Bangladesh is slowly moving towards a cashless society. Thanks to the widespread use of digital money across different spheres of lifestyle ranging from sending digital money to paying different bills using the same. The reliance on the digital money or electronic money has increased drastically during the pandemic. In particular, the reliance on Mobile Financial Services (MFS) like bkash, Nagad and Rocket was noticeable in that period as these MFS services have provided vital support to the general public in a time when strict social distancing policy was in place across the country. While MFS has become increasingly popular among the mass population, the financial theft related to the usage of this cash-less medium is also on the rise.

Risks associated with the operation being led by the agents

One of the biggest challenges for the MFS providers is the oversight and monitoring of their respective agents and distributors who practically lies at the heart of the operation of this business. The fact that agents are typically used in the provision of MFS, and are often the first point of contact with consumers, it is a huge source of risk for both the providers and the consumers. Let us examine a hypothetical scenario relating to the use of MFS to understand the risks better:

Mr. X wants his electricity bills by using MFS. However, since he is not so well acquainted with the functions of the mobile application of concerned MFS provider, he approached one of the agents of the said MFS provider who is stationed in his area and requested him to pay the electricity bills through MFS. The agent asks him to leave the cash equivalent to the bill amount along with the agent commission with him and he will pay the same accordingly. Mr. X happily complies and continues this practice for the next several months for the payment of bill through MFS. After 3 (three) months, some officials from the electricity department comes to Mr. X’s house to disconnect the line stating that he has not paid the electricity bills for the last 3 (three) months. Apparently, the said Agent did not pay the bill and misappropriated the bill amount that he was entrusted with.

Liability of the MFS providers for the act of the agent

Now the question is what would be the liability of the concerned MFS provider in this situation. It is important to understand at the outset that Agents or Distributors are not employees of the MFS providers. MFS providers and their respective agents or distributors stand in the agency-principal relationship. So, it is difficult to impose a vicarious liability on the MFS provider in such a scenario.

Typically, the MFS providers enter into a bi-lateral agreement with the concerned distributors before they are onboarded. It is the distributors who enter into separate agreement with the agents to which the MFS providers are not usually privy. Therefore, it would be handy if we take a look at the provisions of agents and principal enshrined in Law of Contract 1872. Section 227 of the Act provides that:

“When an agent does more than he is authorized to do, and when the part of what he does, which is within his authority, can be separated from the part which is beyond his authority, so much only of what he does as is within his authority is binding as between him and his principal.”

If we apply the provision of the above section in our current scenario, the first thing that comes to the surface is that the agent has clearly exceeded his authority which is separable from the part that is within his authority. Clause 10 (ii) of Bangladesh Mobile Financial Service (MFS) Regulations 2022 provides that:

“Agents are only allowed to take part in ‘cash-in’ (i.e. converting physical money to e-money), ‘cash-out’ (i.e. converting e-money to physical money) and other transaction(s) approved by Bangladesh Bank”.

Therefore, as per the provision of Section 227 the MFS provider as the principal has an arguable case here to avoid the liability for the embezzlement done by the agent. The MFS provider may further take shelter behind Section 196 of the Contract Act which provides that:

“Where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such acts.”

Section 196 of the Contract Act, in fact provides an opportunity for the MFS provider to disown the misappropriation of fund committed by his agent immediately after the event comes to their knowledge by pleading that the same was done without their knowledge or authority.

Regulatory obligation of the MFS provider

However, the position is not as simple for the MFS providers as it appears on the face of it. It is important to note here that MFS is a highly regulated business which operates within the license issued from Bangladesh Bank and it is under an obligation to comply with the regulations issued time to time by the Bangladesh Bank. With regards to the oversight of the distributor and agents, clause 14 of the guideline from Bangladesh Bank is as follows:

“14.1

For effective management and containment of the substantial operational risks in providing Mobile Financial Services, the MFS providers shall put in place robust internal governance frameworks with internal control and compliance processes featuring clear description of roles, responsibilities and accountabilities.

14.2

Internal control and compliance processes of MFS providers shall include oversight routines on operations of wholesale and field level retail agents and on customer satisfaction levels.”

Thus, the regulations have made it abundantly clear that the MFS providers are obliged to put in place a robust internal governance framework that ensures an oversight on the field level retail agents. Therefore, a duty of care is created by the regulation itself on the MFS providers. Consequently, the MFS providers cannot just evade the liability by simply disowning the act of the agent because any such act of the said agent goes to show the lack of oversight or lack of control from the MFS providers on their respective agents or distributor and by failing to prevent the happening of the same, they made a breach of the duty of care created by the regulation. These sort of incidents put the concerned MFS corporations in difficult situations in terms of regulatory oversight. In fact,

 

Possible remedy for the aggrieved customer

In this context, the next big question is if there is a duty of care and if there was a breach of the same by the MFS provider, what is the remedy for the aggrieved customer (in the hypothetical scenario, the consumer Mr. X) against the said MFS provider? In the MFS industry, it is not so atypical that the victim files a criminal lawsuit against some of the employees of MFS corporation along with the agent in question pleading some of the sections from Penal Code including that of Cheating or Criminal breach of trust. While the allegation of cheating of criminal breach of trust may work against the agent, it may prove futile against the employees of the MFS corporation unless a clear evidence of aiding the agent is found against the said employees. The reason being that the principle of “Lifting the corporate veil” is unlikely to be invoked here because for the breach of duty of care imposed on the MFS providers by the regulation can at best be labelled as negligence. In other words, lack of control over the retail agents can at best be treated as negligence from MFS corporations’ end. Hence, a better remedy against the MFS corporation lies in the Civil Court and it would be prudent for the customer to file a Money suit for recovery of the loss sustained as a result of the act of agent.

Conclusion

While the MFS providers have a duty of care towards the customers for ensuring the transaction safe and hassle free, the customers also need to be careful while dealing with the MFS agents while making any transaction by using the service. They need to understand the scope of work and limit of authority of the agents. In this regard, MFS providers need to develop and pursue sustainable programs for continual enhancing of awareness and knowledge about various aspects of Mobile Financial Services among their employees, agents, distributors/super agents and target customer segments to enhance financial literacy and combat against fraud and forgery.