2018 FEMM: Update On Remittances

FORUM ECONOMIC MINISTERS MEETING

AND

FORUM ECONOMIC OFFICIALS MEETING

25-27 April 2018

Koror, Palau

UPDATE ON REMITTANCES[1]

1. Discussion

The cost of remittances to the Pacific remains significantly higher than the Agenda 2030 target of 3%. Although there are major data gaps, the average cost across the Pacific is estimated to be between 8-12% based on data gathered by the World Bank, Forum Island Central Banks, and recent work on the issue from the International Monetary Fund (IMF).  

2. The closure of Money Transfer Operators (MTOs) remains a risk to low-cost remittances in the Pacific. A major driver of these closures has been the “de-risking” of the sector by commercial banks, leading to a loss of banking services in the sector.

 

3. There have been a number of global and local developments since the last meeting of Forum Economic and Finance Ministers. This work has focused on identifying ways to improve the operating environment for remittance service providers.

 

4. The Financial Stability Board’s (FSB) Remittance Task Force has submitted its final report, outlining possible policy actions to address de-risking, to G20 Finance Ministers^[2]. The report concludes that de-risking remains a major issue, and makes recommendations to improve dialogue between MTOs and banks, standardise compliance infrastructure, improve international standards and oversight, and foster innovation in the sector.

 

5. Remittance market issues in the Pacific have been profiled in the FSB report. The report includes comprehensive information about issues affecting the Pacific, and showcases the acute vulnerability of the Pacific to remittance market issues relative to other jurisdictions.

 

6. The Pacific is seen as an exemplar in self-organisation to address remittance market challenges. A variety of innovations, such as the Tongan Development Bank voucher system, a recent report by the Australian Government on risk in the remittance sector^[3], and a New Zealand Government initiative to improve Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) standards were showcased in the final FSB report.

 

7. Development partners continue to prioritise work to address issues in the Pacific remittance market. New Zealand and Australia are working to identify practical domestic and regional policy options, and are collaborating with a range of partners, including the International Monetary Fund, the Asia Pacific Group, the World Bank Group, and the Asian Development Bank. The issue is a high priority for development partners working in the region.

 

8. At a national level, improving AML/CFT compliance and reducing risks in the region will remain an important priority for member countries. Significant work is under way by Forum Island Countries to address shortcomings in AML/CFT standards in the region and improve the remittance market environment. This work should also examine other sources of risk such as offshore financial centres.

 

9. Two recent conferences held in Sydney and Auckland have provided a roadmap of further work on this issue^[4]. The events, hosted by the IMF and funded by the New Zealand and Australian Governments, brought together MTOs, Banks, government regulators and development partners to identify and prioritise actions to address de-risking. Detailed outcomes from these meetings were presented to Central Bank Governors and Finance Ministers at the PFTAC Steering Committee meeting held in March 2018. At the meeting there was general endorsement of the approach. The draft actions will be finalised next month and distributed to authorities and conference attendees.

 

10. Ministers are encouraged to endorse ongoing work on this issue, and reiterate their commitment to working collectively to address remittance market issues. Regional approaches to remittance issues will continue to be critical to addressing market issues and maintaining the Pacific’s momentum towards the 3% cost target.

    Ministry of Foreign Affairs and Trade, New Zealand 17 April 2018 [1] This general update was prepared by the New Zealand Ministry of Foreign Affairs and Trade [2] http://www.fsb.org/2018/03/fsb-publishes-progress-report-on-addressing-declines-in-correspondent-banking-and-recommendations-on-remittances/ [3] http://www.austrac.gov.au/remittance-corridors-australia-pacific-island-countries [4] https://www.imf.org/en/News/Articles/2018/02/08/pr1840-pacific-imf-adb-australia-nz-seek-solutions-to-reduce-remittance-costs-in-pacific