1. Comments on the Report of the Gambling Review Commission 9 November 2011 By Pierre Coetzee Payments Association Of South Africa 1 Staying relevant, aligning with best practice & serving the national interest CONFIDENTIAL

2. Agenda 1.Who is PASA? 2.Support for Gambling legislation and its purpose 3.Why does PASA have an interest? 4.Specific Comments a)Intended and Unintended consequences b)Gambling Legislation and Regulatory Framework c)Definitions and Technology d)Consumers and Merchants e)Enforcement mechanisms 5.Way Forward 6.Summary 2CONFIDENTIAL

3. Section 1 - Who is PASA? 3 CONFIDENTIAL

4. Who is PASA? 4 PASA (Payments Association of South Africa) is the body recognised by the SARB in terms of the National Payment System Act to: 1.Organise, manage and regulate the participation of banks and designated non-banks in the National Payment System (NPS). 2.Issue policies and rules (incl. standards) with regards to participation in the NPS. 3.Manage risk in the NPS, viz. operational, legal, settlement, liquidity, etc. 4.Assist the SARB in overseeing the NPS and ensuring that the NPS remains a world class system that will support the economy as a whole. 5.Promote and ensure an efficient and safe payment, clearing and settlement system.

5. Section 2 - Support for Gambling Legislation and its purpose 5 CONFIDENTIAL

6. Support for Gambling Legislation and its purpose PASA supports appropriate gambling legislation that promotes revenue maximisation, consumer welfare and which is beneficial to the country as a whole. However, legislation often impacts on the NPS and its participants, potentially making it more onerous, costly and inefficient to banks and consumers. In addition, such legislation sometimes conflict with the main enabling NPS Act and its purpose.

7. Section 3 – Why does PASA have an interest? 7 CONFIDENTIAL

8. Why does PASA have an interest? 8 1.PASA is responsible to assist the SARB in overseeing and regulating the NPS and its participants. 2.Legislation of this nature potentially has an impact on the efficiency and safety of the NPS, including bank and non-bank participants. 3.The impact could be from a cost, compliance, legal, efficiency and safety point of view resulting in an impact on the economy and consumers. 4.Conflict between the purpose and goal of the NPS Act, on the one hand, and that of any gambling or other legislation, on the other hand, could result in legal uncertainty and could interfere with the effective management and regulation of banks and designated non-banks in the NPS.

9. Why does PASA have an interest? (Continued) 9 Full compliance with the current gambling legislation is not possible for the following reasons: 1. Banks’ systems cannot distinguish between legal and illegal transactions. E.g. Online card not present transactions performed outside the borders of South Africa are legal as opposed to those performed in SA. 2.EFT payments to illegal gambling operators cannot be linked to online gambling. 3.Not all payments to gambling operators operating under a gambling merchant category code (MCC) are related to illegal online gambling, viz. accommodation and restaurants. 4.Certain gambling operators fraudulently use an MCC unrelated to gambling and are not detected by banks. 5.PASA is responsible to enforce compliance with legislation, sometimes in conflict with its own rules.

10. Section 4 – Specific comments 10 CONFIDENTIAL

11. 11 Specific Comments: Intended and unintended consequences 1.Bank and non-bank participants in the NPS could be expected to block or stop certain transactions, some of which could be legal transactions. 2.PASA will be required to “police” the processing of these transactions, as well as gambling activities. 3.Development of systems could run into millions. 4.Compliance cost will increase, thereby impacting on consumers from a cost and an access to the NPS point of view. 5.This in turn may have an impact on the economy as a whole. 6.Gambling legislation, together with legislation regulating pornography, fraud, money laundering, terrorist activities, etc. collectively, could have a huge impact on bank and non- bank participants in the NPS.

12. CONFIDENTIAL12 Specific Comments: Gambling Legislation and Regulatory Framework 1.Legislation should be clear and unambiguous. 2.Legislation not harmonised, consistent and uniform is difficult to enforce and to comply with. 3.Legislation issued on a National level will enable PASA and its Members to recognise one central department that has the applicable authority. 4.Conflicting legislation causes legal uncertainty. (E.g. NPS Act vs Gambling Act)

13. CONFIDENTIAL13 Specific Comments: Definitions and Technology 1.The role of banks or any other service providers should be clearly defined in any legislation. 2.For instance, FICA reporting requirements are clear in that banks have to monitor and report suspicious transactions after the event. 3.Illegal activities should be clearly defined to enable bank and non-bank participants to know which transactions to monitor, block and/or report. 4.The Act should clearly deal with modern technological advancements, jurisdictional issues and other legal and practical issues experienced in practice.

14. CONFIDENTIAL14 Specific Comments: Consumers and Merchants 1.Consumers and gambling operators involved in illegal gambling should be brought to book by the appropriate authorities, and not necessarily be the responsibility of PASA or its members. 2.Education campaigns should be run to inform consumers about legal and illegal gambling transactions, etc. to create legal certainty 3.Banks’ role with respect to the verification of merchants and the validation of gambling operators is to be clarified. A central database could assist. 4.The FIC, SARB and PASA have been exploring ways to limit the payment of funds i.f.o. online gambling operations. 5.Banks have communicated to their clients that online gambling id illegal.

15. CONFIDENTIAL15 Specific Comments: Enforcement mechanisms PASA and its members do/will assist by: 1.Implementing and adhering to FICA requirements; 2.Transferring pay-outs as instructed by the appropriate authority; 3.Assessing clients against a central database implemented by the NGB; 4.Implementing systems and/or controls to identify certain clearly defined illegal transactions as far as possible, practical and feasible, not only from a bank point of view but to the benefit of the country as a whole; 5.Block such illegal transactions; 6.Monitoring account activities and reporting suspicious transactions; 7.Freezing certain accounts based on predefined rules.

16. Section 5 – Way Forward 16 CONFIDENTIAL

17. Way Forward 17 1.All parties be consulted to ensure practical and enforceable legislation. This includes the SARB, PASA, banks and non-banks involved in the processing of payment transactions. 2.On-going consumer education programmes be run by DTI, NGB etc.

18. Section 6 – In Summary 18 CONFIDENTIAL

19. Summary 19 PASA and its members support the recommendations by the review commission and will co-operate with initiatives to ensure and promote a feasible, enforceable and practicable regulatory environment. This will be achieved through: 1.Consultation with all stakeholders; 2.Consumer education by all stakeholders; 3.Co-operation between stakeholders as is currently being undertaken between SARB, PASA and the FIC; 4.Updating and aligning legislation with best practice, without conflicting with other enabling legislation and without unduly impacting on stakeholders, not only in the NPS, but as an industry.