91. A remittance is generally defined as money sent
from one place (or country) to another. This can include migrant
workers sending money home to families that remain in their country
of origin. According to the World Bank, remittance flows account
for about one-third of global external finance, second in volume
after foreign direct investment. Increasingly, offering remittance
services to immigrant communities is seen as a useful way of encouraging
engagement with the formal financial services sector.
If migrant workers are unable to access formal money transmission
and remittance services, they may turn to the informal sector.
The Department for International Development (DFID) estimated
that, in 2005, the total value of outward remittance flows from
the United Kingdom to developing countries was £2.3 billion.
The Government has recognised the importance of remittances in
promoting economic development, and DFID is therefore seeking
to remove barriers to the flow of money transfers, to lower the
costs and to make access to money transfer products easier for
those on low incomes. DFID has established a remittances working
group to provide a forum for private and public sector representatives
to discuss opportunities, as well as constraints, and identify
actions to expand and improve remittance transfer services to
Regarding their role, HM Treasury told us that they were "concerned
that the remittance services market in the UK should be competitive,
efficient and sound, and that new opportunities for money remitters
are introduced to enable them to enter and compete fairly in other
92. The FSA, the BCSB and Her Majesty's Revenue and
Customs (HMRC) are responsible for regulating remittance providers,
the first two covering banks and the last covering Money Transfer
Organisations. The DFID working group noted concerns that "the
FSA and HMRC do not always work in a coordinated manner".
The Money Transmitters Association (MTA) illustrated some problems
with the current regulatory regime. HMRC is only allowed to give
out limited responses to requests for information: for example,
can only confirm that a company is registered, it
cannot give any details of visits made and whether any inspection
yielded a positive result that AML controls were working. In effect,
the registration scheme is not helping money transmitters to [obtain]
The MTA told us that 75% of money transmitters had
experienced problems in obtaining or retaining a bank account.
The MTA believed that, "if money transfer companies are prevented
from operating legally through the lack of a bank account, they
will exit the formal sector but continue to trade in the black
Mr Tiner agreed that closing the bank accounts of small money
transfer organisations increased the risk of money transmission
activity migrating to illicit channels and that, in such circumstances,
"those people go underground and are not subject to any scrutiny
at all". Mr Tiner believed that, between HMRC, the FSA and
DFID, they could take this issue forward.
93. The Treasury told us that they were currently
engaged in a review of the regulatory regime for Money Service
Businesses (MSBs) to ensure that
the supervisory regime continues to support the needs
of a dynamic and flexible MSB sector that is properly protected
from the risk of money laundering and terrorist financing. This
involves striking a balance between preventing the misuse of money
remittance corridors for money laundering against the need to
minimise regulatory burdens on the MSB industry, managing the
risk of driving business underground and improving access to remittances
services by honest users.
A consultation document was published in September
94. Access to appropriate methods of transmitting
money is important for financial inclusion, and flows from international
remittances are an increasingly vital source of finance and a
lifeline for developing countries. Small money transmitters can
play a valuable role by providing remittance services to communities
that may not be engaged with the mainstream financial services
sector. A lack of coordination in the current regulatory regime
is hindering the ability of small money transfer businesses to
obtain business banking services. Closing down the business accounts
of money transmitters increases the risk of activity transferring
to illicit or illegal channels, as the FSA has recognised. The
Treasury and the FSA must ensure that this issue is dealt with
in consultation with the BBA and the Money Transfer Association.
We welcome the review of the regulation of Money Service Businesses
by the Treasury, which should seek to identify an appropriate
balance between preventing money laundering and terrorist financing
on the one hand and improving access to remittance services for
honest users on the other. We recommend that this review explicitly
address the issue of access by small money transfer companies
to business bank accounts.
95. There appeared to be some misunderstanding on
the part of the banks concerning the role of HMRC in relation
to remittances. Mr Fairey told us that he believed that "money
transmitters are unregulated but registered with HM Revenue and
Customs which is obviously not the same as being regulated for
Sir Fred Goodwin believed that HMRC were not looking at money
transmitters from a money laundering perspective.
The JMLSG guidance lists money transmitters as a higher risk business
where banks should consider making more penetrating enquiries.
No mention is made in the JMLSG guidance of the fact that that
money transmitters are subject to registration and the regulation
of their anti-money laundering controls by HMRC.
We recommend that the JMLSG guidance be amended to make clear
that money transmitters are subject to regulation by HMRC. The
revised guidance should indicate what information a bank should
gather from money transmitters in order to satisfy the bank's
obligations. We expect that the banks will work constructively
with money transfer businesses to develop an appropriate level
of control against money laundering.