No solution in sight to remitters' banking problem

The Australian Bankers Association has warned that there is no prospect of a quick solution to the situation that has seen a number of banks turn away remittance company business.

ABA chief executive Steven Munchenberg said the association had met with local and international regulators, as well as government, to explain why its members were not prepared to take the risk of banking remitters.

"All parties are aware of the issue and banks are looking at alternative options. But it will require international co-operation to get it fixed," Munchenberg said.

Westpac confirmed a report stating it has given notice to remittance company customers that it will no longer provide them with banking services from next week.

It will continue to work with a small number and will provide extensions to others to allow them to put alternative arrangements in place.

Westpac is the last of the Big Four banks to take this step. Some regional banks have also decided not to provide banking services to remittance companies.

With the increased regulatory focus on money laundering and terrorism financing, the regulator Austrac has suspended or cancelled the registration of a number of remittance companies this year.

Banks have reviewed their policies and decided that, given the way remitters do business, they cannot meet their regulatory obligations.

The big issue is that, for efficiency and cost reasons, remitters bundle a large number of individual payments into each overseas transaction. The banks cannot identify the individual customers in these transactions and cannot identify suspicious payments.

Munchenberg said another problem was that counterparty banks overseas were becoming increasingly reluctant to handle remittance transactions.

"It is a global issue. Even if banks here continued to do business with remitters a growing number of banks overseas don't want to have anything to do with them," he said.

"Regulators and government have questioned whether the banks are over-reacting but, given the regulations and the compliance risk, our view is that they are taking a prudent course of action.

"The banks need to demonstrate that they have a process in place that shows they are not facilitating illegal payments."

Munchenberg said the banks were sympathetic to arguments put by the Australian Remittance and Currency Providers Association, which says the vast majority of remittance payments present no risk of money laundering or terrorism financing.

"We know people are affected by this and we have raised the issue with the international regulatory body, the Financial Action Task Force. Government needs to bring the parties together to find a solution," he said.