G-24/AFI policymakers discuss financial inclusion and global standards: Opportunities and risks

Robin Newnham and John Owens

Members of AFI and the G24 participate in the seventh annual G24-AFI Policymakers’ Roundtable in Washington D.C. in April 2015

Members of AFI and the G24 participate in the seventh annual G24-AFI Policymakers’ Roundtable in Washington D.C. in April 2015.

Members of the Alliance for Financial Inclusion (AFI) and the Intergovernmental Group of Twenty-Four (G24) participated in the seventh annual G24-AFI Policymakers’ Roundtable, held in April during the Spring Meetings of the International Monetary Fund (IMF) and World Bank. The discussions focused on the opportunities and risks arising from the interlinkages of financial inclusion policies and global standards and highlighted: the strong link between financial inclusion, financial stability and economic growth; the importance of understanding and providing an appropriate enabling environment for innovation to support financial inclusion; the major threat of de-risking strategies of international banks; and the progress made in the strategic dialogue between the AFI Network and global Standard Setting Bodies (SSBs).

The meeting was attended by central bank governors and finance ministers from more than 30 countries across the AFI and G24 Networks, together with stakeholders, including the IMF, World Bank, Financial Stability Board (FSB), the Bank for International Settlements, British Bankers’ Association (BBA), United States Treasury and International Association of Deposit Insurers (IADI). Setting the opening stage for dialogue, Ms. Marilou Uy, Director of the G-24 Secretariat, reminded participants that the G-24/AFI Roundtable at the Spring Meetings had “played an important role in taking stock of the global initiatives and financial inclusion trends as well as promoting dialogue on important topics around financial inclusion,” and that concrete achievements had emanated from the previous discussions such as the establishment by AFI of a structured engagement with most SSBs.

In his opening remarks, Dr. Daniel Schydlowsky, Superintentendent at SBS Peru and Chair of the AFI Steering Committee, further shared how the peer learning approach of the AFI network has helped move ahead the agenda of financial inclusion. In a special address on the theme of “The IMF and Financial Inclusion,” Dr. Min Zhu, Deputy Managing Director at the International Monetary Fund shared the vision of the IMF and financial inclusion by stating, “‪financial inclusion is a macro issue that is within our mandate and while there has been a lot of progress much remains to be done.” He went on further to add that, “Financial inclusion needs to be seen as an integral part of financial deepening.” In discussion with Dr. Zhu, Dr. Akhtar Aziz Zeti, Governor, Bank Negara Malaysia (BNM), shared the view that financial inclusion is important for economic growth. She went on to stress the importance as well of financial literacy and consumer protection as the financial system develops and more people access financial services for the first time.

Members of AFI and the G24 participate in the seventh annual G24-AFI Policymakers’ Roundtable in Washington D.C. in April 2015.

AFI members from BCEAO and Ghana at the seventh annual G24-AFI Policymakers’ Roundtable in Washington D.C. in April 2015.

Ms. Maria Fernanda Trigo Alegre, Director General for Access to Finance at CNBV Mexico and Acting Chair of the AFI Global Standards Sub-Committee, presented the Sub-Committee’s progress report, including the issues identified in its paper on “Impacts of Global Standards on National Financial Inclusion Policies.” The report highlighted a number of issues that were identified by AFI members, which members felt should form part of the joint learning initiative with SSBs, including: dealing with the de-risking issues of international banks, the need to continue to provide an enabling environment for the use of innovative technologies that support financial inclusion and how to best address the effective implementation of global standards and national financial inclusion policies in tandem. Ms. Trigo Alegre went on to highlight the progress since the AFI GSSC paper presented to the SSBs in Basel in October 2014 including clarifications on BCBS and FATF positions on AML/CFT proportionality, incorporating points made by the AFI paper into the work of the FATF style regional bodies (FSRBs) and steps to address the de-risking activities of international banks that are negatively impacting on access and costs of remittances.

The remainder of the roundtable took the form of two panel discussions. In the first on the topic of Proportionality in Practice, BCEAO Governor Koné Tiemoko Meyliet highlighted the continuing importance of microfinance and other non-bank players, the role of supervision and financial inclusion. He stressed the “need to have financial regulation instruments that both support stability and financial inclusion.” First Deputy Governor Mme. Yudaeva from the Central Bank of the Russian Federation (CBR) also reinforced the point that providing an appropriate enabling environment and support for new technologies is important to achieving financial inclusion, stability and integrity together, stating that, “technology is moving very fast so we need to ensure as regulators that we both understand risks and provide standards.” In the ensuing discussion, the representative of the Central Bank of Nigeria (CBN) highlighted roundtable discussions demonstrated that “proportionality in practice is not about sacrificing stability but actually enhancing it,” with financial inclusion being fully complementary to core financial stability objectives. Participants also looked forward to the AFI, Bank Negara Malaysia, and Toronto Center symposium on “Proportionality in Practice” to be held in Kuala Lumpur on 28-29 May 2015, as well as the case studies to be documented by the GSSC.

The second panel discussion focused on the issue of the clear threat to financial inclusion posed by the de-risking strategies of international banks. Prof. Benno Ndulu, Governor at the Bank of Tanzania (BOT), moderated an important panel on “De-risking: Global Impact and Unintended Consequences for Exclusion and Stability” with key points raised by Dr. Justine Walker, Director at the British Bankers’ Association, who stated that “from a bank’s perspective, compliance issues are a big challenge that creates de-risking issues.” In her presentation she pointed out that the drivers of de-risking are a convergence of issues, primarily around the risk tolerance of banks to AML/CFT. She closed by stressing the point that “we see the importance of public-private sector dialogues to provide a sensible approach to deal with de-risking issues.”

AFI Executive Director Alfred Hannig, left, looks on as Bank Negara Malaysia Governor Zeti speaks in the seventh annual G24-AFI Policymakers’ Roundtable in Washington D.C. in April 2015.

AFI Executive Director Alfred Hannig, left, looks on as Bank Negara Malaysia Governor Zeti speaks in the seventh annual G24-AFI Policymakers’ Roundtable in Washington D.C. in April 2015.

Dr. Jihad Al Wazir, Governor at the Palestine Monetary Authority (PMA), pointed out the effect that de-risking by one bank could have: “Once a correspondent bank leaves, others tend to follow suit, creating a domino effect.” Dr. Atiur Rahman, Governor, Bangladesh Bank shared these concerns, adding that, “one of the risks of de-risking by banks is that it may actually increase money laundering rather than decrease it.” Regarding potential solutions Dr. Al Wazir posited that “an engagement is needed at the legal level to find the reasonable ground where you can maintain vigilance for AML/CFT but at the same time don’t reach an unintended consequence of the systemic risks that you face,” while Mr. Luis Feltrim, Deputy Governor of Banco Central do Brasil (BCB), shared his view on the importance of implementing a risk-based approach, and that “the solution lies in an open dialogue” among all affected parties. In discussion, Governor Ndulu highlighted the need to avoid shadow correspondent services that have already emerged to fill the gap left by the closure of money transfer operators’ bank accounts, while Peer Stein from the World Bank pointed out the importance of this forum developing a clear message and stand on the de-risking issue. Meanwhile, Rupert Thorne, Deputy Secretary-General of the FSB shared that the FSB is “interested in seeing what it can do to bring more systematic information to address the decline in correspondent banking and money transfer operators.” Brian Wynter, Governor at Bank of Jamaica (BOJ)—AFI’s 100th primary member institution—closed this session by stating, “We need to come together as a group to address the issue around de-risking. The Bank of Jamaica wishes to collaborate on this.”

In his closing remarks, Dr. Alfred Hannig, Executive Director of AFI, shared: “Financial inclusion is increasingly being recognized as part of the national goals of many more countries,” with many central banks now recognizing financial inclusion as part of public policy. Dr. Hannig summarized the key next steps agreed upon including the forthcoming global symposium and planned case studies on proportionality in practice; as well as the formulation of a clear and consistent message by AFI and G-24 members on the de-risking issues, to then serve as a basis for future discussions with the World Economic Forum (WEF), World Bank, FSB and other stakeholders. Finally Dr. Hannig highlighted that this year’s AFI Global Policy Forum in Mozambique on 1-4 September 2015 will focus on the role of innovation to drive financial inclusion and will show that “Innovation is an opportunity, not a risk, if we get the conditions right.”

Mr. Alain Bifani, Director General, Ministry of Finance of Lebanon and Chair of the G24 provided closing remarks that the discussions had “highlighted practical challenges in implementing global standards” and that “the AFI network should be commended for its outreach. We welcome the partnership.”

ABOUT THE AUTHOR
Robin Newnham is the Coordinator for the G20 GPFI at the Alliance for Financial Inclusion. John Owens is the Senior Policy Advisor Digital Financial Services & FI Policies at the Alliance for Financial Inclusion.

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