channels as well as new methods of delivering payment services more efficiently at lower costs to a wider spectrum of society and consumers. however, these have also brought on new risks. regulators, providers and issuers have taken into consideration the risks that each of these various payment modes may have on the safety of the payment systems as a whole. safeguards have to be put in place to instill public confidence in the usage of these innovative payment services or channels. in this regard, it is vital for regulators to impose prudential requirements on the providers and issuers of the electronic payment systems and instruments. the need for sound regulation and supervision is further exacerbated by the fact that criminals are constantly on the lookout to exploit the weakest link or point in the financial system. the risk of the new and increasingly popular payment mechanisms being used as conduits for money laundering and combatting the financing of terrorism ( aml / cft ) activities is also a growing concern for central banks and financial intelligence units around the world. the increasing use of electronic payment systems, particularly electronic money, for making cross - border payments makes them vulnerable to exploitation for criminal purposes. therefore, all parties involved in the payment value chain have to be vigilant to ensure that they are not exploited for such purposes. adherence to international standards on aml / cft, including the ability to trace funds back to the source and to positively identify the beneficiaries of the funds, are indeed vital. in malaysia, electronic money is prescribed as a designated payment instrument in the payment systems act 2003 ( psa ) and the act is under the purview of the bank. as such, any person who wishes to issue electronic money would be required to obtain the prior approval of bank negara malaysia and is subjected to the prudential requirements imposed by the bank. in 2005, in line with the objective of reducing the use of cash in the domestic economy, we liberalised our policy by allowing non - banking institutions to issue electronic money. in 2008, the bank issued the guidelines on electronic money, which outlined the broad principles and minimum standards to be observed by electronic money issuers. as at end - march 2010, 26 issuers have been approved to issue electronic money comprising both card - based and network - based schemes. during the past five years, the use of electronic money recorded encouraging average annual growth of 21. 5 % and 24. 9 % in terms of volume and value respectively. with regard to the

oversight of electronic money issuers, in particular the non - banking institutions, our objective is to ensure the safety and reliability of the issuers ’ systems and operations. we acknowledge, nevertheless, that in this rapidly changing commercial and technological environment, it is becoming increasingly challenging for regulators to develop policies that are effective and appropriate to address the regulatory concerns while at the same time, promote innovation. digital convergence of telecommunications, computers, and the media is fast conjoining many new products and services to replace the old ones. for these reasons, inflexible and highly prescriptive regulations and rules may be inhibitive to innovation. in addition, with the entrance of more non - bank players in the payments industry, overseeing these players could be more challenging as a different regulatory approach may have to be adopted. regulators would need to be conversant with the business dynamics and operational arrangements of these new players while, at the same time, these players have to adapt quickly to the regulators ’ supervisory approach and requirements. the regulators ’ dilemma in achieving a proportionate regulatory framework, in particular to promote the growth of electronic money, remains a challenge. this give rise to the need to balance trade - offs between impacting public confidence and promoting innovation and competition. let ’ s take the example of the provision of a more lenient regulatory regime. while this would promote the entry of new players in the market, it may also lead to the payment systems being used for illicit purposes. regulators may as well get the major stakeholders to understand this dilemma. by doing this, hopefully the regulators will be able to apply a more stringent regulatory regime to protect public interest, but at the same time do not unduly affect the viability and growth of electronic payments. concluding remarks regulators play an important role in ensuring that effective regulations are in place to maintain the integrity of the payment system as well as to promote user confidence, particularly for new payment services. at the same time, it is also recognised that migration to electronic payment brings immense benefits to the country. hence, a regulatory environment that would allow innovation to thrive has to be balanced against the objective of safeguarding public interest and confidence in the payments infrastructure. this balancing is required to ensure continued acceptance and usage of the various payment systems and instruments. the emergence of payments processors, such as spare change, boku, paymo, to facilitate payments for virtual goods and services over online social networks, such as facebook, bebo and myspace, as well as person -