Contents Company Background
Legislative Background
How FATF Guidelines have affected the remittanceindustry
The Money Service Business (MSB) Model and how itdiffers from other traditional industry players
Challenges to the Money Services Business (MSB) and its’ customers
Company Background
GraceKennedy Money Services (GKMS) is a subsidiary of GraceKennedy Ltd.
GKMS has managed the Western Union brand for the past 20 years
Now manages this business in eight (8) Caribbean territories
Company also owns and operates cambio(FxTrader) and bill payment (Bill Express) businesses
The MSB Landscape
Transaction-based financial services: remittances, bill payment, cheque-cashing, foreign exchange etc.
Informal community-based outlets
Agency model, engaging independent agents to provide services on behalf of a master agent
Many money services are also offered by traditionalfinancial institutions as value-added services
Legislative Background In 1990 the Financial Action Task Force (FATF) released 40
recommendations to challenge money laundering (and another 9 after 9/11 which focused on terrorism)
Regional legislation is largely based on this FATF Guidance
FATF Standards stipulate:
Criminalisation of Money Laundering – Rec 1
Customer Due Diligence (KYC) – Rec 5
Record-keeping – Rec 10
Reporting of suspicious transactions – 13
Internal Policies and Procedures (Training, internalcontrols, audit) – Rec 15
Transaction Monitoring and Reporting – Rec 11
Due Diligence: Know Your Customer and Know Your Agent - (Rec 5) Customer Risk
Facilitating transactions of customers whose activities mayindicate a higher risk of ML or TF
Risk Mitigation Measures in Place:
Enforcing regulatory KYC requirements
Monitoring of transaction activity
Extensive training of front-line staff
Enhanced Due Diligence(EDD) for high risk customers
Agent Due Diligence
Fit and Proper Designation for directors and applicable shareholders
Regular monitoring by compliance/internal audit/risk
Transaction Monitoring and Reporting (Rec 11)
Country/Geographic Risk
Facilitating transactions with persons in countries with weak AML/CFT regimes
Facilitating transactions with persons in countries whichare subject to international sanctions
Facilitating transactions with customers attempting to launder funds or finance terrorism
Risk Mitigation Measures in Place:
Electronic solution which allows for automatic matchingagainst international sanctions lists
Immediate hold on potentially prohibited transfers
Monitoring of international sanctions listings
Periodic reporting to the various designated authorities(FIDs/FIUs)
MSB Business Model MSBs operate in a transaction-based environment.
Business model thrives on the basis of the followingCritical Success Factors:
Convenience
Speed
Reliability
Less customer information than traditional financialinstitutions
Services typically offered through agents/sub-agents
MSB vs. ‘The Bank’ The MSB Business Model ‘The Bank’ Business Model
Small transaction amounts Savings and investment accounts maintained with larger volumes of money
On average 2 transactions per month
Multiple transactions per month
Primarily face-to face transactions Electronic and face-to-face transactions
Speed of service (avg transaction time 5 mins/transaction)
Lengthy transaction times
Short, simple documentation to conduct business
Lengthy, complicated documentation to conduct business
Physical environment : Informal Physical environment: Formal
Challenges to the MSB Regulations were formulated, to facilitate
transactions at traditional financial institutions
Some aspects not feasible for the MSB
Enhanced due diligence for customers
Source of Funds requirements for ‘one-off’ customers
FID/FIU Consent
Regulatory requirements are costly
Licensing
Fit and Proper Assessments
Training
Additional resources to adequately implement
Personnel, software, multiple external and internalaudits
Challenges to the MSB (cont’d) Regulatory requirements are often in conflict with the
critical success factors of the MSB model
Increase in transaction times
Increased documentation required by customer
Perception of invasion of privacy
Regulators are shifting from an identify-and-reportmindset to a detect-and-prevent mindset
Forces the MSB to take on more of an investigative role
Forces the need for additional resources, both technological and human.
Can place Front-Line staff at risk
Challenges to the MSB (cont’d) Perception of MSBs as high risk
Has made banks hesitant about accepting MSB accounts
Increase in monitoring (increased audits, visits etc)
Lack of consistency across the industry
Creates a competitive advantage for companies with weaker standards
Lack of Public Education Campaign by the Regulatory Bodies
Hence customers blame the MSB
Customer confusion about what is regulatory and what is company policy.
Challenges to the MSB (cont’d)
Lack of feedback to gauge the effectiveness of company reporting (to the Designated Authority)
No way for company to assess quality of reporting
No statistics to indicate percentage of reported activity that leads to investigations
Lack of feedback may result in over-reporting
Cash
Cash is inventory for the MSB
No facility for the MSB to access cash from the Central Bank
Increases the operating costs of the business
Forces the MSB to buy cash from the ir competitors (the commercial banks)
Challenges to the MSB Customer
Increased transaction times as more information is nowrequired
Increased documentation required of customer
Negative Customer Perception:
Invasion of privacy
Legitimate customers feel they are criminalized.
Lack of Public Education Campaign by regulatorscreates confusion for the customers
Summary Today, MSBs maintain robust programmes to ensure
compliance
Remaining compliant with regulatory requirements is costly:
Human resources
Time consuming
Technological requirements
Regulatory fees (licencing, Fit and Proper Assessments etc)
Negative perception of the MSB by other players in the sector
There is a lack of customer education by the regulatorsthroughout the region