Changes in UK Remittance Will Affect Thousands of Filipinos
By: Michael Duque
There is a news blackout on the changes that will be happening with the UK Remittance Industry in July 2013. However, the following will give you an idea of what will happen.
The Philippine is the fourth highest remittance recipient globally in 2010 with U$21.3 billion received according to figures released by the World Bank. This figure accounts for 8.9% of the country’s GDP. Remittances therefore play an important role in the economies of many countries contributing to economic growth and personal livelihood of its citizens. The remittances of overseas workers often becomes a vital source of income for people whose other source of livelihood have been affected by natural disasters or conflict, which often happens in developing countries.
The free flow of currency across international borders has its downside in the sensitive issue of money laundering and terrorist financing. The increase in various avenues of formal and informal channels of sending money overseas has often been exploited to varying degrees. The responsibility often falls on the strict corridors of the international banking industry who controls the flow. In order to limit the use of the remittance channels for criminal activities, the Money Service Businesses (MSB) in the UK are required to register with the HM Revenues and Customs. Most of them also belong to the UK Money Transmitters Association (UK MTA) of which there are more than 3,750 registered members. The UK MTA often provides guidance and support in order for MSB to comply with financial regulations as set by the Financial Conduct Authority (FCA), formerly the Financial Services Authority.
According to the World Bank data estimates, the UK is a major remittance sender. It also recognized the fact that the remittance industry is a growing industry which has been the object of policy discussion. In 2005, the UK’s Department for International Development (DFID) published a report about the UK remittance market which suggests that most remittance services were designed mostly on two basic customer profile: UK banks which offer remittance services that are designed to meet the needs of their existing clients; and Money Transfer Operators (MTO) who mainly serves those without bank accounts and wants a lower service fee.
In the early to mid-2000, a number of money remittance companies were involved in various money laundering lawsuit and financial disputes. They knitted intricate systems of deceit and fraud in their daily transactions often disappearing in the end. In the UK alone, there are almost approximately 100-MTO. Each of these MTO often have between 15-20 independent sub-agents. As large sums of money are involved and with the huge network across the country, the use of established banking institutions as receiving agents have been the norm. Most MTO, more often than not, have a corporate account with UK banks so that they can receive their customer transactions at will. As with any corporate business, MTO accounts with banks are classed as corporate accounts and are subject to the same monitoring and regulations under the FCA.
Banking institutions, like any other business, regularly assess the nature of their business and risk assesses the nature of business of their clients which might affect them. Over the last few years, Barclays banks has been involved in a series of serious fraud scandal that has dragged its name under its feet. Very recently, it has again been in the headlines after it was found that one of its clients was involved in a multi-billion money-laundering case. This was the last straw.
Barclay’s reviewed the risks presented by its MTO clients to the bank and found that the risks of doing business with MTO’s as authorized payment institutions for financial services are high. The benefit of severing ties with the MTO clients than retaining their business outweighs the risk in the long term.
As a knock-on effect, Barclays is slowly terminating its individual contract with various money transfer operators across the UK unless the MTO are corporately classed as established “bank” and “less risky” being defined as well established with global and international network and offices. With this in mind, Barclays is effectively terminating the accounts of remittance agencies that are not directly linked with any established banking institution. All remittance sub-agents are also effectively being made redundant. The reduction of receiving agents limits the possibility and the risk for the bank and for the risk of any criminal intent. What remains however are remittance services that are directly linked or affiliated to bank. As they form part and parcel of the banking institution, they are seen to have the financial support and safety net of the financial sector should any problem occur.
The move by Barclays is seen as a right of the bank under the terms and conditions set out in its contract with the client as a safeguard to its business interest. If the estimates are right that 8-out-of-10 Philippine remittances hold an account with Barclays, then the majority of key Filipino remittance centres will be affected and will terminate its services. Those remittance centres with alternative bank accounts with other UK banks (i.e. Natwest, Lloyds) will continue to operate on a limited capacity for authorized receiving payment branches. However, knowing the banking industry as a robust and closely knit commerce, most banks will probably follow the move in order to protect their own interest.
The FCA at the moment is not interested in this corporate move of Barclays as the FCA is more of an overseer. It emphasizes more on regulating, although not recording the flow, given that it is equally important in the control of movement of money due to the threat of money laundering and criminal use.
Remittances are important factors for economic development in the Philippines and are considered more stable economic source than foreign investment. Given that migrant workers remit regularly, it forms a regular part of the immigrant lifestyle. If the channels to consummate the remittance process are affected, the receiving families are affected as well as the country’s source of economic inflow.
The only alternative will be to use the established MTO in the UK such as Western Union and Philippine Banking institutions which have strong banking presence in the UK. These are of this writing BPI, Allied Bank, PNB and MetroRem (a Metro Bank Company).
These changes are still in a black-hole as it is intended to gradually take effect and give the MTO ample time to adjust their corporate strategies and objectives. For the meantime, the migrant worker is left at the middle of a black-hole. What happens if a remitter sends money and the MTO bank account closes? Well the answer is, what happens in a black-hole? It takes everything in it, including your hard-earned cash. We don’t want that to happen.
The solution? Don’t wait for your friendly and convenient remittance centre to close and take your money with it. Open an account now with one of the named established MTO. Each has its own benefit and advantages as well as disadvantages. PM and ask me which one is best for you and I’ll be glad to recommend you one based on your specific needs.
The changes in the UK remittance practices and regulations will not hinder the flow of remittance revenues into the Philippines. Even with the current global economic weakness, remittances are expected to reach U$608 billion by 2014. (report by: Michael Duque / [email protected]@gmail.com)