Key regulatory issues for money transfer to Africa

Key Regulatory Issues for Money Transfers to Africa

Global Forum on Remittances 2009Tunis, Tunisia October 22-23, 2009

Emiko Todoroki

Senior Financial Sector Specialist

Financial Market Integrity

World Bank

To protect consumers/ customers

To increase transparency of remittance

flows

To create a level playing

field for competitive

markets

To counter abuse of

remittance channels by

criminals

Why do we need to regulate remittance transfers/RSPs?

Public Policy ObjectivesAML International

Standards

Addressing the Integrity Concern

Receiver

Sender

MTOs

Authorities

Misuse of remittance, poor access to financial servicesDisguise transfers, abuse of remittance channels

Inability to comply with FATF Recommendations

•Poor knowledge on remittance industry - - large informal flows

•Difficulty for efficient, low-cost oversight

•Non-bank players, use of payment gateway and technologies result in conflicting role among regulatory agencies

To facilitate

remittance flows to the

country

To achieve public policy objecti

ves

Challenge is how to design

well-balanced regulatio

n

Designing the Regulatory Framework

shift from informal flows to formal flows

Remove unnecessary barriers to regulation

Limited RSPs or products allowed in the market

Strong presence of exclusivity

agreements

Lack of or weak

AML/CFT regime

Existence of foreign

exchange control

Characteristics of Operating Environment in Africa

Service Providers:◦ Only banks (8 out of 50 surveyed countries in Africa)◦ Only banks and exchange bureaus (32 out of 50 surveyed

countries in Africa)

Services/Products◦ Mobile phone remittances (spreading fast) ◦ Other products such as stored value cards

Sources: ◦ IFAD, Sending Money Home to Africa, 2009; ◦ World Bank (FPDFI), Bilateral Remittance Corridor Analyses and AML/CFT Assessment of countries

Limited RSPs or Products allowed in the remittance markets in Afirca

The FATF Special Recommendation VI

The objective of SRVI is to increase the transparency of payment flows by ensuring that jurisdictions impose consistent AML/CFT measures on all forms of money/value transfer systems.

Licensing orRegistration

Money/value transmission

services are subjectto applicable Rec,

in particularRec4-11, 13-15,

& 21-23 and 9 SRs

Sanctions on money/value transfer services

without a license orregistration

Developed v.s. Developing Economies

Developed countries (42) Developing countries (82)

Largely -compliant

Partly compliant

Non-com-pliant

Varying levels of compliance with SR VI among Regions

Non-compliant

Largely-compliant

Partly-compliant

Africa MENA Asia &Pacific

EastenEurope

North andsouth

America

WestenEurope

SR VI: Money/value transfer services and SR VII: Wire transfer rules

Developing countries Developed countries

SR. VI

Absence of registration/licensing/ of all natural and legal persons providing money or value transfer services Presence informal money or value transfer servicesSupervision suffer from weaknesses

There is insufficient or no system for monitoring remittance services and ensuring compliance with the FATF Recommendations The scope of inspection policies and procedures and practice are not sufficient.

SR. VII

No existing/comprehensive law, regulation or other enforcement means regulating wire transfers

Inadequate implantation of requirements regarding obtaining and maintaining information with wire transfers. Absence of requirements to ensure that complete originator can be identified

Common Problems With SR VI & VII among developed and developing countries:

Registration or licensing?Registration Licensing

Definition Registering with/declaring to a designated competent authority

Obtaining permission from a designated competent authority

Issues • Raises few barriers• May encourage

participation

• Filters providers• May discourage participation• Better protects integrity and

soundness

Possible implications

• More RSPs’ participation would better help identify operators and regulate them.

• Expectation of less costly approach is not the case: resources for monitoring are needed as licensing approach

• High requirements for a license discourage more RSPs from being regulated. If the requirement for high capital adequacy exists, informal players may remain.

Selected countries’ approach to licensing/registrationJurisdiction Approach

United States Registration (Federal) for AML/CFT with the FIU and Licensing (State) for safety and soundness, and consumer protection

United Kingdom Registration of remittance service providers with the Customs (list of agents should be provided)

Canada Registration of remittance service providers with the FIU (list of agents should be provided)

Malaysia License (remittance service providers)

Indonesia License (remittance service providers) with a 2-year transition registration which ended in 2008

Jamaica License (both remittance service providers and their agents)

Haiti License (remittance service providers)

Nigeria Only banks are allowed

Uganda License – different levels of requirements for international, local MTOs and agents)

South Africa Authorized dealers only (banks and exchange houses) and Postbank

Lessons learned from regulating Alternative Remittance Systems (ARS)

Issues Responses

Determining a licensing or registration regime

Depends on the local circumstances, considering the objectives of the regulators and supervisory capacity.

Identifying who is operating a remittance business can be challenging.

Outreach to the ARS and awareness raising

Need for flexible, effective, and proportional regulations so as not to impose too much administrative and cost burden on remittance providers

Understand risks to help better regulate the market: risk-based approach

Regulations will need to be incentive-compatible, and their design will require engagement with the private sector.

Consultation with the private sector

Lessons learned from regulating ARS (Cont’d)

Issues Responses

Requirements to be clear and simple–for application process, background checks, on- and off-site monitoring, and compliance programs–annual renewal to facilitate close contacts

Increase compliance level of remittance service providers

Regulations that are simple to implement, effective, has buy-in of all stakeholdersTaking a gradual approach may be a key to success

Customer identification– Problems for undocumented workers– Threshold for CDD to kick in

Need for flexibility on documents accepted for identification Full CDD on a risk sensitive basis

Limited RSPs and Services/Products allowed

– Only banks, or banks and exchange bureaus– Mobile phone remittances and other card type products

Regulate non-bank players rather than limit playersAssess risks and regulate new products/services

• Policy Makers- AML/CFT should not hamper the development of m-FS. Regulation should be

targeted at creating a safe and sound market to promote financial inclusion.- All m-FS providers should be subject to AML regulations in accordance with

risk-based approach (i.e. Conduct risk assessment prior to legislating controls).

• Sector Regulators• Set clear licensing criteria and monitoring procedures that are commensurate

with services and risks. • Define transaction limits giving each m-FS providers flexibility to take

advantage of market opportunities.

• Supervisors• Include the associated risks into the scope of their on and off-site duties

• Private Sector• Consult with regulators on the development of new services• Introduce robust internal controls and risk management practices

Mobile Financial Services: Policy Recommendations

Ms. Emiko TodorokiSenior Financial Sector Specialist

Financial Market IntegrityThe World Bank

Email: [email protected]: (202) 458-9466

Fax: (202) 522-2433

For more information, please visit www.worldbank.org/remittancesandintegrity