Dec 18 2015
By Nathan Lynch, Regulatory Intelligence
The Australian remittance sector is pinning its hopes of survival on a new cloud-based platform that proposes to allow banks to conduct enhanced due diligence on payment providers, their customers and fund recipients.
A former Westpac executive is spearheading the new industry-driven solution, which was created in response to the “de-banking” problem facing the vast majority of local remittance providers. Remitters hope the platform will satisfy the banks that they have appropriate systems and controls in place to mitigate any money laundering or terrorist finance risks associated with their business model.
The International Payment and Transaction Monitoring Association (IPTMA), based in Sydney, is preparing to launch an online compliance platform to allow banks to conduct enhanced due diligence on remitters and their customers.
The platform will enable remitters to upload copies of their anti-money laundering and counter-terrorist financing (AML/CTF) compliance programs and any subsequent audits into a secure online portal. The remitters can then grant their banks the right to view these documents along with information on the sender and recipient of any transfers that they conduct.
Thyer McCaffery, IPTMA’s founder, said the service would give a bank the ability to see the payees and beneficiaries of any transactions that they facilitate. This would allow the bank to ensure that individual transactions fall within its risk limits, even though the remitter might send funds in larger aggregated transfers.
Banks have long argued that the remittance business poses an unacceptable AML/CTF risk due to the fact that payments are aggregated. The U.S.-based correspondent banks have told Australian banks that they will no longer process those types of transactions as they pose too great a risk of breaching sanctions or AML/CTF laws. As a consequence, the major banks and most of the smaller banks have shut the accounts of remitters.
Sources said the banks are also running transaction monitoring filters to identify customers who are likely to be operating remittance business accounts. This sophisticated transaction monitoring software, which was rolled out for AML/CTF compliance, is effective at picking up remitters who may have slipped through the net. The banks then wash these customer names against the AUSTRAC Remittance Sector Register, which confirms any matches.
McCaffery said the remittance sector and the government had voiced their support for an independent third-party platform that can address these compliance challenges. The government and the Australian Transaction Reports and Analysis Centre (AUSTRAC) have expressed their concern that banks are closing down remitters’ accounts indiscriminately. Officials are worried this may drive the remittance sector underground back to unregulated hawala agents.
“IPTMA has a database of remitters and AML/CTF providers who have already signed up, or expressed an interest in subscribing to IPTMA. These remitters and providers are eager to be able to continue business and to expose rogue operators,” McCaffery said.
IPTMA members will also sign up to a charter that sets out how they need to conduct themselves to minimize the risk of any AML/CTF breaches. The solution is designed to assure the Australian banks and their U.S. correspondent banking partners that remitters take their compliance obligations seriously.
“The remitters will upload their AML/CTF and ‘know your customer’ policies onto our secure portal. That’s then viewable by any banks that they have nominated to have access. They can also upload their most recent external compliance audit, which sets out how the remitter is meeting its AML/CTF obligations on a day-to-day basis. The bank has then got access to that at any time, whenever it might want to check out a client,” McCaffery said.
On a daily basis the remitters will then upload their transaction data in a single file. “That will give the banks the ability to see who is the end payee and beneficiary on any transactions,” he said.
Courting the banks
IPTMA is optimistic banks will support the platform and allow local remitters to continue to operate. McCaffery said the platform would address their principal concern: that there is too much opacity in remittance payments.
The Australian anti-money laundering regulator has urged banks to assess their relationships with remitters on a case-by-case basis. It has opposed wholesale de-banking — a process the banks describe as “de-risking” — on the basis that with appropriate AML/CTF systems and controls in place, banks should be able to manage high-risk customers. This includes remitters and fintech companies such as bitcoin exchanges, both of which have been affected by de-banking in recent years.
AUSTRAC has encouraged banks to continue to assess the risks relating to their customers on a case-by-case basis, in line with the risk-based approach set out in the AML/CTF legislation, regulations and rules.
“AUSTRAC encourages banks to engage with alternative remitters on measures that the sector could take both immediately and in the longer term to meet banks’ internal risk standards,” AUSTRAC has said.
For more than one year the AML regulator has been working with alternative remitters and banks, alongside other government agencies, to address the industry’s problems. The parties have thus far failed to reach a mutually satisfactory resolution.
In the meantime, banks have progressively withdrawn partly in response to increasing pressure from their correspondent banks. First it was Commonwealth Bank in 2010, then ANZ in 2012, then Westpac in 2014 and the National Australia Bank and Bank of Queensland this year.
The Australian Remittance and Currency Providers Association (ARCPA) has been encouraging banks to work with remittance providers to develop a risk-based approach and to avoid the wholesale withdrawal of services.
Crispin Yuen, a spokesman for ARCPA, said AUSTRAC had made it clear banks could meet their obligations under the AML/CTF regime without terminating their services to remitters.
Sources said the AUSTRAC Remittance Sector Register may have backfired on the sector because banks are actively using it as a “red flag” list to wash against their accounts. Sources have also raised concerns that this may be affecting the business owners’ personal accounts as the banks are often closing those on the basis that they may be used to route remittances on behalf of the companies.
There is no right to the provision of financial services in Australia.
Ross Buckley, CIFR King & Wood Mallesons chair of international finance law at UNSW Australia, said the de-banking of remitters was particularly problematic in jurisdictions such as Somalia and the Pacific Islands.
Buckley said in most cases remittances were a greater source of income for these countries than foreign aid. He also noted that with remittances the funds go directly to the source in small increments so keeping the costs of remittances low was critical.
“If you cut off remittances from Australia and New Zealand you’re really hammering Pacific island economies. The Australian banks dominate the New Zealand banking sector so the same thing is happening there,” he said.
McCaffery said in countries such as Somalia, which lacks even a central bank, the financial infrastructure was too immature to support other payment mechanisms. Remittances were therefore a “lifeline” to the local community.
“In developing countries not everyone has access to a bank account. That’s a simple fact. The remittance companies provide an avenue to get money to these people without bank accounts,” McCaffery said. “I’ve heard first-hand accounts of remittance agents in Somalia walking funds into refugee camps, for example, which underscores the importance of keeping this channel open.”
This article was first published by the Regulatory Intelligence service of Thomson Reuters Accelus. Regulatory Intelligence (http://accelus.thomsonreuters.com) provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.
Nathan Lynch Head Regulatory Analyst | Australia & New Zealand Governance, Risk and Compliance
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