Introduction
Digitalisation increasingly enables financial service providers established in one jurisdiction to serve customers located in another without maintaining a physical establishment in the customer's country.
A foreign platform may therefore enable a resident of the Union of the Comoros to open an account online, make or receive payments, hold funds through an electronic wallet or conduct international transfers, while the provider's technical and operational infrastructure remains entirely outside the Comoros.
This raises an important regulatory question: does the absence of a physical presence in the Comoros, by itself, place the foreign provider outside the scope of Comorian financial regulation?
The answer requires a more nuanced analysis.
A specific legal framework for payment services
Since 2020, the Union of the Comoros has had a specific legal framework governing payment services.
Law No. 20-005/AU of 23 June 2020 on payment services and payment service providers regulates, among other matters, payment services, payment service providers and services involving electronic money.
Article 5 adopts a broad definition of payment services. It covers, among other activities, services enabling deposits and withdrawals from payment or electronic-money accounts, the execution of payment transactions, direct debits, card or electronic-device payments, credit transfers, the issuance of payment instruments and money remittance.
Article 6 identifies payment service providers as including credit institutions and financial intermediaries governed by banking legislation, as well as electronic money institutions and payment institutions.
Regulatory classification therefore depends primarily on the substance of the services actually provided rather than solely on the commercial description adopted by the operator.
Licensing is the general principle
Article 62 of Law No. 20-005/AU provides that an entity intending to conduct electronic-money activities or provide payment services must, depending on the nature of its activities, apply for authorisation as an electronic money institution or payment institution, subject to the regime applicable to already licensed credit institutions.
This requirement must be considered in light of the central role of the Central Bank of the Comoros in regulating and supervising the banking and financial sector.
International operators should also bear in mind an important jurisdictional point: banking and financial activities fall within the regulatory framework of the Union of the Comoros. References to Anjouan, Mohéli or Grande Comore should therefore not be understood as creating separate banking or financial regulatory jurisdictions.
What if the provider has no presence in the Comoros?
The analysis becomes more complex where a foreign provider has no establishment whatsoever in the Comoros.
Consider a company regulated in its home jurisdiction which:
- has no company, branch or office in the Comoros;
- has no employees, agents or distributors locally;
- provides all services and conducts all operations from abroad;
- does not conduct marketing specifically targeting the Comorian market; but
- accepts customers resident in the Comoros who access its platform on their own initiative.
The question then becomes whether providing a regulated service to a Comorian resident may nevertheless bring the activity within the scope of local regulation.
Law No. 20-005/AU contains certain express exclusions from its scope for particular operations or services.
However, it does not expressly establish a general exemption based solely on the absence of a local establishment or on the customer's own initiative.
Caution is therefore required before concluding that a fully cross-border model necessarily falls outside the scope of Comorian regulation.
Reverse solicitation: a concept requiring caution
In certain jurisdictions, a distinction may be drawn between actively marketing a service into a country and a situation in which a customer independently approaches a foreign service provider.
The latter situation is commonly referred to as "reverse solicitation".
Reverse solicitation should not, however, be treated as a universally recognised regulatory exemption.
In the Comorian context, the relevant question is whether the applicable legislation actually recognises such an exemption and, if so, under what conditions.
In the absence of a clearly applicable statutory exemption, the mere fact that a Comorian customer initiated the relationship with a foreign provider does not necessarily establish that local regulatory requirements are inapplicable.
What factors should be considered?
The regulatory treatment of a cross-border model requires an assessment of how the service actually operates.
Relevant factors may include:
- the precise nature of the services provided;
- the functionalities of any account or electronic wallet;
- where accounts are opened and administered;
- where and how customer funds are held;
- customer identification and onboarding procedures;
- the payment methods used;
- incoming and outgoing financial flows;
- the currencies involved;
- the contractual framework;
- how Comorian residents access the service; and
- whether any commercial activity specifically targets the Comorian market.
Advertising directed at Comorian residents, specific local referencing, services adapted to the local market, local partnerships, agents, distributors or other intermediaries may affect the analysis.
Absence of physical presence is only one factor
An important distinction must therefore be maintained.
"We do not have an office in the Comoros" and "we do not conduct a regulated activity in the Comoros" are two legally different propositions.
Article 65 of Law No. 20-005/AU provides, in particular, that an electronic money institution or payment institution established under the local regime must have its registered office and principal decision-making centre in the Union of the Comoros.
This makes the prior regulatory classification of a foreign operator's activities particularly important. If the business model falls within an activity requiring local authorisation, the absence of a local establishment may itself become a regulatory issue rather than an exemption.
Other regulatory regimes may also apply
The analysis does not end with payment-services regulation.
Depending on the business model, consideration may also need to be given to:
- foreign exchange and cross-border financial-flow regulations;
- anti-money laundering and counter-terrorist financing requirements;
- customer identification and know-your-customer obligations;
- contractual and user-information requirements;
- consumer protection;
- personal data requirements; and
- any other applicable sector-specific regulation.
Article 4 of Law No. 20-005/AU expressly provides that its application is without prejudice to the rules governing financial relations between the Union of the Comoros and foreign countries.
Regulatory analysis before opening services to the Comorian market
For fintech companies, payment institutions, remittance operators and other international digital financial service providers, the fact that a service is technically accessible from the Comoros should not be confused with regulatory permission to provide that service to Comorian residents.
Before accepting customers resident in the Comoros, an operator should therefore consider questions including:
- How are the proposed services classified under Comorian law?
- Is any licence, authorisation or registration required?
- Can the services lawfully be provided from abroad without a local establishment?
- What relevance, if any, does the absence of active solicitation of the Comorian market have?
- Are the relevant financial flows subject to foreign exchange or transfer requirements?
- What AML/CFT, contractual and user-protection obligations apply?
The answers depend on the specific operational model of each provider.
Conclusion
The cross-border provision of digital financial services raises an increasingly important question in the Comoros as fintech develops: to what extent may a foreign provider serve Comorian residents without establishing a local presence?
Comorian law subjects payment services and electronic money to a specific regulatory framework and establishes a licensing regime for relevant operators.
The position of a provider established and regulated entirely abroad, which does not actively solicit the Comorian market but accepts Comorian customers remotely, nevertheless requires a careful assessment of its business model and the applicable regulatory provisions.
The absence of a physical presence is one factor in that assessment. It should not, by itself, be treated as equivalent to an absence of regulatory obligations.
This article provides general information only and does not constitute legal advice. The application of the rules discussed above depends, among other matters, on the nature of the services, the manner in which they are marketed and the operational structure of each provider.
Source
Law No. 20-005/AU of 23 June 2020 on payment services and payment service providers — Central Bank of the Comoros