Banks cutting ties to remittance service providers

A crackdown on money laundering and the financing of terrorism through regulations worldwide is impacting banks and money service providers by driving up compliance costs. At the same time, banks have been hit with anti-money laundering probes and hefty fines.

In 2012, HSBC paid $1.9 billion in fines to U.S. authorities to settle an investigation into its anti-money laundering controls and admitted that it processed drug-trafficking proceeds through Mexico and transmitted funds from sanctioned countries such as Iran. The bank later closed all money transfer business accounts, leaving money service companies with only 30 days to find a new banking provider.

Money transmitters accept payments and bundle them together, but they need a bank to handle the international wire transfer. The threat of large fines and higher compliance costs led other banks to weigh the financial and reputational risks of operating or serving the remittance business against its profitability.

In May 2013, Barclays closed about 250 accounts that did not meet its anti-money laundering criteria, a move that affected 70 percent of U.K. money transfer firms. Barclays was in fact one of the last banks in the U.K. to offer services to remittance service providers. In Australia, Westpac shut down the accounts of money transfer operators in November 2014 as a result of growing fears of breaching strict terrorism financing and anti-money laundering laws.

Westpac’s CEO Gail Kelly said regulations pose a real problem for banks that accept money transfer businesses as customers.

“The regulatory requirements for anti-money laundering are you need to know your customer, and in the case of remitters, you need to know your customer’s customers. That’s quite a responsibility. You do millions of these transactions and if one goes wrong, and is connected with terrorism financing, that’s a real problem,” she said.

Westpac was one of four banks in Australia that withdrew from servicing remitters, leaving legitimate remitters without any options for clearing their fund transfers. Similar developments played out in the U.S. and are now playing out in Cayman.

As a result, the World Bank concluded that remittance prices are rising and competition is reduced.

Another concern is that the lack of alternatives will force cross-border money transfers into the informal channels of the shadow banking sector and effectively out of reach of banking regulators.



  1. HSBC was transmitting the proceeds of drugs money and was sanction busting.

    These were all big transfers.

    Hardly the same as a Filipino maid sending a couple of hundred dollars home to her family.

    While I realize that drug lords regularly use "smurfs" individuals who deposit small amounts to fool the authorities, this is not what is happening here.
    A simple rules restricting an individual to a limit of say $2,000 total transfers per month would cover that problem.

  2. Sure it would help solve the problem, but the cost of compliance with that rule would only further incentivise the banks to stop offering the service.

    It’s not the actual fines for facilitating money laundering that scares the banks, it’s the costs of complying with the rules to deter money laundering and the fines for not complying with those rules. 99.9% of customers don’t launder money but the procedures to catch the .1% are the same for everyone.

  3. A number of banks in the Caribbean are being forced by their US Correspondent Banks to close accounts of local money transfer, currency exchange and other non-bank financial institutions; this is the reason why local banks are being forced to close accounts. The reason given is compliance worries, but it is more than that, including competition, as stated in many news articles lately. This has prompted the reaction of local regulators to require banks to notify and support their decisions to close accounts, in view that most of these companies are licensed by the same entity that licenses and supervises banks.
    Are local banks questioning local regulators of the quality of their supervision by not banking other regulated entities? It is important to see how regulators respond to this challenge.

  4. Norman…

    Your comments are always well put and come from a place of honesty…and well appreciated.

    When I addressed one very important aspect of this situation…the total amount of remittance funds flowing out of Cayman in a recent comment, it was largely taken as prejudice and discrimmination against foreign workers in Cayman and responded to as such.

    Nothing could have been further from the truth.

    Those comments inspired further comments from the editorial board that addressed the other side of the equation.

    And those comments and sentiments, I support totally and have gone on record many times before making similar suggestions, which are…

    The current immigration/employment system in Cayman is long out-dated and past its sell-by date; its due for a late retirement.

    There are too many people of different nationalities that are now entrenched in Cayman’s society through time and marriage, to not consider some way of integrating these people into Cayman society and making them a part of the country and nation.

    From a purely economic viewpoint, it would give them a stake in the country in which to invest and make their own.

    Even after a 9-year roll-over period, this, in most cases has already happened and then the individual has to disrupt their entire life..and the stability of their employer’s business to leave the country for a period of time…only to start all over again, should they ever return.

    I agree that Cayman cannot accept and integrate everyone who wishes to reside here permanently but…

    It is quite clear that the current system is not working to achieve what it was originally intended to do.

  5. Ricardo my friend
    I agree with you 100%.

    I don’t think anyone comes here with the goal of taking someone else”s job. I really don’t know how these low paid workers can even survive on the pay they receive. Let alone afford to send money home.

    Of course we cannot give every one of them permanent residence or citizenship. But throwing people out after they have built a life here seems unfair too.