NACHA Global Payments Forum,

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NACHA Global Payments Forum, Montreal, Canada,
April 26-27, 2006
World Bank
WB-CPSS General Principles on International
Remittance Services
Gabi Afram Financial Economist Financial Sector
Operations and Policy
CPSS/WB Task Force on General Principles for
International Remittance Systems
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Contents
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• Introduction Public policy issues affecting
  remittances
• The World Banks work program on remittances
• International Cooperation The World Bank/CPSS
  Task Force on General Principles for
  International Remittance Systems
• The General Principles for International
  Remittance Systems

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• Introduction Public policy considerations
  affecting remittances

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International Remittance Flows
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person to person transfer across borders are
increasing are stable may be countercyclical
US billion, worldwide figures
Source World Bank (Dilip Ratha). 2003. Workers
RemittancesAn Important and Stable Source of
External Development Finance. In Global
Development Finance 2003 (chapter 7). Washington,
D.C. World Bank.
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International Remittance Flows
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relative importance from a macro perspective
Net Incoming Remittance Flows as of GDP
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Public policy considerations affecting
remittances
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• Data reporting
• Formal and informal remittance channels
• The business environment for remittances
• International cooperation

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• Public policy considerations affecting
  remittances
• Data reporting

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Percent of central banks that collect data on
remittances from the following sources

• There are large, unrecorded flows of remittances
  on top of official flows
• There is considerable variation in how remittance
  transactions are recorded
• Authorities can improve their knowledge of the
  remittance industry
• Measures to improve data collection
• G-7 working group to improve statistics
• Scrutiny of existing data
• Surveys of remittance service providers
• Surveys of senders
• Surveys of recipients
• Surveys of central banks

Percent of central banks that record the
following types of transactions as remittances
Source World Bank survey of 40 central banks on
remittances
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• Public policy considerations affecting
  remittances
• Formal and informal channels

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• Among unrecorded flows, informal remittance
  service providers - firms not complying with
  registering/licensing or standard requirements -
  may play a large role
• Some informal firms are similar to formal
  firms in the way they work the only difference
  is that they lack the required license or
  registration. They can easily be brought into the
  formal sector through such means as licensing,
  registration, and oversight.
• Some informal firms are used as vehicles for
  circumventing regulations on trade and capital
  movements. These firms can not easily be brought
  into the formal sector.
• Informal services can arise
• Where there is no formal alternative
• Where informal service providers give superior
  service, or offer better prices, compared to
  formal service providers
• Where informal providers have better market
  knowledge
• Where there are macroeconomic or regulatory
  disincentives (exchange controls, prohibitive AML
  regulations, banking license required)
• As the reverse side of smuggling or customs/tax
  evasion
• As the reverse side of capital flight

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• Public policy considerations affecting
  remittances
• Formal and informal channels

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• Benefits of formalizing remittances
• Improve access to financial services
• For many people, remittances are the only
  financial service they use. Better access to
  formal remittance channels is a potential for
  better access to financial services in general.
• Ensure integrity of the financial system
• Compliant, formal remittance systems can improve
  the integrity of the financial system and
  increase the effectiveness of AML/CFT
  initiatives.
• Requirements for formalizing remittance
  transfers
• The financial infrastructure must be adequate
• Migrants must be able to contract with formal
  financial institutions
• The formal sector must be competitive versus
  the informal sector
• For the formal sector to be competitive with the
  informal sector, a good business environment for
  remittance service providers is required
• Some remittance receiving countries have
  established public sector incentives to use
  formal channels, such as tax breaks, higher
  deposit interest rates, and foreign currency
  deposit accounts.

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• Public policy considerations affecting
  remittances
• Business environment

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• REGULATORY ENVIRONMENT
• Create clear, predictable, and risk-measured
  licensing requirements
• Balance AML/CFT reporting with firm efficiency
• Ensure consistency in formulation and application
  of regulations

• DEMAND SIDE
• Disseminate information on prices and services
• Educate remitters about other financial products

• SUPPLY SIDE
• Educate firms about regulations and technology
• Help use remittance service to cross-sell other
  financial products
• Consider limited access to existing financial
  infrastructure for non-bank remittance service
  providers
• Promote competition on service cooperation on
  infrastructure

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• Public policy considerations affecting
  remittances
• International cooperation

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• International remittances involve multiple
  jurisdictions.
• Many issues are suited for international policy
  coordination, such as
• Consistent regulatory regimes
• Cooperation on ID requirements
• Consistent service requirements and technological
  standards
• Cooperation on financial education
• Active, bilateral cooperation has created the
  low-cost U.S.-Mexico ACH link.
• A multilateral effort following the Sea Island G8
  summit is the Task Force on General Principles
  for International Remittance Systems chaired by
  the World Bank and the Committee on Payment and
  Settlement Systems of the BIS (details in Section
  3 of the presentation).
• The Task Force mandate is to develop clear and
  universally applicable general principles on
  remittances, describing key features and
  functions that should be satisfied by remittance
  systems, providers, and financial intermediaries.

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2. The World Banks work program on remittances
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Key considerations guiding the World Banks work
on remittances
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Remittances are cross-border retail payments with
special requirements regarding access on both
sides of the transaction Remittances are part of
an individuals access to financial services A
good remittance product improves value to the
user in the short term and access to other
financial products in the long term A good
remittance product increases competition and
moves transactions to the formal sector through
enabling the formal sector to provide superior
service There are no standard solutions
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The World Banks work program on
remittancesFour focal points
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1. Reducing remittance costs through improved
financial systems and infrastructure Why?
Reducing remittance fees is likely to
significantly increase annual remittance flows to
developing countries. To date, remittance costs
remain regressive and high on average. How?
Through more transparency and competition,
introducing new technology (e.g., electronic
cards and ATMs), and improving payment systems.
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The World Banks work program on
remittancesFour focal points
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1. Reducing remittance costs through improved
financial systems and infrastructure Why?
Reducing remittance fees is likely to
significantly increase annual remittance flows to
developing countries. To date, remittance costs
remain regressive and high on average. How?
Through more transparency and competition,
introducing new technology (e.g., electronic
cards and ATMs), and improving payment systems.
Integrate remittances in the reform of the
National Payments System 1) Remittance services
are part of the broader retail payment system
both domestic and cross-border Remittances are
cross-border retail payments with particular
access requirements 2) An efficient development
of the domestic payment system infrastructure is
key to reduce costs of remittance services 3) The
development of payment system oversight is
fundamental to enhance transparency and reduce
costs in the retail payment sector 4) The CPSS of
the BIS is the standard setter and a forum for
discussion in the area of payment systems 5) The
World Bank is a leading institution in payment
system development, in particular in Latin
America through the Western Hemisphere Payments
and Securities Settlement Initiative. In the
context of payment system reforms, the World Bank
has recommended improvements in the remittance
area since 1999 6) Payment system development
projects are a good vehicle to address the issue
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The World Banks work program on
remittancesFour focal points
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2. Facilitating remittance flows while ensuring
the integrity of the financial system Why? The
regulatory regime for AML/CFT needs to introduce
ways of ensuring financial integrity without
unnecessarily reducing access to remittance
services. How? Move remittances to formal
channels, and promote consistent and measured
regulations.
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The World Banks work program on
remittancesFour focal points
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3. Understanding and enhancing the development
impact of remittances Why? Remittances are
believed to - Directly impact poverty through
increased income levels for poor households,
and - Indirectly impact poverty through
macroeconomic effects, such as a) Allowing
countries to better service debt through
improving the debt/exports ratio b) Allowing
countries to issue debt using remittance inflows
as collateral c) Increase the inflow of
foreign currency and its availability to poor
households. How? Use policy initiatives to
reinforce the demonstrable positive effects of
remittances.
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The World Banks work program on
remittancesFour focal points
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4. Improving data on remittances and
migration Why? Reliable data on remittances are
key to our understanding of their development
impact. How? International collaboration on
standards and appropriate techniques for data
collection.
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Factors that can result in an improved sound and
competitive remittance industry environment
(Messages to Policy Makers)
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• Remittances as person to person flows
• Recognize the person-to-person nature of
  remittances in policy formulation
• Data reporting
• Support initiatives to improve data reporting
• Formal and informal remittance channels
• Consider initiatives to bring remittances into
  formal channels without reducing access to
  remittance services
• The business environment for remittances
• Improve the business environment for remittance
  providers
• International cooperation
• Engage in bilateral and multilateral policy
  coordination to facilitate remittance services
  and improve data collection and dissemination

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3. International Cooperation The World Bank/CPSS
Task Force on General Principles for
International Remittance Systems
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World Bank/CPSS Task Force on General Principles
for International Remittance Systems

• Background

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• A Task Force was convened in September 2004 as a
  response to the G-8 Sea Island summit (2004), the
  G-7 finance ministers at Boca Raton (2004), and
  the International Conference on Remittances in
  London (2003) calling for work toward developing
  prudential standards/guidelines for remittance
  services.
• The Taskforce is co-chaired by the CPSS and the
  World Bank Co-chairmen Massimo Cirasino (FSOPD,
  World Bank), Marc Hollanders (CPSS Secretariat)
• Members include Central banks of Brazil,
  Germany, Italy, Mexico, the Philippines, Sri
  Lanka, Turkey, and the United States the Arab
  Monetary Fund, the Asian Development Bank, the
  European Bank for Reconstruction and Development,
  the European Central Bank, the Hong Kong Monetary
  Authority, the Inter-American Development Bank,
  the International Monetary Fund, and the World
  Bank.

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• World Bank/CPSS Task Force on General Principles
  for International Remittance Systems
• Mandate and Scope

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• The Task Force developed General Principles on
  remittance services describing key features and
  functions that should be satisfied by remittance
  systems, providers and financial intermediaries
• These principles are clear and universally
  applicable international standards, their main
  focus being to identify the main characteristics
  of sending and receiving remittances and the
  related infrastructures with a view to improving
  them

• Some obstacles identified included
• Lack of physical access to financial
  institutions
• Inadequate financial education
• Inefficient and costly remittance services
  available at financial institutions
• Regulatory barriers to the provision of
  remittances services
• Inadequacy of data on remittance flows
• Lack of guidance on what regulation/supervision
  of remittance service providers
• is necessary to ensure safety and integrity of
  these services

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• World Bank/CPSS Task Force on General Principles
  for International Remittance Systems
• Timetable

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• The Task Force prepared a consultative report
  that was approved by the CPSS and the WB
• The Report was published after approval from the
  G-10 Central Bank Governors on March 13, 2006
• The Consultation period will last until
  mid-August and then a final report will be issued
  in November 2006

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4. The General Principles for International
Remittance Systems
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The General Principles for International
Remittance Systems
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The general principles are aimed at the public
policy objectives of achieving safe and efficient
international remittance services. To this end,
the markets for the services should be
contestable, transparent, accessible and sound.
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The General Principles for International
Remittance Systems
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• GP I Transparency and Consumer Protection
• The market for remittance services should be
• Transparent and have adequate consumer protection
• Information about individual remittance services,
  including fees, exchange rates and speed, should
  be clear and easily available
• Educational programmes should be implemented to
  provide information about the main
  characteristics of the market for remittance
  services.
• Consumers should be protected in case of fraud
  or disputes

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The General Principles for International
Remittance Systems
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• GP II Payment system infrastructure
• Improvements to payment system infrastructure
  that have the potential to increase the
  efficiency of remittance services should be
  encouraged
• Efficient and widely accessible domestic retail
  payment arrangements should be in place to
  facilitate the provision of remittance services
• Improvements to cross-border payment
  infrastructure that have the potential to
  increase the efficiency of remittance services
  should be encouraged

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The General Principles for International
Remittance Systems
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• GP III Legal and regulatory environment
• Remittance services should be supported by a
  sound, predictable, non-discriminatory and
  proportionate legal and regulatory framework in
  relevant jurisdictions
• The provision of international remittance
  services should be supported by a sound,
  non-discriminating and well-founded legal basis
  in relevant jurisdictions
• The regulatory framework for the provision of
  remittance services should be clear and
  proportionate
• The Cross-Border nature of remittance transfer
  requires a certain degree of coordination across
  legal and regulatory frameworks for remittances
  in sending and receiving countries

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The General Principles for International
Remittance Systems
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• GP IV Market structure and competition
• Competitive market conditions, including
  appropriate access to domestic payments
  infrastructures, should be fostered in the
  remittance industry
• Competitive market conditions should be in place
  in the remittance industry
• Direct and indirect access to the national
  payment infrastructure should be granted on an
  equitable basis to remittance service providers
  subject to the appropriate safety and efficiency
  requirements are met

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The General Principles for International
Remittance Systems
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• GP V Governance and risk management
• Remittance services should be supported by
  appropriate governance and risk management
  practices
• Adequate governance should be encouraged in the
  remittance industry
• Appropriate risk management practices should be
  encouraged. Remittance Service Providers should
  protect themselves against legal, financial and
  operational risks, including fraud and the
  illegal use of their services

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The General Principles for International
Remittance Systems
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• Role A. The role of remittance service providers
• Remittance service providers should participate
  actively in the implementation of the General
  Principles
• Remittance Service Providers should meet minimum
  service levels and be transparent and accountable
• To the extent possible, remittance service
  providers should seek to cooperate on
  infrastructure and compete on services
• RSPs should adopt good governance and protect
  themselves against risks (see GPV)

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The General Principles for International
Remittance Systems
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• Role B. The role of public authorities
• Public authorities should evaluate what action to
  take to achieve the public policy objectives
  through implementation of the General Principles
• Authorities involved in the application of these
  principles should have clear responsibilities, as
  well as the resources and powers to carry out
  those responsibilities
• Authorities involved in the application of these
  principles should cooperate with each other as
  necessary

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The General Principles for International
Remittance Systems
Implementation
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• The Multilaterals (ADB, AMF, EBRD, IADB, and
  IMF), under the leadership of the World Bank are
  developing detailed Guidelines for the
  application of the GPs and an assessment
  methodology, which will be released in April 2006
• Remittance systems will be assessed against the
  GPs, and policy recommendations will have to be
  implemented by authorities, service operators and
  other stakeholders
• Available tools will be used for the assessment
  and to foster the dialogue within the country and
  among countries (e.g. regional initiatives in
  payment systems, such as the Western Hemisphere
  Payments and Securities Settlement Forum, FSAPs,
  etc.)
• The World Bank plans to be involved in these
  assessments together with other development
  banks, the IMF and country authorities (pilots to
  be started in 2006)
• The World Bank might support the implementation
  of action points after the assessments

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The General Principles for International
Remittance Systems
Implementation
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• Implementation will not be easy
• Large number of systems
• Many are small and informal
• -Even for banks, each has usually its own
  system
• Some systems are global who will assess them?
• In many countries, the authorities may not have
  the powers to implement or assess