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Enabling environment

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Enabling environment

Across the world, policies and regulations play a major role in fostering competition and innovation in the remittance markets. For example, the EU Payment Services Directive (which came into effect in 2009 in European Union countries), has helped to enlarge payment networks and increase the number of players. This situation has led to price reductions in countries where competition was particularly low and often previously led by banking models.

In particular, regulatory frameworks have been crucial to facilitate the use of technology, mobile phones, digital money, Internet-based mobile and Web applications that will continue to drive costs down, strengthen financial access, and improve the possibility to deliver additional services.

Key regulatory areas could be summarized as follows:

Licensing requirements determine the types of remittance service providers (RSPs) that are allowed to offer remittance services. In particular, banking regulations often restrain the ability of non-bank financial institutions to handle international remittances. This limits competition, and deters new entrants into this sector.

Consumer protection regulations are designed to provide sufficient information to make suitable product choices. The availability and effectiveness of these types of regulations varies from country to country.

Anti-money laundering and combating the financing of terrorism (AML/CFT) regulations require operating companies to utilize appropriate systems and controls, focusing on the identification of remittance senders and recipients, as well as the traceability of transactions. As these regulations have become more stringent and increasingly harmonized among countries, compliance costs have risen.

De-risking practices by global financial institutions are effectively denying access to the financial system for many remittance companies, threatening their existence as well as the ability for migrant workers to send money home to their families, particularly those living in fragile situations. In fact, wholesale policies by banks to terminate relationships with many small MTOs are actually exacerbating AML/CFT concerns by driving remittance flows into informal channels that are much more difficult to track. Instead, banks need to evaluate money transfer operators (MTOs) on their ability to comply with regulatory requirements on a case-by-case basis. In turn, MTOs need to adopt consistent high-standard compliance procedures. Regulators also need to actively encourage appropriate compliance standards that are proportional to the actual risks involved with international remittance transactions. Otherwise, unnecessary “collateral damage” will continue to increase the cost of sending remittances home without any positive impact on AML/CFT activities.

Dialogues to Implementation, Second Session: Africa

Virtual Global Forum on Remittances Investment and Development “Remittances in times of crisis: Response, Recovery and Resilience” Dialogue to Implementation series IFAD and its partners…
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