Supplementary memorandum by the Financial
Services Authority
FOLLOW-UP TO EVIDENCE SESSION ON 16 MAY 2006
A. INTRODUCTION
1. When we gave evidence to the Committee
on 16 May,[120]
we undertook to provide further information on:
— the compatibility of student loans
with Sharia law and the impact this has on prospective Muslim
students; and
— international remittances.
B. MUSLIM STUDENTS
AND STUDENT
FINANCE (Q 728)[121]
2. The Committee were interested to know
the extent of concern among prospective Muslim students over the
compatibility of student loans with Sharia law, and what the Department
for Education and Skills (DfES) and others are doing to address
this issue.
Background
3. According to UNIAID (a registered charity
that helps students cope with the financial barriers to higher
education) there are 1.6 million Muslims in the UK, comprising
2.8% of the population. One-third of these are under the age of
16 and 50% were born in the UK. Young Muslims represent an increasing
proportion of the UK population and represent the largest minority
group in higher education. With 35% of students in higher education
from minority groups, there is a greater concentration of individuals
from such groups within higher education than in other areas.
4. Sharia law prohibits the gaining of interest
or "free money". However, loans are regarded as a way
of helping others to achieve their objectives. The approach, therefore,
must be pragmatic. No profitable return is permitted. Any part
of the transaction which generates profits associated with a loan,
such as charges, profits, fees and commissions, contradicts this
principle.
The current situation
5. In 2002-03 the DfES commissioned the
Institute of Employment Studies to look at the influences on participation
in higher education of minority ethnic students, including financial
barriers. Their findings suggest that student attitudes towards
taking on debt are affected by cultural differences, and specifically
highlight the different attitudes to debt of religious groups,
notably Muslims. However, when this was examined closely, differences
were seen to be relatively small: Muslims were the least likely
to report having a student loan, nevertheless, almost two thirds
(64%) did so. This is only slightly lower than the figures for
Hindus or Sikhs (66%), Christians (69%) and those of no faith
(68%). In addition, Muslims were much less likely than other groups
to have another kind of loan or overdraft (but almost one-fifth
did).
The FSA's role
6. We are currently working with around
20 universities and colleges across the UK to develop a comprehensive
toolkit of ways of delivering financial capability to those in
higher education, building on the outcomes of a pilot at Roehampton
University in 2005. These "early developer" institutions
have been selected to carry out "second stage piloting"
before a wider national roll-out, and will combine their own experience
and expertise with the Roehampton "Money Doctors" toolkit,
which provides new and proactive approaches to encouraging students
to take control of their own finances before they face difficulties
and to confront debt problems. This comprehensive guide, which
also includes "how to do it" practical steps to setting
up a financial advice programme within a university, as well as
sample business cases, was developed as a result of the pilot
at Roehampton University, which was supported by FSA funding.
The early developers represent a range of higher education institutions,
in terms of location, size and different ways of delivering financial
advice, and each will run elements of the Money Doctors programme
as well as contributing new ideas and materials during the academic
year 2006-07. The combined early developers' experience will result
in a revised and expanded toolkit which will be available in a
national roll-out to all higher education institutions in the
UK during the academic year 2007-08.
7. As part of our work with the early developer
institutions in 2006-07, we will encourage a number of universities
to consider piloting a module that provides information on student
finance of particular relevance to Muslim students. This is with
a view to inclusion in the expanded toolkit in the academic year
2007-08.
The DFES' role
8. We understand that officials within the
department liaise closely with the Federation of Student Islamic
Societies and other organisations to discuss concerns such as
this and to consider how best to meet their needs.
9. The DfES also makes these organisations
aware of other alternatives, such as the Islamic Bank of Britain
who offer Sharia-compliant financial products, including loans.
10. The Department continues to develop
plans to monitor and review the impact of student finance policy
on participation in higher education of minority ethnic students,
through the departmental Race Equality Scheme and Higher Education
Race Equality Impact Assessment arrangements, which enable the
Department systematically and thoroughly to assess, and consult
on, the effects that a proposed policy is likely to have on people,
depending on their racial group.
11. The DfES believes that current student
loans arrangements do not discriminate, within the meaning of
current Race Relations legislation, against Muslim students. However,
the Equality Act 2006, which received Royal Assent earlier this
year, makes it unlawful to discriminate on the grounds of religion
and belief in the provision of goods, facilities, services, premises,
education and the exercise of public functions. The relevant provisions
of the Equality Act 2006 are still to come into force but the
Department will in due course ensure that the student loans arrangements
are consistent with its obligations under the Act. In the meantime,
the DfES will continue to monitor the position.
The role of other bodies
The National Union of Students (NUS)
12. The NUS is aware of the issues, and
raises concerns with the DfES where appropriate. However, they
agree with the DfES that this issue does not appear to have a
significant impact on the numbers of Muslim students taking out
loans. This is partly because opinions differ in the Muslim community
as to whether the DfES is correct in taking the position that
the loan does not break Sharia law as the interest charged only
maintains the value of the loan.
The wider Higher Education sector
13. Higher education institutions acknowledge
that there is a strong divergence of views among Muslim students
on this issue, depending on their interpretation of the law and
that it is therefore difficult to predict how many Muslim students
are affected by this.
14. Some institutions amend the information
they provide to students to explain that the amount added to the
loan is not interest in the commercial sense.
C. INTERNATIONAL
REMITTANCES (Q 735)[122]
15. The Committee, based on evidence from
the Money Transmitters Association, were concerned that due to
problems experienced by money transmitters in obtaining banking
facilities, these agents would leave the formal sector and enter
the black market, with implications for financial crime.
The importance of remittance flows to developing
countries
16. Remittances constitute the second largest
flow of resources to developing countries, after foreign direct
investment. The World Bank estimates that global remittance flows
to developing countries totalled US$167 billion in 2005. Remittances
are projected to grow at a faster rate than other flows. In the
case of the UK, the Department for International Development (DFID)
estimated that in 2005 outward remittance flows to developing
countries was £2.3 billion.
The role of the FSA
17. The Financial Services and Markets Act
2000 gives us four statutory objectives, one of which is to reduce
the vulnerability of authorised financial institutions to being
used for financial crime. We supervise firms' compliance with
their regulatory obligations in relation to anti-money laundering
and counter-terrorist financing (AML/CTF). We expect firms to
manage their money laundering and terrorist financing risks effectively
in ways that are proportionate and do not unduly inconvenience
law-abiding customers. This expectation has for example driven
the multi-agency "defusing the ID issue" initiative
which we have been leading since 2004. We have been aiming to
streamline firms' approach to identifying their customers, so
that they can verify identity effectively without causing unnecessary
inconvenience or cost to the customer or themselves. The initiative
has contributed to the substantial changes to practice on ID checks
that are recommended in the February 2006 edition of the Joint
Money Laundering Steering Group's Guidance, which is the key resource
used by firms in designing their ID processes. We expect firms'
management of risks arising from any money remittance business
to be consistent with this general regulatory expectation.
18. Remittance business raises issues about
how best to manage the tension between the desirability of promoting
remittances to the developing world and the need to manage money
laundering and terrorist financing risks. We have worked closely
with DFID, the Treasury and Her Majesty's Revenue and Customs
(HMRC) on these issues where they affect FSA-regulated firms.
In particular, we advised the DFID-funded working group that produced
the report UK Remittance Market report (November 2005) on the
AML/CTF obligations of FSA-regulated firms providing remittance
services.
The roles of other organisations
19. Increasing the flow of remittances from
the UK to developing countries can contribute significantly to
international development. DFID are therefore seeking to remove
barriers to the flow of money transfers, lower their costs and
make access to money transfer products easier for those on low
incomes. Relevant initiatives include:
UK Remittances Task Force
The Task Force's members are drawn from the
private sector, and its activities are part-funded by DFID. The
Task Force will be taking forward various recommendations of the
UK Remittance Market report, mentioned above.
"Send Money Home"
DFID sponsor a website—www.sendmoneyhome.org—which
aims to help the diaspora in the UK choose the best option for
sending remittances, and to stimulate competition and transparency
in the market. Over half a million country-specific leaflets,
in various languages, have also been distributed through ethnic
media, religious and community organisations and other channels.
Household surveys
These are sponsored by DFID. UK surveys provide
a better picture of the remittances market and stimulate competition
in the private sector to provide more appropriate remittance services
to the diaspora. Household surveys are also being conducted in
key remittance-receiving countries.
Access for remittance recipients
DFID have various financial sector programmes
in place in developing countries to improve access to financial
services.
20. The Treasury, as part of their financial
inclusion agenda, also seek to promote remittance flows by facilitating
access to banking services for those sending remittances.
21. International standards and UK regulatory
requirements recognise the need to manage the risk of financial
abuse in the money service business sector in an effective and
proportionate way. For example, the Financial Action Task Force's
2005 report into money services outside the formal banking system
found that "alternative remittance systems continue to be
the source of concern as far as their vulnerability to misuse
for money laundering or terrorist financing purposes; however,
increasingly other considerations have also become more evident,
such as balancing the prevention of misuse with the need to ensure
that flows of legitimate funds are not unnecessarily interrupted
or pushed underground".
22. Around 2,000 firms, which account for
the vast majority of the remittance provider community, have been
regulated for AML/CTF compliance by HM Customs and Excise (now
HM Revenue and Customs) since June 2002. We regulate the remainder
for AML/CTF compliance because such firms are conducting other
business that requires FSA regulation—for example, banks
that are regulated in relation to their deposit-taking.
23. When the Treasury set up this regulatory
regime for remittance providers and other money service businesses,
they undertook to conduct a review of effectiveness once the arrangements
had "bedded down". This exercise is now under way and
aims to ensure that the supervisory regime continues to support
the needs of a dynamic and flexible money service business sector
that is properly protected from the risk of money laundering and
terrorist financing. As part of this exercise, the Treasury will
issue a public consultation document shortly to seek industry
views on how best to strike this balance.
REMITTERS' ACCESS
TO BANK
ACCOUNTS
24. The Treasury view is that fundamentally
the money service business sector is highly competitive with low
barriers to entry. However, representatives of the remittance
industry have raised concerns about banks being unwilling to provide
banking services to remittance providers. Whilst the decision
on whether or not to provide services to any potential customer
is ultimately a commercial decision for individual banks, the
Treasury have established a dialogue with a number of major banks
to explore their approach to money service business customers
and consider where change might be necessary.
June 2006
120 Ev 109-126 Back
121
Ev 120 Back
122
Ev 121 Back
| 
