Global Standard-Setting Bodies and Financial Inclusion The Evolving Landscape March 2016 Prepared on Behalf of the G20’s Global Partnership for Financial Inclusion © 2016, Global Partnership for Financial Inclusion C/o Consultative Group to Assist the Poor 1818 H Street NW, MSN IS7-700 Washington DC 20433 Internet: www.cgap.org Email: [email protected] Telephone: +1 202 473 9594 Rights and Permissions This work is available under the Creative Commons Attribution 3.0 Unported license (CC BY 3.0) http:// creativecommons .org/licenses/by/3.0. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Cite the work as follows: Global Partnership for Financial Inclusion. 2016. “Global Standard-Setting Bodies and Financial Inclusion: The Evolving Landscape.” White Paper. Washington, D.C.: CGAP. License: Creative Commons Attribution CC BY 3.0 Translations—If you create a translation of this work, add the following disclaimer along with the attribution: This translation was not created by CGAP and should not be considered an official translation. CGAP shall not be liable for any content or error in this translation. All queries on rights and licenses should be addressed to CGAP Publications, 1818 H Street, NW, MSN IS7-700, Washington, DC 20433 USA; e-mail: cgap@world bank.org. Global Standard-Setting Bodies and Financial Inclusion The Evolving Landscape March 2016 CONTENTS List of Abbreviations and Acronyms v Acknowledgments vii Executive Summary xi Part I. Introduction 1 Part II. The Evolving Landscape 5 A. Financial Inclusion: Defining the Policy Objective 5 B. Support for SSB Action from the G20, the GPFI, and other Global Actors 5 C. Greater Recognition of Three High-Level Themes 7 D. Proportionality and the Linkages among Financial Inclusion, Stability, Integrity, and Consumer Protection 8 E. Digital Financial Inclusion: Increasing the Stakes, and the Opportunities, for Collaboration among SSBs 9 F. Progress in Numbers, but Old and New Challenges Accompany New Opportunities: A Call for New Collaboration 10 Part III. Financial Inclusion and the Work of FSB and Standard-Setting Bodies 13 A. Financial Stability Board 13 B. Basel Committee on Banking Supervision 17 C. Committee on Payments and Market Infrastructures 19 D. Financial Action Task Force 22 E. International Association of Deposit Insurers 29 F. International Association of Insurance Supervisors 33 G. International Organization of Securities Commissions 39 Part IV. Evolving Topics of Relevance to Multiple Standard-Setting Bodies 45 A. Digital Financial Inclusion—Opportunities and Risks 45 B. Frontiers in Inclusive Financial Consumer Protection 54 C. Competition and Interoperability 57 D. Customer Identity and Privacy 61 E. Crowdfunding—Bypassing Traditional Financial Intermediaries 64 F. De-risking and Financial Exclusion 68 G. Emerging Issues in Supervision and Financial Inclusion 72 iv | GLOBAL STANDARD-SETTING BODIES AND FINANCIAL INCLUSION Part V. Financial Inclusion and Financial Sector Assessments 77 A. SSB Compliance Assessments and Financial Inclusion 78 A1. FATF and FATF-Style Regional Bodies Mutual Evaluations 78 A2. Self-Assessments by FSB and SSB Members and Peer Reviews 80 B. Financial Sector Assessment Program and Financial Inclusion 82 Part VI. Observations and Recommendations 89 A. General Observations and Recommendations 90 B. Observations and Recommendations on Evolving Topics of Relevance to Multiple SSBs 95 C. Observations and Recommendations on Financial Sector Assessments 102 Appendices 105 Appendix A. Membership of FSB and the SSBs 106 Appendix B. Some Technical Standard Setting of Relevance to Financial Inclusion 115 Appendix C. Financial Inclusion in FSAPs 118 Appendix D. Bibliography 120 Boxes Box 1. “Financial Inclusion”: An Updated Working Definition 6 Box 2. Overview of BCBS Activities, Processes, Forums, and Publications Relevant to Financial Inclusion 20 Box 3. Overview of CPMI Activities, Processes, Forums, and Publications Relevant to Financial Inclusion 23 Box 4. Overview of FATF Activities, Processes, Forums, and Publications Relevant to Financial Inclusion 28 Box 5. Overview of IADI Activities, Processes, Forums, and Publications Relevant to Financial Inclusion 32 Box 6. Overview of IAIS Activities, Processes, Forums, and Publications Relevant to Financial Inclusion 37 Box 7. Overview of IOSCO Activities, Processes, Forums, and Publications Relevant to Financial Inclusion 43 Box 8. Key Elements of a Digital Financial Inclusion Model 46 Box 9. Some Key Setters of Technical Standards 53 Box 10. Challenges to Effective Consumer Protection Posed by Digital Financial Inclusion 56 Box 11. Second European Payment Services Directive 72 Box 12. Summary of FSB and SSB Self-Assessment and Peer Review Processes 81 Box 13. Key Financial Inclusion Aspects Covered in FSAPs, 2000–2013 86 Table Table 1. Digital Financial Inclusion: Some Risks, Triggers, and Relevance to FSB and SSBs 50 Figures Figure 1. SSB Membership Affiliation by Country Income Level 106 Figure 2. Increase in Occurrence of Financial Inclusion Concepts in FSAPs 118 Figure 3. FSAP Financial Inclusion Technical Notes, by Focus and Region (2000–2013) 119 LIST OF ABBREVIATIONS AND ACRONYMS A2ii Access to Insurance Initiative AFI Alliance for Financial Inclusion AML/CFT Anti-money laundering and combating financing of terrorism ATM Automated teller machine B2P Business-to-person BCBS Basel Committee on Banking Supervision BCG Basel Consultative Group BCPs Basel Core Principles BIS Bank for International Settlements BTCA Better Than Cash Alliance CDD Customer due diligence CGAP Consultative Group to Assist the Poor CPMI Committee on Payments and Market Infrastructures CPSS Committee on Payment and Settlement Systems DSS Data Security Standard EMDE Emerging market and developing economies EMVCo Consortium of American Express, Discover Financial Services, Japan Credit Bureau, MasterCard, UnionPay, and Visa ESAAMLG Eastern and Southern Africa Anti-Money Laundering Group FATF Financial Action Task Force FCA Financial Conduct Authority (UK) FIDO Fast IDentity Online FIAP Financial Inclusion Action Plan FIEG Financial Inclusion Experts Group FIRST Financial Sector Reform and Strengthening Initiative FSA Financial Sector Assessment FSAP Financial Sector Assessment Program FSB Financial Stability Board FSI Financial Stability Institute FSRB FATF-Style Regional Body FSSA Financial System Stability Assessments G20 Group of Twenty G2P Government-to-person GLEIS Global Legal Entity Identifier System GPFI G20 Global Partnership for Financial Inclusion G-SIFI Global systemically important financial institution GSM Global system for mobile GSMA Groupe Speciale Mobile Association IADI International Association of Deposit Insurers IADI CPs IADI Core Principles | v vi | GLOBAL STANDARD-SETTING BODIES AND FINANCIAL INCLUSION IAIS International Association of Insurance Supervisors ICPs Insurance Core Principles ICT Information and communication technologies IFAD International Fund for Agricultural Development IFC International Finance Corporation IFI International financial institution IMF International Monetary Fund IOPS International Organisation of Pension Supervisors IOSCO International Organization of Securities Commissions ISO International Organization for Standardization ITU International Telecommunications Union ITU-T ITU’s Telecommunication Standardization Sector JCB Japan Credit Bureau KYC Know your customer LEI Legal entity identifier MFI Microfinance institution MNO Mobile network operator MTO Money transfer operator NBFI Non-bank financial institution NGN Next generation networks NRA National risk assessment OECD Organisation for Economic Co-operation and Development P2B Person-to-business P2P Person-to-person PAFI Payments aspects of financial inclusion PCI Payment card industry PIA Privacy impact assessment PIN Personal identification number PKI Public key infrastructure POS Point-of-sale RBA Risk-based approach RCGs Regional Consultative Groups of FSB ROSC Report on the Observance of Standards and Codes SEC Securities and Exchange Commission (US) SIFI Systemically important financial institution SSB Standard-setting body USSD Unstructured supplementary service data UN United Nations UNSGSA United Nations Secretary General’s Special Advocate for Inclusive Finance for Development Her Majesty Queen Máxima of the Netherlands ACKNOWLEDGMENTS This White Paper has been prepared on behalf of the G20’s Global Partnership for Financial Inclusion (GPFI). It was drafted by a group of experts from the Implementing Partners of the GPFI, primarily the Consultative Group to Assist the Poor (CGAP) and the World Bank,1 with active participation at the outline and drafting stages of the secretariats of the seven global bodies that are the primary subject of this paper: Financial Stability Board (FSB) and the six finan- cial standard-setting bodies (the Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI), the Financial Action Task Force (FATF), the International Association of Deposit Insurers (IADI), the International Association of Insurance Supervisors (IAIS), and the International Organization of Securities Commissions (IOSCO)). Also contributing were personnel from other Implementing Partners of the GPFI, the International Monetary Fund (IMF), the Office of the United Nations Secre- tary General’s Special Advocate