Shadow Payment Systems (SPPs), operate outside the perimeter of bank regulation. Hence are not an effective substitute for bank-based payment systems.

The research findings have a number of important policy implications:
  • Information gaps from a consumer protection perspective.  They are also important for policymakers as they seek to enhance their oversight of these increasingly important institutions.
  • The majority of SPPs have not taken full advantage of private law mechanisms to protect customers from the risks of potential illiquidity and loss of value. 
  • Effective regulatory regimes governing SPPs need not include all the features of conventional bank regulation. The proposal is for bespoke regulatory regimes depending on the relevant business models.
  • SPPs and their representatives may object to the imposition of such functionally equivalent regulatory regimes on the basis that they would constrain their ability to profit from the intermediation of customer funds.

Shadow Payment Systems Research Paper