Committee on Payment and Settlement Systems The World Bank General principles for international remittance services January 2007 THE WORLD BANK Copies of publications are available from: Bank for International Settlements Press & Communications CH-4002 Basel, Switzerland E-mail: [email protected] Fax: +41 61 280 9100 and +41 61 280 8100 This publication is available on the websites of the BIS (www.bis.org) and the World Bank (www.worldbank.org). © Bank for International Settlements and The World Bank 2007. All rights reserved. Brief excerpts may be reproduced or translated provided the source is cited. ISBN 92-9131-732-2 (print) ISBN 92-9197-732-2 (online) Foreword In recent years, various organisations have tackled issues related to the important topic of international remittances. However, few of these reports have been devoted specifically to the "payment system aspects" of remittances – in effect, the practical realities of actually transferring money. Understanding these payment system aspects is crucial to understanding remittances and to ensuring that remittance services are safe and efficient. This report provides an analysis of the payment system aspects of remittances and sets out general principles designed to assist countries in improving the market for remittance services. The report was first issued in March 2006 as a consultation document and we are very grateful to the many people who provided comments. As a result of the comments, we have made changes to the report to strengthen the analysis and sharpen the message. The report has been prepared for the Committee on Payment and Settlement Systems and the World Bank by a task force consisting of representatives from international financial institutions involved in remittances and from central banks in both remittance-sending and remittance-receiving countries. The CPSS and the World Bank thank the members of the task force and its co-chairmen, Massimo Cirasino and Marc Hollanders, for their excellent work in preparing this report. Timothy F Geithner, Chairman Michael U Klein, Vice President Committee on Payment and Settlement Systems The World Bank CPSS/World Bank - General principles for remittances - January 2007 iii Contents 1. Introduction and executive summary...............................................................................1 2. A description of the market for remittances.....................................................................5 2.1 Definition of a remittance transfer ..........................................................................6 2.2 Remittance service providers.................................................................................6 2.3 How remittances are made ....................................................................................8 2.4 Types of remittance service ...................................................................................9 3. Analysis of key issues concerning remittance services.................................................10 3.1 Lack of transparency and understanding .............................................................11 3.2 Infrastructure issues.............................................................................................13 3.3 The legal and regulatory framework.....................................................................16 3.4 Lack of competitive market conditions .................................................................17 3.5 Risk ......................................................................................................................18 4. General principles for international remittance services................................................19 4.1 Public policy objectives ........................................................................................19 4.2 Application of the General Principles ...................................................................20 4.3 The General Principles.........................................................................................21 Transparency and consumer protection...............................................................21 Payment system infrastructure.............................................................................22 Legal and regulatory environment........................................................................23 Market structure and competition.........................................................................26 Governance and risk management ......................................................................27 4.4 Roles of remittance service providers and public authorities ...............................27 A. Role of remittance service providers...........................................................27 B. Role of public authorities.............................................................................27 5. Formulating an approach to implementing the General Principles................................28 Annex 1: Possible actions to implement the Principles ..........................................................30 Possible actions concerning General Principle 1 (transparency and consumer protection).....................................................................................................30 Possible actions concerning General Principle 2 (payment system infrastructure) ................................................................................................................34 Possible actions concerning General Principle 3 (legal and regulatory environment) ................................................................................................36 Possible actions concerning General Principle 4 (market structure and competition)............................................................................................................38 Possible actions concerning General Principle 5 (governance and risk management)..........................................................................................................39 Annex 2: Elements of a remittance transfer............................................................................40 CPSS/World Bank - General principles for remittances - January 2007 v Capture......................................................................................................................... 40 Disbursement................................................................................................................ 40 Messaging .................................................................................................................... 41 Settlement..................................................................................................................... 41 Liquidity......................................................................................................................... 42 Annex 3: Examples of settlement in remittance services....................................................... 43 Description of initial example........................................................................................ 43 Analysis of the example................................................................................................ 45 Variations on the example ............................................................................................ 46 Annex 4: Direct links between payment systems................................................................... 50 Annex 5: Extract from G8 summit document ......................................................................... 51 Annex 6: Select bibliography ................................................................................................. 53 Annex 7: Glossary.................................................................................................................. 54 Annex 8: Members of the task force ...................................................................................... 55 List of boxes Box 1 : The General Principles and related roles ..................................................................... 4 Box 2 : Some terminology concerning RSPs that is used in other reports ............................... 7 Box 3 : Regulation of remittances........................................................................................... 16 Box 4: FATF recommendations ............................................................................................. 25 Box 5 : A potential role for central banks in the application of the Principles.......................... 29 Box 6 : Transparency to the sender........................................................................................ 31 Box 7: Remittances from the United States to Mexico: a price comparison .......................... 32 Box 8: Information provided by the Philippines authorities to emigrants ............................... 32 Box 9: Receipt-of-funds guarantees ...................................................................................... 33 Box 10: Enlarging access to banking services in Brazil......................................................... 35 Box 11: Connecting domestic ACHs across borders ............................................................. 35 Box 12: Development of a “quality mark”............................................................................... 37 Box 13: Mobile phone remittance services and their regulation ............................................ 38 vi CPSS/World Bank - General principles for remittances