Digitalisation of money transfer services will not only reduce costs, but also encourage more people to use formal remittance channels
By: Veronica Studsgaard
LONDON, 16 April 2018 – Financial technology (fintech) can be an effective vehicle in the convenient and efficient delivery of cross-border remittances, while also increasing the use of formal remittance channels, according to Nik Mohamed Din Nik Musa, director, Money Services Business Regulation Department at Bank Negara Malaysia (BNM).
The Malaysian central bank executive made the remarks ahead of the Global Money Transfer Summit (GMTS), which will be held for the first time in Dubai, UAE from 29 to 30 April. Organised by the International Association of Money Transfer Networks (IAMTN), the by-invitation-only summit will bring together some of the global remittance industry’s most prominent innovators, disruptors, and stakeholders.
During the 13th edition of GMTS, Nik Mohamed Din will discuss the regulatory trends affecting the remittance industry in Malaysia’s key markets, as well as the laws and practices surrounding Malaysia money transfer.
An advocate of the digitalisation of money transfer services, Nik Mohamed Din said BNM has been continuously pursuing efforts to increase migration of remittances from informal to formal channels, particularly for foreign worker remittances.
“One of the key strategies for this is the expansion of electronic remittances (e-remittance). This entails the delivery of end-to-end digital solutions to enable cashless and more convenient services to users in a cost-effective manner,” he noted. “In addition, government measures – which require employers to pay salaries directly into their foreign employees’ bank accounts – will facilitate greater use of formal remittance channels.”
However, he believes innovation will not be possible without regulatory policies in place. In Malaysia, for example, BNM developed a regulatory sandbox framework (RSF) that enables fintech companies and financial institutions to test innovative products, services and business models in a live market environment, using specified testing parameters and safeguards.
Since June 2017, the RSF has allowed the use of eKYC (electronic know your customer) capabilities to facilitate more than 2,000 customers who have made online remittances in excess of MYR 20 million (USD 5.2 million).
One of the challenges facing the remittance industry, according to Nik Mohamed Din, is de-risking in the financial sector, which curtails remittance service providers’ ability to transmit money.
“Remittance service providers are vulnerable to de-risking, as they are heavily reliant on partnerships with the correspondent banking network,” he pointed out. “Effective communication between the banking industries and money services business industry is required in order to bridge the expectation gaps, in terms of compliance level between the two industries.”
Nik Mohamed Din also weighed in on the use of cryptocurrency for cross-border money transfers. Currently, Malaysia does not recognise cryptocurrencies, such as Bitcoin, as legal tender. As a result, digital currency exchangers are required by law to conduct adequate risk assessments on customers, in relation to the prevention of money laundering and financing of terrorism.
“Implementing reporting obligations on digital currency exchangers is the first step towards making digital currency activities more transparent in Malaysia,” he said. “Nonetheless, it does not, in any way, connote the authorisation, licensing, endorsement or validation by BNM of any entities involved in the provision of digital currency exchange services.”
In the foreseeable future, Nik Mohamed Din expects further consolidation in the money transfer industry in Malaysia, which will contribute to the emergence of more professional and stronger industry players that can compete effectively and meet higher compliance standards.
“BNM had made it mandatory for business compliance officers in all money services business and remittance companies to be certified or accredited by recognised accreditation bodies, after completing four compulsory training modules. This will ensure all relevant officers are sufficiently competent and technically equipped to undertake their responsibilities in the areas of regulations, particularly with respect to AML/CFT compliance,” he explained.
Aside from Nik Mohamed Din, the 2018 GMTS will feature an international line-up of speakers including representatives from Ripple, the United States Treasury, De Nederlandsche Bank, and the Financial Stability Board, among others.