Time to Act! Regulations of Remittance Service Providers in the Caribbean

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Emiko Todoroki, Senior Financial Sector Specialist, the World Bank and the chief organizer of the Caribbean Remittance Forum

Talking about remittances, that is, sending money to a home country in the Caribbean region is not new. In fact, it is an everyday issue. Remittances are an important source of income to the world’s poor, and certainly the case in the Caribbean Region. For example, remittances represent more than 20% of GDP in Guyana; and almost one in two households in Jamaica receives them. That is why literally everyone knows so much about remittances and you can start a debate on them with ordinary people. We were interviewed by a local radio about the 2-day Forum which we organized, and the questions by the host were really sharp. The questions were no remittances 101; it was more like remittances 501!

So what was the event about? The 2-day Forum (March 24-25) was sponsored by the World Bank, Canadian International Development Agency (CIDA), and the University of the West Indies to discuss Enhancing the Efficiency and Integrity of Remittance Transfers through Effective Regulatory and Supervisory Systems in the Caribbean at the University of the West Indies, Mona Campus. The event brought more than 100 delegates from the Caribbean region, including Haiti and the Dominican Republic. Thirteen Caribbean countries were represented in the Forum from the public and private sector. We had a variety of speakers (35 of them!) who brought various perspectives and practices to the table. Despite this heavy load, the audience remained full house from the opening to the closing of the Forum. We were lucky to have the participation of Ms. Marie-Lucie Morin, World Bank Executive Director for the Caribbean, Canada, and Ireland who made a very motivating opening speech.

Why this topic? Past discussions on remittances and migration in the Caribbean focused largely on issues related to the Caribbean Diaspora, such as the brain-drain syndrome, the macroeconomic impact of remittances, the use of remittances for investment purposes, overall patterns and trends, and data collection and monitoring issues. In recent years, the regulatory framework for remittance service providers has been introduced or substantially enhanced in many countries, triggered by the need to address money laundering and terrorist financing concerns. This forum focused the discussion on regulatory and supervisory practices within and outside the Caribbean region with a view to share best practices and lessons learned.

So, at the end of the day, we wanted to make sure that regulations on remittance service providers, which are relatively new in many countries, are working well. Many countries introduced new laws and regulations on remittance service providers, mainly to respond to the Financial Action Task Force (FATF) requirements on Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF). At the same time, there is still some regulatory gap as well. While mobile phone financial services including a remittance service are considered to be an innovative method to expand financial inclusion at a lower cost, they are not yet allowed to operate in some countries, often because there is no regulation for it. So, we urgently encouraged regulators in those countries to consider issuing new regulation or amend existing ones to create room for mobile phone financial service providers. There are different ways to do this; for example, issuing a new regulation on e-money institutions and payment institution or expanding the scope of existing regulations such as money service business regulation.

We had incredibly candid discussions. Private sector said “we welcome the regulations!” but they also said that some elements of regulations have created problems. These include, for example, some elements of customer due diligence and record keeping requirements. In some countries, remittance transfers (which are usually deemed to be occasional transactions) are required to go through the same customer due diligence as opening a bank account, requiring many documents. Photocopy retention of all customers’ due diligence documents also adds to business cost since businesses have to rent a warehouse to store all the papers! So these are a few of the examples. However, private sector did also mention that the new regulation expanded the bankable population!

Regulators are in difficult position. They feel they are between the international community that tells them to implement AML/CFT requirements and the private sector that complains that requirements are too onerous. So what can they do?

This seems to come down to smart regulations; regulations which meet international standards but also correspond to local realities. This is an evolving area and experiences are gained as we speak. Many countries have not introduced risk-based approach to the AML/CFT requirements. This will likely be the key for small remittance transactions.

We covered a lot of issues in the Forum, some at a very technical level. One participant was overwhelmed that we overfed them with “food for thought”. Well, if that is the case, maybe it was a great success!

Please see Carribean Remittance Form for more information


Emiko Todoroki

Senior Financial Sector Specialist

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