11

Reg

ulat

ion

of B

ranc

hles

s B

anki

ng

Mar

k P

icke

ns, C

GA

P

Ban

gkok

June

24,

200

8

Reg

ulat

ion

of B

ranc

hles

s B

anki

ng

Mar

k P

icke

ns, C

GA

P

Ban

gkok

June

24,

200

8

22

CGAP Technology ProgramCGAP Technology Program

About CGAPGlobal resource center on access to finance issuesEstablished 199533 members, housed at World Bank

The Technology Program$26m, 4-year programIncubate new approaches via advice and support to 20 banks, telcos, MFIsAdvise regulators and policymakersCommunicate lessons broadly to further stimulate the marketCo-funded by Bill and Melinda Gates Foundation

33

Any

sto

re c

an p

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tially

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an a

gent

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sto

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an p

oten

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ely

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mat

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‘non

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Sm

art T

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s’la

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bs)

Bra

ndin

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nt s

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trans

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anks

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mon

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hat d

o th

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in c

omm

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king

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rupt

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umpt

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aditi

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pro

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1212

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regu

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plem

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lysi

s of

eac

h ju

risdi

ctio

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law

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d re

gula

tions

Iden

tify

key

regu

lato

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set

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on 6

as

key

Nec

essa

ry, b

ut n

ot s

uffic

ient

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sour

cing

to a

gent

sA

ML/

CFT

Nex

t gen

erat

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issu

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-mon

eyC

onsu

mer

pro

tect

ion

Pay

men

t sys

tem

sC

ompe

titio

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1414

Prop

ortio

nalit

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erge

d as

key

prin

cipl

ePr

opor

tiona

lity

emer

ged

as k

ey p

rinci

ple

Exi

stin

g re

gula

tion

not d

rafte

d w

ith c

onve

rgen

ce o

f ban

king

, pa

ymen

ts a

nd te

leco

mm

unic

atio

ns in

min

d. A

s a

resu

lt, re

gula

tion

tend

s to

be

both

ove

r-an

d un

der-

prot

ectiv

e

Pro

porti

onat

e re

gula

tion

“…[I]

t is

impo

rtant

to re

aliz

e th

at th

e pu

blic

pol

icy

obje

ctiv

es m

ay

not a

lway

s po

int i

n th

e sa

me

dire

ctio

n…. P

ropo

rtion

ality

m

eans

that

any

suc

h in

cons

iste

ncie

s ar

e re

cogn

ized

and

re

solv

ed in

a w

ay th

at, i

n lig

ht o

f the

cou

ntry

’s o

vera

ll pr

iorit

ies,

ach

ieve

s an

app

ropr

iate

bal

ance

.”

Sour

ce: C

omm

ittee

on

Paym

ent a

nd S

ettle

men

t Sys

tem

s &

The

Wor

ld B

ank.

200

7

1515

AM

L-C

FT O

bser

vatio

ns (1

)A

ML-

CFT

Obs

erva

tions

(1)

Ris

k-ba

sed

KYC

app

roac

hes

key

to e

arly

pio

neer

sS

. Afri

ca:W

IZZI

T (2

50,0

00 c

lient

s) u

ses

Exe

mpt

ion

17 w

hich

el

imin

ates

requ

irem

ent f

or p

roof

of a

ddre

ss in

retu

rn fo

r cap

s on

bal

ance

, tra

nsac

tion

size

and

mon

thly

thro

ughp

utS

. Afri

ca:M

TN B

anki

ng (1

50,0

00 c

lient

s) re

lies

on s

peci

al

rule

s fo

r non

face

-to-fa

ce a

ccou

nt o

peni

ng (C

ircul

ar 6

) In

dia:

Bro

aden

ed m

eans

to p

rove

iden

tity

impo

rtant

in e

arly

m

-ban

king

pilo

ts in

Indi

a (C

ircul

ar 2

004-

05/2

84)

Bra

zil:

5 m

il si

mpl

ified

acc

ount

s op

ened

with

alte

rnat

e ID

, pr

ovid

ed fu

ll K

YC

is c

ompl

eted

in 6

mon

ths

(Res

. 3,2

21)

Als

o im

port

ant:

abili

ty to

use

age

nts

for s

ign-

upP

hilip

pine

s:cr

eatio

n of

rem

ittan

ce a

gent

win

dow

(Circ

. 471

)In

dia:

Age

nts

may

col

lect

doc

s an

d vo

uch

for i

dent

ity o

f clie

nt

(Bus

ines

s C

orre

spon

dent

s C

ircul

ar 2

006)

1616

AM

L-C

FT O

bser

vatio

ns (2

)A

ML-

CFT

Obs

erva

tions

(2)

Hig

h de

gree

of c

once

rn a

bout

AM

L-C

FT ri

sks

only

pa

rtial

ly b

orne

out

, mai

nly

arou

nd ra

pidi

ty

Eas

es s

mur

fing

and

laye

ring

Age

nts

may

be

new

wrin

kle

Not

e: M

obile

ope

rato

rs m

ay h

ave

bette

r dat

a th

an b

anks

!

Muc

h of

cur

rent

risk

aris

es fr

om im

mat

ure

regu

lato

ry

fram

ewor

ks, n

ot in

here

nt h

ighe

r lev

els

of ri

sk w

ith m

obile

Cur

rent

ly, g

aps

in F

IUs’

abili

ty to

com

pel c

ompl

ianc

e on

CD

D,

reco

rd-k

eepi

ng, m

onito

ring,

and

repo

rting

from

all

parti

esP

artic

ular

ly, s

ervi

ce p

rovi

ders

not

cov

ered

und

er A

ML

law

s (e

.g.

Web

Mon

eyin

Rus

sia)

Phi

lippi

nes

case

of r

each

ing

out t

o en

gage

pro

vide

rs (C

irc. 4

71)

1717

AM

L-C

FT O

bser

vatio

ns (3

)A

ML-

CFT

Obs

erva

tions

(3)

Nat

iona

l aut

horit

ies

ofte

n ta

king

a s

trict

er s

tanc

e th

an

requ

ired

in in

tern

atio

nal s

tand

ards

KY

C a

djus

tmen

ts o

bser

ved

wer

e th

e ex

cept

ion,

not

the

rule

Man

y re

gula

tors

aw

are

of fl

exib

ilitie

s, b

ut u

ncle

ar o

n ho

w to

im

plem

ent t

hem

con

cret

ely

Pos

sibl

e re

ason

sIn

adeq

uate

gui

danc

e on

wha

t con

stitu

tes

“low

risk

”A

sses

sors

’var

iabl

e ap

proa

ch in

crea

ses

risk

to e

xper

imen

ting

Nat

iona

l aut

horit

ies

wai

ting

for a

stro

nger

sig

nal

1818

AM

L-C

FT S

ugge

stio

ns (1

)A

ML-

CFT

Sug

gest

ions

(1)

Dev

ise

prop

ortio

nate

, ris

k-ba

sed

KY

C s

tand

ards

for (

i) cl

ient

s w

ith li

mite

d ac

cess

to fo

rmal

doc

umen

ts, a

nd

(ii

) acc

ount

ope

ning

via

age

nts

Opt

ions

incl

ude:

(a) C

ap tr

ansa

ctio

n an

d ba

lanc

e va

lues

, (b)

Li

mit

prod

ucts

to lo

w-in

com

e, n

atur

al p

erso

ns, (

c) L

imit

inte

rnat

iona

l fun

ctio

nalit

yC

onsi

der a

ltern

ativ

e m

eans

of I

D, b

ut w

atch

for m

echa

nism

s no

t ava

ilabl

e or

affo

rdab

le to

the

poor

(e.g

. bio

met

rics)

Pro

filin

g m

ay b

e m

ore

impo

rtant

in c

ontro

lling

AM

L ris

k w

ith

low

-inco

me

clie

nts’

acco

unts

Cou

ld o

ther

fina

ncia

l crim

es m

ay b

e of

equ

al o

r gre

ater

si

gnifi

canc

e (e

.g. s

impl

e fra

ud a

nd id

entit

y th

eft)?

1919

AM

L-C

FT S

ugge

stio

ns (2

)A

ML-

CFT

Sug

gest

ions

(2)

Ass

ess

risk

base

d on

cha

ract

eris

tics

of s

ervi

ce, r

athe

r th

an in

stitu

tion

offe

ring

Req

uire

s un

ders

tand

ing

serv

ice

on o

ffer

enga

ge in

dust

ry

Brin

g no

nban

ks o

fferin

g m

obile

fina

ncia

l ser

vice

s un

der

AM

L re

gula

tion

2020

AM

L-C

FT S

ugge

stio

ns (3

)A

ML-

CFT

Sug

gest

ions

(3)

Cra

ft gu

idan

ce to

nat

iona

l aut

horit

ies

clea

rly s

igna

ling

perm

issi

bilit

y, e

ven

desi

rabi

lity,

of u

sing

flex

ibili

ties

in

inte

rnat

iona

l sta

ndar

dsW

ith s

peci

fic re

fere

nce

to n

eed

for p

ropo

rtion

ality

Bal

anci

ng o

f leg

itim

ate

AM

L-C

FT c

once

rns

with

oth

er p

olic

y ob

ject

ives

for f

inan

cial

sec

tor

2121

Rec

omm

enda

tions

Rec

omm

enda

tions

1.K

YC

adj

ustm

ents

key

to

reac

hing

the

unba

nked

, and

la

w-e

nfor

cem

ent o

bjec

tives

2.S

ome

new

risk

s w

ith m

obile

fin

anci

al s

ervi

ces,

but

larg

ely

root

ed in

lack

of a

ppro

pria

te

regu

lato

ry fr

amew

ork

for n

ew

play

ers

and

new

ser

vice

s

3.N

atio

nal a

utho

ritie

s te

nd n

ot to

ta

ke a

dvan

tage

of f

lexi

bilit

ies

affo

rded

them

in in

tern

atio

nal

stan

dard

s

1. D

evis

e pr

opor

tiona

te, r

isk-

base

d K

YC

sta

ndar

ds fo

r clie

nts

with

lim

ited

acce

ss to

form

al d

ocum

enta

tion,

and

fo

r acc

ount

ope

ning

via

age

nts

2. A

sses

s ris

k ba

sed

on s

ervi

ce o

n of

fer,

rath

er th

an in

stitu

tion

offe

ring

3. B

ring

nonb

anks

offe

ring

mob

ile

finan

cial

ser

vice

s un

der A

ML

regu

latio

n

4. C

raft

guid

ance

cle

arly

sig

nalin

g na

tiona

l aut

horit

ies

perm

issi

bilit

y to

de

vise

risk

-bas

ed A

ML

regi

mes

2222

Som

e ta

ctic

al a

dvic

e fo

r reg

ulat

ors

Som

e ta

ctic

al a

dvic

e fo

r reg

ulat

ors

Eng

age

and

lear

nN

ew p

laye

rs &

ser

vice

s, c

ombi

ned

with

rapi

d pa

ce o

f cha

nge

Tailo

r-m

ade

appr

oach

es fo

r ear

ly p

ione

ers

optim

alP

hilip

pine

s, S

outh

Afri

ca p

ositi

ve e

xam

ples

on

AM

L

Avo

id ju

mpi

ng th

e gu

nW

ell-m

eani

ng b

ut p

oorly

-dev

ised

rule

s ca

n st

ifle

mar

ket

Cau

tiona

ry ta

les

from

oth

er re

gula

tory

dom

ains

in b

ranc

hles

s ba

nkin

g, in

clud

ing

the

EU

E-M

oney

Dire

ctiv

e, li

mits

on

busi

ness

cor

resp

onde

nts

in In

dia.

Ass

ess

envi

ronm

ent b

efor

e le

gisl

atin

g ru

les

2323

2424

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