Much has been made lately about banks de-risking and cutting ties with remittance providers.
According to the World Bank’s recent G-20 survey on de-risking activities in the remittance market, money transfer operators and banks alike reported an increase in closed or restricted accounts between 2010 and 2014. Many remittance providers say they can no longer access banking services.
To combat de-risking, money transfer operators have a valuable role in educating banks and regulators about our business. It’s up to us to provide peace of mind to our bank partners about our compliance processes and other on-the-ground realities in the remittance business.
It’s not surprising that banks sometimes act with perhaps an overabundance of caution as it relates to compliance requirements for remittances, and that is not limited to a certain country or region. The de-risking problem is a global one. Yet data collected by the World Bank indicates that account closures for money transfer operators, or MTOs, have become more pronounced over the last few years in certain countries, including Australia, Canada, France, Germany, Italy, Mexico, the U.K. and the U.S.
The specter of money laundering or terrorism financing outweighs any other consideration, leading banks to bow out of the remittance business entirely.
According to the World Bank survey, there are four main drivers that lead banks to close accounts of MTOs. They include profitability, pressure from other actors (correspondent banks or law enforcement) and a lack of confidence in the MTO’s procedures and reputational risk.
Sadly, what begins as the best of intentions by banks to demonstrate compliance with anti-money-laundering regulation results in precisely the opposite outcome. Ironically, de-risking is risky. It leads to money transfers being directed into either informal or illegal channels. As the World Bank reported, de-risking can frustrate AML/CFT objectives and may not be an effective way to fight financial crime and terrorism financing. Pushing higher-risk transactions out of the regulated system into more opaque, informal channels makes them harder to monitor.
The onus is on us as payments companies to work with the banks and regulators to inform them about how we do what we do.
Here is the reality of compliance in a payments company. If I were to ask any bank in the U.S., “How many government regulators do you work with regularly?” they might answer “a handful.” Ask me as an MTO, “How many regulators do you have?” My response? I have regulators in each U.S. state where my company operates (which totals 37 states), as well as in Canada, the U.K. and elsewhere around the globe – a total of 120 countries and growing.
In addition, there is required annual external independent review. Our company’s bank partners visit our offices each year to do an annual review. In total, we are being reviewed by either regulators or bank partners 45 or 50 times a year, to make sure that our AML policies and procedures meet requirements.
The question boils down to this: How do we get banks and regulators to understand that we do an effective job of AML and following know-your-customer rules?
Every time I sit down with a bank, I share our rigorous compliance processes and procedures. And equally as important, I advocate for our customers. When they send funds home, they are providing a vital lifeline that pays mortgages and rent, keeps the electricity on and puts food on the table. Remittances aren’t a “want” – they are a “need.” We are in this business, of course, to run a successful operation, but we never lose sight of the value that our service provides for those people who entrust us with delivering their money to their family and friends back home.
So to us, the key is to educate, work with regulators, work with our banks, continue to push our agenda of understanding what payments companies do, why we do it and how well we do it.