FATF Guidance Underscores Challenges in Banking Remittance Businesses

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In late February, Reuters reported that Australia’s four largest banks have closed the accounts of remittance businesses in recent years, pushing funds-transfers underground. These reported actions follow similar decisions taken by banks in New York, London and elsewhere. Some remittance businesses in Australia have responded by adapting their activities, including by setting up holding companies to open new bank accounts and by relying on foreign-exchange companies to remit funds on their behalf, according to Reuters.

Governments and institutions around the world are grappling with how to address the challenge of allowing legitimate remittance funds to flow while cost effectively managing illicit risk. Last month, the Financial Action Task Force (FATF) issued updated AML/CFT guidance with respect to money and value transfer (MVTS) providers. FATF emphasized that MVTS providers should not inherently be categorized as high money laundering/terrorist finance risk. FATF warned:

“the wholesale cutting loose of entire classes of customer, without taking into account, seriously and comprehensively, their level of risks or risk mitigation measures for individual customers within a particular sector, cannot be considered as being in line with FATF standards. In addition to increasing ML/TF risks, such action may give rise to reputational and legal risks for banks, amongst others relating to unfair discrimination, competition and consumer protection.”

For the MVTS industry, this guidance is certainly welcome. However, many financial institutions have decided at least for now that the cost of managing MVTS risk is simply not worth the commercial opportunity in the present regulatory and enforcement environment. These institutions will remain on the sidelines. Nonetheless, for firms willing to make the investment to manage financial crime risk associated with the MVTS sector, FATF guidance makes clear that they are acting in line with internationally accepted standards.