are recorded via blockchain by the end of this year. 

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