World Bank Regional Workshop

Remittance Regulatory Framework Malaysia’s Perspective

10 June 2008

Presentation outline • Overview • Evolution of remittance regulatory framework • Regulatory approach & principles • Regulatory framework • Challenges

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Remittance Policy

Overview: Role of Bank Negara Malaysia Sole regulator and overseer • Approving authority for remittance service provider • Overseer of the remittance industry – Ensure integrity of remittance service providers – Conduct on-site and off-site supervision • Foster innovation and efficiency • Curb money laundering and counter financing of terrorism

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Remittance Policy

Overview: Remittance services in Malaysia

Remittance Outflow 8

¾ Growth of 23.9% (2005-2007)

7

¾ In tandem with the increase in the no of migrant workers

RM bil

6 5

¾ 90% of remittance carried out through banks

4 3 2

¾ Indonesia is the main destination - about 10% of total outward remittance (98% through banks)

1 0 2005 Non-bank RSPs

2006

2007 Banks

Indonesia

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Remittance Policy

Overview: Remittance services in Malaysia (cont’d)

Commercial Banks (22) Islamic Banks (13) Over 3600 branches

Development Financial Institutions (2) Over 450 branches

ATM regional link : Malaysia (5806), Indonesia (2306)

Non-bank RSPs (21)

Over 750 branches 11 RSPs provide services to Indonesia

Wide access to consumer 5

Remittance Policy

Evolution of remittance regulatory framework Post 2006

PolicyThrust Thrust Policy

Promotemigration migrationfrom frominformal informalto to ••Promote formalchannel channel formal

Liberalisation measures

AML/CFT ¾¾AML/CFT Monitorinflow inflow&&outflow outflowofoffunds funds ¾¾Monitor

• Allow qualified non-bank operators to provide remittance services • Allow banks to appoint local agents to collect and disburse funds for remittance • Support regional ATM initiatives

Improveremittance remittanceservices services&& ••Improve increasecompetition competition increase

Widenaccess access&&promote promoteefficiency efficiency ¾¾Widen

Ensureintegrity integrityof ofRSPs RSPs ••Ensure

Prudentialrequirements requirements ¾¾Prudential Consumerprotection protection ¾¾Consumer

21non-bank non-bankRSPs RSPs(2003:2, (2003:2,2004-2006:3, 2004-2006:3,2007:18) 2007:18) •• 21 Innovation,wider wideraccess access&&convenience convenience––mobile mobileremittance remittanceto tothe thePhilippines Philippines •• Innovation, Indonesia &&Indonesia Improvedlevel levelof ofservice service––speed speed&&lower lowercost cost •• Improved

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Remittance Policy

Outward remittance fees & speed of delivery to Indonesia

Bank A

Bank B

RSP 1

RSP 2

Charges

12

32

15

5

Speed of delivery

3-5 days

3 days

5-10 mins

Real time

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Remittance Policy

Regulatory approach Balancing the objectives Ensure integrity of RSP ¾ Stringent prudential requirements ¾ Emphasis on consumer protection

Promote migration to formal channels ¾ Minimal regulatory burden ¾ Emphasis on AML/CFT

Additional cost No significant additional cost

General principles for international remittance services (BISWorld Bank)

¾ AML/CFT should be the core objective of the regulation of remittances ¾ Applying heavy prudential requirements to RSPs may be disproportionate ¾ Failure of an RSP is unlikely to cause systemic risk ¾ Encourage competitive market for remittances (low barriers to entry, increase competition)

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Remittance Policy

Regulatory framework ¾ Must be a company incorporated under the Companies Act 1965 ¾ Must obtain: - written approval from the Bank under the Exchange Control Act 1953 - written notification pursuant to Payment Systems Act 2003

¾ Notify BNM prior to opening new branches Prudential requirement

Operational requirements and risk management

Transparency and fair market practices

• Minimum shareholders’ funds • Governance structure • Display of certificate of approval and caution statement • Submission of data and report • Segregation of customers’ funds • AML/CFT requirements

• Transmission of funds • Outward – 10 business days • Inward – 2 business days • Security and internal control arrangements

• Transparency exchange rate, fees and total cost • Clear terms and conditions • rules and procedures, rights and responsibilities of customers and procedures for dispute resolution

On-going surveillance 9

Remittance Policy

Data capturing Banks • Balance of payments and receipts

Non-bank RSPs • Volume and value – By individual/corporate – By country – By system

– By value ƒ RM10K and below ƒ Between RM10,001 – RM200K ƒ More than RM200K

• Fees and charges

– By purpose ƒ Remuneration ƒ Workers remittances

– By country – By currency

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Remittance Policy

Challenges • Designing a regulatory framework that is effective and yet flexible : Does not pose regulatory burden • Dealing with remittance providers that choose not to participate in the regulatory system • Having adequate resources to supervise remittance service providers • Facilitate efficiency and innovation in the remittance industry • Extensive work required in promoting the use of formal channels

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Remittance Policy

Thank you

Informal channels were preferred Preference by migrant workers ¾Cost, Speed, Simplicity and Accessibility ¾Customer protection is not the main concern

Informal RSPs • Able to meet customers’ demand • Convenient • No regulatory burden

vs.

Formal RSPs and banks • Stiff competition from informal RSPs ¾ Additional costs of compliance ¾ Cumbersome transaction process

•

No value add for customers

Heavy regulatory burden reduces competitiveness and incentive to migrate to formal channels 13

Remittance Policy

RSPs providing remittance to Indonesia • • • • • • • • • • •

IME (M) Prabhu Remit Merchantrade Asia POS Malaysia Remit Master Pride Express Remit Money International Nuage Focus Global Remit Lotus Group Ent. Pusat Perkhidmatan Tenaga Kerja Indonesia

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Remittance Policy