BASEL, Switzerland—Financial institution regulators across the world are looking into the reasons why large banks are pulling back from handling cross-border payments—something that is making it more challenging for families to send money to relatives overseas, Reuters reported.
Banks say it has become more costly to comply with tougher customer checks against money-laundering and terrorist financing, putting pressure on regulators to ease up.
The Financial Stability Board (FSB), which coordinates regulation across the Group of 20 economies, is worried that fewer major banks are offering smaller banks correspondent relationships, the links which enable such remittances, Reuters reported, adding that banks' reluctance to handle smaller cross-border payments could drive some flows underground, potentially hurting economic growth and hampering financial inclusion, as well as damaging the stability and integrity of the financial system.
The FSB set out in March 2016 to implement an action plan.
"The FSB has identified... some areas where additional data and information is necessary to assess the scale of withdrawal from correspondent banking," it said in an update on efforts to stop the decline in correspondent banking, Reuters reported.
Reuters noted three key developments:
- The International Monetary Fund reported that in the Caribbean region at least 16 local banks have lost some or all of their correspondent banks.
- The Australian Remittance and Currency Providers Association said the exit of major banks from the A$50 billion remittance sector is forcing more money "into the shadows."
- Britain's Barclays began closing the bank accounts of Somali money transfer businesses in 2013, saying it did not want to do business with firms that don't have adequate controls.
This has forced some remittance firms to use intermediaries, Reuters said.
"Remittance commission has gone up and because there is no bank account, you have to collect the money physically, which increases overhead costs and expense," Micin Ali of Somali Money Services Associates, told Reuters.
"The banks cite all the compliance, but they don't have any data. They just worry they will get fined if anything happens," Ali said.