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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