Select Committee on Treasury Written Evidence


Supplementary memorandum by HM Treasury

FOLLOW-UP TO EVIDENCE SESSION ON 2 MAY 2006

REMITTANCES (Q 983) [175]

The importance of remittance flows to developing countries

  Remittances are an increasingly important source of finance to developing countries, particularly to low-income countries[176]. World Bank estimates put the total value of worldwide remittances in 2005 at over US $230 billion. Of this, US $167 billion was to developing countries, with low-income countries receiving remittance flows totaling US $45 billion. This presents a 73% increase of remittances flows to developing countries since 2001. According to the World Bank, remittance flows account for about one-third of global external finance, second in volume after foreign direct investment. The Department for International Development (DFID) estimates that remittances from the UK to developing countries totaled around £2.3 billion in 2005.

UK initiatives to facilitate remittance flows

  2.  The UK Government is undertaking several initiatives to support remittance flows. These include: developing remittances partnerships with selected countries; working with recipient countries on financial sector development; establishing an information portal (www.sendmoneyhome.org) on costs, transparency, access and choice of remittance transfers; engaging with the private-sector led UK Remittances Task Force; working to increase domestic financial inclusion; and studying the relationship between anti-money laundering regulations and access to money remittance services.

  3.  Additionally, the UK actively supports the work that is being taken forward as a result of the G8 Action plan agreed at the Sea Island Summit in 2004. This includes a joint World Bank-Bank of International Settlement (BIS) working group to develop international guidelines for payment systems access and oversight for remittance service providers.

The role of HM Treasury

  4.  HM Treasury is 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 EU markets. HM Treasury officials have met with the Chairman of the DFID-funded UK Remittances Task Force in order to discuss its ongoing programme of work.

Money remitters' access to bank accounts

  5.  Many remittance service providers rely on bank accounts to send payments cross-border to settle with their `pay-out' counterparts overseas. However, representatives of the money transfer industry have raised concerns that banks are unwilling to offer account services to new remittance service providers and/or are refusing access to existing bank accounts held by money remitters.

  6.  HM Treasury officials are currently investigating this matter and taking into account the evidence submitted by the UK Money Transmitters Association (UKMTA). The Economic Secretary to the Treasury is scheduled to meet representatives of two key industry bodies (the UKMTA and the International Association of Money Transfer Networks, IAMTN) at the end of June, in order to hear their views on this matter. The Treasury is taking forward a dialogue with a number of major banks in order to explore their approach to the money transfer sector.

The regulatory regime for remittance services

  7.  The UK Government is also seeking to ensure that the regulatory regime for remittance providers and other `money service businesses' (MSBs) is proportionate and risk-based. This involves striking a balance between preventing the misuse of money remittance corridors for money laundering or terrorist financing purposes 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.

Money Service Businesses (MSB) Review

  8.  Like any gateway to the international financial system, MSBs present a risk of money laundering that must be managed in an effective and proportionate way.

For example, the Joint Money Laundering Steering Group, an industry body, cites MSBs as being amongst a diverse `higher risk' group of customers with whom other financial institutions "will need to consider making more penetrating initial enquiries" when establishing a business relationship.

  9.  The UK's anti-money laundering regime has applied to MSBs since 2001. At the time of the regime's introduction, the government undertook to conduct a review of effectiveness once the arrangements had `bedded down'.

  10.  This review is now underway and aims 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. 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. This document will also set out key areas to be addressed by HM Treasury in deciding how the MSB regime under review can account for recent legislative developments, such as the EC Third Money Laundering Directive.

Payment Services Directive

  11.  The European Commission's proposed Payment Services Directive aims to open up EU payments service markets to non-bank payment service providers in order to improve competitiveness and consumer choice.

  12.  During the negotiations, the UK Government has been seeking to ensure that the proposed new regime is proportionate to the risks involved in providing payment services. The UK Government is also pushing for the inclusion of a waiver clause to allow us to exempt small players, such as small money transmitters, from the new regulatory requirements. HM Treasury has already engaged in intensive informal consultation with all stakeholders and will continue this process as negotiations progress during 2006.

June 2006






175   Ev 157 Back

176   According to World Bank classifications, low-income countries are those with a Gross National Income (GNI) per capita of less than US $825 or less (based on 2004 figures). Back


 
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