MACMILLAN KECK New York ● Geneva Regulation of cross-border non-bank remittances in the Philippines-Malaysia corridor Prepared for CGAP Rory Macmillan and Jason Blechman MACMILLAN KECK ATTORNEYS & SOLICITORS www.macmillankeck.pro June 2019 DISCLAIMER This work was funded in whole or in part by CGAP. Unlike CGAP's official publications, it has not been peer reviewed or edited by CGAP, and any conclusions or viewpoints expressed are those of the authors, and they may or may not reflect the views of CGAP staff. Table of Contents 1. Introduction ................................................................................................................... 1 1.1. Terminology ......................................................................................................................1 1.2. Methodology .....................................................................................................................2 2. Background on the two markets ..................................................................................... 2 2.1. Malaysia ............................................................................................................................2 2.1.1. Remittances market background ........................................................................................................... 2 2.1.2. Regulatory reform.................................................................................................................................. 4 2.2. Philippines .........................................................................................................................5 2.2.1. Remittances market background ........................................................................................................... 5 2.2.2. Regulatory reform.................................................................................................................................. 7 3. Mapping the flow of remittances from Malaysia to Philippines ....................................... 8 3.1. The remittance transaction ................................................................................................8 3.1.1. Initiation channels ................................................................................................................................. 8 3.1.2. Delivery channels ................................................................................................................................... 8 3.1.3. Retail pricing .......................................................................................................................................... 8 3.1.4. Models for remittance transaction ........................................................................................................ 9 3.2. Settlement ....................................................................................................................... 11 4. Regulatory approach in Malaysia ................................................................................. 12 4.1. Licensing framework ........................................................................................................ 12 4.1.1. License categories ................................................................................................................................ 12 4.1.2. Licensing criteria .................................................................................................................................. 13 4.1.3. Capital requirements ........................................................................................................................... 14 4.1.4. Remittance partners ............................................................................................................................ 15 4.1.5. Use of agents ....................................................................................................................................... 15 4.1.6. Ongoing approval requirements .......................................................................................................... 15 4.2. Regulatory engagement and innovation ........................................................................... 16 4.2.1. Engagement with the sector ................................................................................................................ 16 4.2.2. Project Greenback 2.0 ......................................................................................................................... 17 4.2.3. Regulatory sandbox ............................................................................................................................. 17 4.3. AML/CFT.......................................................................................................................... 18 4.3.1. General approach ................................................................................................................................ 18 4.3.2. Transaction limits and currency restrictions ........................................................................................ 18 4.3.3. Customer due diligence (CDD) ............................................................................................................. 19 4.3.4. Remote customer identification and verification ................................................................................ 19 4.3.1. De-risking ............................................................................................................................................. 20 4.4. Consumer protection ....................................................................................................... 20 4.5. Other market issues ......................................................................................................... 21 4.5.1. The unlicensed market ........................................................................................................................ 21 4.5.2. Relationship to e-money ...................................................................................................................... 21 5. Regulatory approach in Philippines .............................................................................. 23 ii 5.1. Registration framework ................................................................................................... 23 5.1.1. Registration categories ........................................................................................................................ 23 5.1.2. The registration process ...................................................................................................................... 25 5.1.3. Capital requirements ........................................................................................................................... 25 5.1.4. Remittance partners and new products .............................................................................................. 26 5.1.5. Use of agents ....................................................................................................................................... 26 5.1.6. Ongoing notification requirements ..................................................................................................... 27 5.2. Regulatory engagement and innovation ........................................................................... 27 5.2.1. Engagement with the sector ................................................................................................................ 27 5.2.2. ‘Test and learn’ approach .................................................................................................................... 27 5.3. AML/CFT.......................................................................................................................... 28 5.3.1. General approach ................................................................................................................................ 28 5.3.2. Transaction limits and currency restrictions ........................................................................................ 29 5.3.3. Customer due diligence (CDD) ............................................................................................................. 29 5.3.4. Remote customer identification and verification ................................................................................ 30 5.3.5. De-risking ............................................................................................................................................. 30 5.4. Consumer protection ....................................................................................................... 30 5.5. Other market issues ......................................................................................................... 31 5.5.1. The unlicensed market ........................................................................................................................ 31 5.5.2. Relationship to e-money ...................................................................................................................... 32 5.5.3. National Retail Payment System (NRPS) .............................................................................................. 34 6. Lessons for policy makers and regulators in other jurisdictions ..................................... 35 6.1. The benefits of market competition and risk-based regulation .......................................... 35 6.1.1.