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New Regulation On Prepaid Cards

Author:Mr Diego Peralta, Elena Yubero and Paluska Solar

The amendments to Chapter III.J.3 of the Compendium of Financial Regulations of the Central Bank introduced a new regulation on prepaid cards (Payment Cards with the Provision of Funds), which seeks to achieve greater financial inclusion by strengthening and promoting this payment method, which has not yet achieved the expected market penetration.

The first draft of this regulation is from June of last year, which received many comments from both banks and regulators. These comments prompted the strengthening of the first draft, resulting in the regulation that is currently in place.

This new regulation has introduced a clear and specific concept of Provision of Funds Accounts. These "Provision of Funds Accounts" are those with a sole purpose of receiving funds for the provision of the cards to be used as a payment method.

The definition of card ("Card") is also modified and extended to a concept that also includes the dematerialization of the traditional instrument, considering virtual means. Thus, transactions can be made through electronic or computer devices.

In addition, the new regulation includes several provisions to prevent the misuse of this system, through money laundering or terrorist financing. Thus, these cards are limited by their acquisition characteristics, whether in person or remotely, and whether they are nominated or innominated . For example, acquiring cards through remote means is permitted, provided that those means include appropriate mechanisms to establish and verify the identity of the holder, in which case, the cards may not accumulate more than CH$500,000 . In turn, legal persons may acquire cards on behalf of natural persons that are duly identified in a list provided by the contractor to the corresponding Issuer.

The limit for issuers of innominated and disposable Cards rises from CH$50,000 to CH$100,000. The use of nominated Cards overseas is permitted, provided that they have been acquired personally.

The definition of "operators" is narrowed. Operators are defined as entities that provide services related to the authorization and registry of transactions to the Issuers, and that perform, by order of the Issuers, acts of administration leading to the payment of services which the issuer owes to affiliated entities for the use of the Cards.

Issuers must be banking companies established in Chile, which are considered to be authorized for these purposes, and have technology that can properly safeguard the...

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