Review of the regulatory environment relative to Money Transfer ...

Review of the regulatory environment relativeto Money Transfer services from European countries to OECSRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -1

Les opinions exprimées dans ce rapport n’engagent que les auteurs et ne reflètent pasnécessairement celles de la Commission EuropéenneRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -3

Table of contentsExecutive summary (regulatory) ......................................................................... 61. Introduction ....................................................................................................... 92. Money Laundering Regulation (MLR) ........................................................... 102.1 International regulation: FAFT ................................................................................ 102.2 European Union regulation ..................................................................................... 192.2.1 Third Money Laundering Directive (3 MLD) (Directive 2005/60/EC) ....................... 192.2.2 European Regulation (EC) N° 1781/2006 ............................................................... 252.3 UK and Netherlands money laundering regulation ................................................. 282.3.1 UK money laundering regulation ............................................................................ 282.3.2 The Netherlands money laundering regulation ....................................................... 292.4 OECS countries money laundering regulation ........................................................ 303. Money transfer regulation.............................................................................. 333.1 European Union regulation ..................................................................................... 333.1.1 Payment Services Directive (PSD) ......................................................................... 333.1.2 Electronic Money Directive ..................................................................................... 463.1.3 EU regulation on controls of cash entering or leaving the EU ................................. 483.2 UK specific regulation ............................................................................................ 493.2.1 e-money regulation in the UK ................................................................................. 493.2.2 Money transfer regulation in the UK ....................................................................... 503.2.3 MSB environment in the UK ................................................................................... 523.3 The Netherlands specific regulation ....................................................................... 543.3.1 e-money regulation in the Netherlands ................................................................... 543.3.2 Money transfer regulation in he Netherlands .......................................................... 553.4 France specific regulation ...................................................................................... 563.4.1 e-money regulation in France ................................................................................. 563.4.2 Money transfer regulation in France ....................................................................... 583.5 OECS countries specific regulation ........................................................................ 603.5.1 OECS countries ..................................................................................................... 603.5.2 ECCB ..................................................................................................................... 603.5.3 Banking regulation in OECS ................................................................................... 613.5.4 Money transfer regulation in OECS ........................................................................ 624. Conclusions .................................................................................................... 64Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -4

AbbreviationsAML/CFTATMCDDECECCBELMIsEUFAFTFIUFSAFTHMRCIMTKYCMLMLRsMSBMTOOECSPSDPSRPSPPIAnti Money Laundering and Combating the Financing of TerrorismAutomated Teller MachinesCustomer Due DiligenceEuropean CommissionEastern Caribbean Central BankElectronic Money InstitutionsEuropean UnionFinancial Action Task Force (on Money Laundering)Financial Intelligence UnitThe Financial Services Authority (UK)Financing of TerrorismHer Majesty’s Revenue and CustomsInternational Money TransferKnow-Your-CustomerMoney LaunderingMoney Laundering regulations (UK)Money Service BusinessMoney Transfer OperatorOrganisation of Eastern Caribbean StatesPayment Services DirectivePayment Services RegulationsPayment Service ProviderPayment InstitutionRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -5

Executive summary (regulatory)The project defined aims at facilitating the transfer of funds from the Caribbean Diaspora inthe European Union, particularly in UK but also France and the Netherlands, while alsoreducing the costs of current remittance transfers.This report is identifying the key regulatory requirements for the set-up, by a Caribbeanbasedentity (ECIC Holdings), of a mobile remittance service delivered from European Union(most probably UK), and specifically targeting the Caribbean Diaspora (OECS).From sending side (EU), Payment Institution status should be consideredUnder the new legal framework of the Payment Services Directive (DSP), the status ofPayment Institution will be authorized, starting November 2009, from sending side in UK,France and the Netherlands. Payment Institution (PI), which can be a dedicated paymentservice provider or a bank subsidiary, is therefore offering a new and attractive status forMoney Transfer Operator established in UK:• Small initial capital is requested (20.000 €)• If there is less than 3 million € of payment transaction in a month, a lightregistration procedure is only necessary (UK), corresponding to a status of ‘small’Payment institution. (But to be remembered, if there is more than 3 m €, then afull license procedure is to be applied).• If the transfer of fund is carried out by telephone and if fund transferred is lessthan 150 €, then the sender information could be limited : name, address,account number• ATM network can be managed• Agents are possible (for distribution / point of sales)• Payment Institution is able to ‘Passport’ its services to other EU countriesStarting November 2009, the new regulatory regime for Money Transfer Operator (nonbank) will be applied in the UKDepending on different criteria (see below), a full licence is necessary or only a simpleregistration:Payment Institution(Non bank)MTOs doing business in theUK)Money Transfer Operatorwishes to ‘passport’ itsservices to other EUcountriesMoney Transfer Operatordoes not wish to ‘passport’its services to other EUcountriesMoney Transfer Operatorexecutes less than 3 million€ on monthly average(including agents)LicenceRegistrationMoney Transfer Operatorexecutes more than 3million € on monthlyaverage(including agents)LicenceLicenceRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -6

Prior registration of MTO to UK Revenues and Customs services (HMRC) is necessary for AML(Money Laundering Regulation 2007 purpose.Once the AML registration is done, FSA (Financial Services Authority) is the regulator formoney remittance services (UK sending side), approving MTO licence or registration.Registration regime is to be considered for a starting/trial periodThe registration regime is covering up to 36 m € of fund transferred per year (average of 3 m€ per month), which should be adequate for a starting/ trial period.The registration procedure is simplifying the authorisation procedure for money transferbusiness (sending side). In the UK:• FSA decision is within 3 months from application.• The refusal by the competent authority (FSA) for registration is restricted tolimited number of conditions precisely defined by law (such as head office in theUK, none of the PI managers should have been convicted for Money Launderingor financial offenses or crime, ..).• In case of refusal (registration and licence) a warning notice is given includingreasons for refusal and a possibility offered to present a second applicationwithin one month.• In addition there is a possibility to contest a final refusal through FinancialServices and Markets Tribunal, which is an Independent judicial body.If after the starting/ trial period, the threshold of the average of 3 m € of fund transferred permonth is over passed, then it is possible to adapt the registration status to a licence typethrough FSA.Different regulation constraints are to be considered by MTOCustomer due diligence procedures should be applied at appropriate times on a risk-sensitivebasis:• Customer identification is generally collected through the presentation andstorage of information from a valid ID.• A copy of the customer references and identification must be kept for a period ofat least five years after the business relationship with the customer has ended.Risk management procedures need to be defined:Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -7

• Suspicious transactions must be identified and reported; the beneficial ownershould be identified, to the possible extend.• Risk management procedures should include a set of measures such as alimitation of the number, types and/or amount of transactions that can beperformed.On receiving side (OECS), regulation framework is evolvingA Money Service Bill is already approved by three OECS participating territories. Under thebill, a class A licence is necessary for MTO (non bank).A minimum of level of information must be provided for MSB application (non bank):business plan, MTO management organisation, description of system of control, inspectionand report, audit of financial statements (each year).It must be pointed out that FAFT regulation is applicable in OECS countries & territories. Froman historical perspective, on a worldwide analysis, FAFT regulation tends to be more strictlyobserved and monitored. Reports on ML/FT are more frequently requested.Customer identification is generally collected in OECS through the presentation and storageof information from a valid ID.A moderate approach: establishing a Payment Institution in the UKThree business approaches have been defined, corresponding to different regulatoryapproaches (see below). From a corresponding business analysis, the moderate approach hasbeen recommended, thus enforcing the recommendation to start smoothly, establishing a‘small’ Payment Institution in the UK, which requires a light registration procedure in senderside (UK).1Aggressiveapproach ‘’Boom’’ approach Launch immediately a full m-wallet proposition in theCaribbean Define precisely all services, other thanremittances, provided to finalcustomers Establish a firm in the UK with a PIstatus (or eventually Bank status)2Moderateapproach ‘’Think big, start small’’ Start with traditional m-bankingin sending and receivingcountries Start smoothly : establish a firm in theUK with ‘‘small PI’’ status3Conservativeapproach ‘’Follower’’ approach Wait for competitor move Identify a PSP as partner with in the UKthat can offer the serviceRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -8

1. IntroductionThe project defined aims at facilitating the transfer of funds from the Caribbean Diaspora inthe UK and Europe to recipients in the Caribbean while also reducing the costs of currenttransfers.The project addresses the issue of mobile banking across countries and regions. It aims atidentifying the key requirements for the set-up by a Caribbean-based entity of a mobileremittance business in European Union (most probably UK), specifically targeting theCaribbean Diaspora (OECS).We are examining on this report the legislative and regulatory requirements for theestablishment of a mobile money transfer business in 3 European countries (UK, France, andthe Netherlands) and one group of Caribbean countries (OECS).Different aspects of the regulatory environment are examined, especially those related to:• anti money laundering (AML),• issuance of electronic money,• status of international money transfer office,• international money transfer business organisation,• Know Your Customer (KYC) policies• Etc.Regulators involved in International Money Transfer regulation are coping with variousobjectives:• Ensure that Money Laundering regulation is efficiently in place, this means thatan appropriate regulation will favour money transfer via formal channels• Define an appropriate regulation for money transfer services• Ensure that regulation initiatives will favour development of money transferservices based on new technologies (particularly based on mobile) to lowerremittances costs.High remittance costs, often in the range of 10–20 percent of the principal amount beingremitted, are a major drain on remittance flows to developing countries. High costs alsoencourage remittance senders to use informal channels, which often appear to be lessexpensive. Average remittance costs are typically higher for small amounts of transfers.In this document we are identifying and analysing the regulation constraints.The document is divided in three main parts:• The money laundering regulation (Global, EU and OECS)• The money transfer regulation (EU, particularly in the UK, NL and France, andOECS)Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -9

• A line of conclusions regarding the main regulatory constraints for the project ofmobile money transfer from EU to OECS countries and territories.2. Money Laundering Regulation (MLR)Persons seeking to remit funds or transfer money to another person installed in a differentcountry can use a variety of means. They can utilize the transfer facilities of:• banks,• post offices,• dedicated money-transfer operators like Western Union or Moneygram,• or non-bank financial institutions like credit unions, microfinance institutions, andexchange offices.There are also unconventional providers including individual business people, traders, ethnicstores, travel agencies, gas stations, and courier and bus companies.Regardless of whether it is a primary or secondary business or whether the providers areknown to the authorities or not, they all provide the same service: they accept funds from thepublic on the basis that the funds will be paid out in another location.International money transfer and particularly remittance flows are an important source offunds for many countries and particularly within the Caribbean region. Money transfers tocountries with a large number of overseas migrants have become the largest component ofremittance flows. A large proportion of remittance flows goes through informal remittancesystems facing risks of misuse for money laundering (ML) or financing of terrorism (FT) similarto other financial sector activities.2.1 International regulation: FAFTA) FAFT/GAFIThe FATF (Financial Action Task Force on Money Laundering) 1 is an inter-governmental bodywhich sets standards, and develops and promotes policies to combat money laundering andterrorist financing. It currently has 33 members: 31 countries and governments and twointernational organisations; and more than 20 observers: five FATF-style regional bodies andmore than 15 other international organisations or bodies.1 GAFI in French (Groupe d’Action FInancière sur le blanchiment de capitaux)Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -10

France, UK and the Netherlands as well as the European Commission are FAFT members.The Caribbean Financial Action Task Force (CFATF) is a FAFT Associate member. The CFATF isan organisation of states and territories of the Caribbean basin which have agreed toimplement common counter-measures against money laundering. The Task Force wasestablished in the early 1990s.In November 1996, the CFATF entered into a Memorandum of Understanding which nowserves as the basis for the goals and the work of the CFATF. In this document, CFATFmembers agree to adopt and implement the FATF Forty Recommendations and to adopt andimplement any other measures for the prevention and control of the laundering of theproceeds of all serious crimes as defined by the laws of each Member.To meet these objectives, the CFATF engages in the following main activities:• Self-assessment of the degree of implementation of the FATF and CFATFrecommendations• Mutual evaluations of members• Co-ordination of, and participation in, training and technical assistanceprogrammes• Twice-yearly plenary meetings for technical representatives and an annualministerial council meetingOECS countries are CFATF members: Anguilla, Antigua & Barbuda, Dominica, Grenada,Montserrat, St. Kitts & Nevis, St. Lucia, St. Vincent & the Grenadines, British Virgin Islands.Other Caribbean countries are also CFATF members: Bahamas, Barbados, Belize, Bermuda,British Virgin Islands, Cayman Islands, Dominican Republic, Haiti, Jamaica, NetherlandAntilles, Trinidad & Tobago, and Turks & Caicos Islands.Caribbean countries have been listed by OECD for needing to improve their financialtransparency standards: Anguilla, Antigua & Barbuda, Barbados, Aruba, Bahamas, Bermuda,British Virgin Islands, Dominica, Grenada, Montserrat, Montserrat, Netherland Antilles, StKitts and Nevis, St. Lucia, St. Vincent & the Grenadines.International organizations that are FAFT observers are:• International Monetary Fund (IMF)• World Bank (WB)• European Central Bank (ECB)• Egmont Group of Financial Intelligence Units• Organisation for Economic Co-operation and Development (OECD)• World Customs Organization (WCO)Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -11

B) FAFT RecommendationsFAFT has issued 40 recommendations. Those Forty original recommendations were drawn upin 1990 as an initiative to combat the misuse of financial systems by persons laundering drugmoney.In 1996 the Recommendations were revised for the first time to reflect evolving moneylaundering typologies. The 1996 Forty Recommendations have been endorsed by more than130 countries and are the international anti-money laundering standard.The FATF Forty and Eight Special Recommendations have been recognised by theInternational Monetary Fund and the World Bank as the international standards forcombating money laundering (ML) and the financing of terrorism (FT).The FAFT recommendations consist in defining measures to be taken by financial institutionsand non financial businesses and profession to prevent Money laundering and TerroristFinancing.“Financial institutions” included in the FAFT regulation means any person or entity whoconducts as a business one or more defined activities or operations for or on behalf of acustomer. The transfer of money or value (point 4) is clearly defined as FAFT regulatedservice. This applies to money transfer in both the formal or informal sector e.g. alternativeremittance activity. But it does not apply to any natural or legal person that provides financialinstitutions solely with message or other support systems for transmitting funds.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -12

C) FAFT most important Recommendations on customer due diligence and record keepingFAFT most important recommendations on ML and FTType of FAFTFAFTMost important issuesrecommendations recommendationsCustomer duediligence andrecord keepingN°4/5/6/7/8/9/10/11/12And specialrecommendationVII- Secrecy laws shall not inhibit implementation of theFATF Recommendations.- Anonymous accounts should not be kept- Performs normal due diligence on cross-bordercorrespondent banking and other similar relationships- Countries should take measures to require financialinstitution and money remitters, to include accurateand meaningful originator information (name, addressand account number) on funds transfers and relatedmessages that are sent, and the information shouldremain with the transfer or related message throughthe payment chain (SR VII).- Above the applicable threshold : identifying thecustomer and verifying that customer’s identity usingreliable, independent source documents, data orinformation for occasional transactions- All necessary records on transactions, both domesticand international, should be kept for at least five years.- Records on transactions must be sufficient to permitreconstruction of individual transactions (including theamounts and types of currency involved if any)- Copies or records of official identification documentslike passports, identity cards, driving licenses or similardocuments should be kept for at least five years afterthe business relationship is ended.- Performance of risk management procedures : shouldinclude a set of measures such as a limitation of thenumber, types and/or amount of transactions that canbe performed and the monitoring of large or complextransactions being carried out outside of expectednorms for that type of relationship- The general rule is that customers must be subject tothe full range of KYC measures including therequirement to identify the beneficial owner.- However when adequate checks and controls existelsewhere in national systems, it is admitted to definesimplified or reduced KYC measures when identifyingand verifying the identity of the customer and thebeneficial owner.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -13

D) FAFT recommendations applied on Money Transfer and wire transfersFAFT Money or value transfer service definition 2 :Money or value transfer service (MVT service) refers to a financial service that accepts cash,cheques, other monetary instruments or other stores of value in one location and pays acorresponding sum in cash or other form to a beneficiary in another location by means of acommunication, message, transfer or through a clearing network to which the MVT servicebelongs. Transactions performed by such services can involve one or more intermediaries anda third party final payment.FAFT has issued special guidance or interpretative notes to its 40 recommendations. Some ofthem are particularly regarding Money Transfer:• Jurisdictions should require licensing or registration of persons (natural or legal)that provide money/value transfer services, including through informal systems;• Jurisdictions should ensure that money/value transmission services, includinginformal systems are subject to applicable FATF Forty Recommendations• Jurisdictions should be able to impose sanctions on money/value transferservices, including informal systems, that operate without a license orregistration and that fail to comply with relevant FATF Recommendations.Other guidance is particularly regarding Cross-border wire transfers.Cross-border wire transfers should be accompanied by accurate and meaningful originatorinformation. However, countries may adopt a minimum threshold (no higher than USD orEUR 1,000).For cross-border transfers below this threshold:• Countries are not obligated to require ordering financial institutions to identify,verify record, or transmit originator information.• Countries may nevertheless require that incoming cross-border wire transferscontain full and accurate originator information.• Information accompanying qualifying cross-border wire transfers must alwayscontain the name of the originator and where an account exists, the number ofthat account. In the absence of an account, a unique reference number must beincluded.This recommendation specifically deals with funds transfers, including those made throughMVT services. It should be noted that Special Recommendation VI covers the transmission of“value” as well as money (FAFT, June 2003).Information accompanying qualifying wire transfers should also contain the address of theoriginator. However, countries may permit financial institutions to substitute the addresswith a national identity number, customer identification number, or date and place of birth.2 International best practices, FAFT, June 2003Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -14

E) FAFT other important recommendationsFAFT other important recommendations on ML and FTType of FAFTFAFTMost important issuesrecommendations recommendationsReporting of N°13/15/16 - “Designated categories of criminal activities” are:suspicioustransactions and participation in an organised criminal group andracketeering;compliance terrorism, including terrorist financing; trafficking in human beings and migrant smuggling; sexual exploitation, illicit trafficking in narcotic drugs and psychotropicsubstances; illicit arms trafficking; illicit trafficking in stolen and other goods; corruption and bribery; fraud; counterfeiting currency; smuggling; extortion; forgery;- Suspected funds that have reasonable grounds toproceeds of a criminal activity are required by law orregulation, to be reported promptly to dedicatedfinancial intelligence unitOther measures N°17/18/19/20 - Countries should ensure that effective, proportionateand dissuasive sanctions, whether criminal, civil againstpersons failing to comply with FAFT recommendations- It is recommended that banks and other financialinstitutions and intermediaries would report alldomestic and international currency transactions abovea fixed amount, to a national central agencyMeasures to betaken with respectto countries thatdo not orinsufficientlycomply with FAFTrecommendationsN° 21/22 - Special attention to transactions with persons, andfinancial institutions, from countries which do not orinsufficiently apply FATF Recommendations.Regulation andsupervisionN°23/24/25- Non financial institutions (ex Money Transfer operator)should be licensed or registered and appropriatelyregulated, and subject to supervision or oversight foranti-money laundering purposes- International cooperation: competent authoritiesshould be able to conduct inquiries; and wherepossible, investigations; on behalf of foreigncounterparts.- Countries should not invoke laws that require financialinstitutions to maintain secrecy or confidentiality as aground for refusing to provide co-operation.F) FAFT recommendations applied on international money transfer (IMT)Anonymous transactions, weak record keeping, non-transparent settlement systems, and theabsence of regulatory oversight make remittance systems (especially informal ones)attractive vehicles for illicit activities. To address the ML/FT risks, FAFT issued a specialRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -15

ecommendation that countries put in place a regulatory framework by licensing orregistering money or value transfer providers and impose anti-money laundering andcombating the financing of terrorism (AML/CFT) requirements on those providers.However FAFT is advocating flexibility and having a suitable regulatory framework to bringthe informal remittance providers into the formal arena. FAFT officially considers that ‘‘to beeffective in addressing the problem of MVT services, regulations should not be overlyrestrictive. Regulation must allow for those who abuse these systems to be found andstopped, but it should not be so burdensome that it in effect causes the systems to go“underground”, making it even harder to uncover money laundering and terrorist financingthrough alternative remittance 3 ’’.One approach used by some authorities is to require money remitters to obtain a bankinglicense with the accompanying prudential conditions such as relatively high capitalrequirements. This approach on international money transfer flows and its effectiveness inkeeping money transfer flows within the formal sector are unclear at this time and willrequire further research 4 .Other approach is the guidelines proposed by IMF (International Monetary Fund) that consistin implementing in each country a minimum regulation framework:• an appropriate and proportionate regulatory system for money transfer seemsnot to require elements of a prudential regime generally applied to banks andother traditional financial institutions.• countries may choose between a registration or licensing regime depending ondomestic circumstances; the registration or licensing requirements should bebased on consultations with money transfer providers before regulations areenacted;• the AML/CFT requirements consist of minimum customer identification, tailoredrecord keeping and reporting of suspicious activity;• the regulatory framework should include background checks on Money transferoperators, on- and offsite monitoring, AML/CFT preventive programs andsanctions for noncompliance;The choice of regime seems to reflect the characteristics of national financial systems as wellas national approaches to financial regulation:• Registration systems have been adopted in countries with large numbers ofinformal remittance providers where the primary concern has been identifyingremittance providers.• Licensing systems have generally been adopted in countries with smaller informalremittance systems and where priority has been given to safeguarding theintegrity of the financial system.3 Best practices FAFT, June 20034 Approach to a regulatory Framework for Formal and Informal Remittance Systems, IMF 2005, p 13s.24Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -16

There are advantages to both the registration and licensing regimes:• The advantage of a registration system is its simplicity for identifying moneyremittance providers without imposing substantial upfront overhead costs on theauthorities and the money remitters; especially when the pre-screening processfor entering the business is minimal. Registration systems require an activefollow-up to ensure compliance with the supervisory and AML/CFT requirements.• The licensing system, in contrast, generally includes as part of the approvalprocess a due diligence on the integrity and capacity of the applicant to conduct aremittance business. It filters participation at the application stage to ensure thatthe remittance providers are suitable; this can reduce the level of complianceoversight afterwards. Because licensing puts more of the emphasis on theapplication phase, the initial requirements can result in fewer providers signingup.Summary of Registration an Licensing requirementsRegistrationLicensingRegulatory regimeSupervisory requirements:Background checksInternal procedures /business planCompliance MonitoringAML/CFT requirements:The key objective is toencourage remittanceproviders to identifythemselves and to commit tocomply with AML/CFTrequirements.This regulatory regimerequires all remittanceproviders to registerTo identify providers, noconsequences attachedAML/CFT preventivemeasuresBasic reporting requirementsand risk-based inspectionsOnly remittance providersthat can demonstrate theirability ex-ante to comply withregulatorydirectives, includingAML/CFT requirements, arepermitted to operate legallyFull fit-and-proper test.This generally includes anexamination for criminalrecordsDetailed business plan,including AML/CFTpreventive proceduresBasic reporting requirementsand regular onsiteinspectionsCustomer identification Required RequiredRecord keeping Required RequiredSuspicious transactionsreportingRequiredRequiredRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -17

Remittance providers are subject to two separate requirements: the supervisory instructionsand AML/CFT requirements with respect to their customers.FAFT RequirementsSupervisoryMoney transfer providerRegistrationBusiness plan /proceduresCompliance MonitoringAML/CFTrequirements:Customer identificationRecord keepingSuspicious transactionsreportingRegulatory implications- Fill registration form- Identification of managers (passport)- Issuance of certificate by regulator (renewable each year)- Name and addresses of agents or franchises- Name and address of any depository institution with whichthe Money transfer provider maintains a transaction account- Examination of criminal backgrounds- Planned business- Organizational structure- Internal controls- AML/CFT compliance procedures- Bank reference and a letter of guarantee- Information on all transactions (in and out)- Includes name of customers, nationality, passport number,amount transferred, beneficiary’s name and country- On site inspection for risk analysis (annual basis)- Reporting of annual turnover- Under FATF, as a minimum, remittance providers must verifythe identity of customers for transactions above a threshold of1,000€/$ when conducting wire transfers.- FATF recommendation 5 requires customer identification,including for occasional transactions.- Many remittances are issuing regular customers a loyalty cardfollowing the fulfilment of the initial identificationrequirements. This card is part of a system that has embeddedin it all the identity details of the customer, his address anddesignated beneficiaries. The benefits of this loyalty card tothe customer include not having to go through theidentification process for subsequent remittances and otherfinancial transactions. Frequent use of the card also attractsbonuses; for instance, the 5th remittance may be free ofcharge.- Period generally varies from 5 to 10 years- It is advised to impose a format- The standard requirement of AML/CFT regulation forsuspicious transaction reporting is applicable to internationalmoney transfer providers.- What is constituting suspicious activity for the purposes ofreporting remains unclear;- Determining a suspicious transaction with regards to anoccasional customer is difficult to apply.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -18

On a case by case basis, countries assign a variety of government agencies to supervise theproviders, such as customs and tax authorities, financial intelligence unit (FIU), central bankor local authorities.Comments on Customer identificationAppropriate documentation to identify customers is a strict regulatory requirement for allactivities in the financial sector, including for users of remittance services. This requirementposes an especially difficult problem for customers of remittance providers because many ofthem are migrant workers, including undocumented or illegal workers.FAFT precisely stated that according to its recommendation, it has been made clear thatinstitution (Money transfer operator) should be “identifying the customer and verifying thatcustomer’s identity using reliable, independent source documents, data or information”. FAFTstated that the documents commonly acknowledged and accepted for identification purposesare identity card, passport, drivers’ license or social security card. According to FAFT, ‘’it isimportant for the credibility of the system that failure to produce an acceptable form ofidentification will mean that a client will be rejected, the transaction will not be conductedand, under specific circumstances a suspicious transaction report will be made’’.Countries have used several ways to address the need for appropriate identification 5 . Onepractice is to set the cash threshold above which identification is needed at a level higherthan average remittance amounts. This requires knowledge of the remittance market on thepart of regulators. However, in case of suspicions of money laundering or terrorist financing,the full identification of the customer in question is needed regardless of the transactionamount.2.2 European Union regulation2.2.1 Third Money Laundering Directive (3 MLD) (Directive 2005/60/EC) 1 MLD and 2 MLDThe two predecessors of 3 MLD established the money laundering which ‘pressed intoservice’ banks and financial institutions in the fight against money laundering. The FirstMoney Laundering Directive was passed in 2001 (‘1 MLD’) 6 .This established the money laundering prevention regime. It applied, in the main, to banks(and other credit institutions), investment firms, insurance undertakings and bureaux dechange. It imposed an obligation on institutions to establish the identity of their customersand to report suspicious transactions. It also imposed a duty on institutions to maintainrecords of client identity and transactions. The focus of 1 MLD was the prevention oflaundering the proceeds of drug trafficking. 1 MLD was based on recommendations of theFinancial Action Task Force (FAFT).The Second Money Laundering Directive (‘2 MLD’) 7 extended the scope of the anti-moneylaundering regime by expanding the range of crimes the proceeds of which were covered by5 Approach to a regulatory Framework for Formal and Informal Remittance Systems, IMF 20056 Directive 91/308/EC.7 Directive 2001/97/EC.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -19

the regime, and expanding also the range of professions on whom compliance obligationswere imposed. These included lawyers, auditors, accountants, notaries and estate agents.In the wake of the rise in international terrorism, and in particular the attacks in the USA on9th September 2001, it has become quickly apparent that the financial system had been usedto enable terrorists to obtain funds to directly finance the preparation and perpetration ofthe crime, and generally as a means of support. Accordingly, there have been a series ofdirections from the European Commission to enable Member States to procure financialinstitutions to freeze accounts suspected of providing mechanisms for the financing ofterrorist activities. Accordingly, ‘clean’ money may be utilised to provide the finance for actsof terrorism. Money laundering is, therefore, focused on financial transactions post-datingthe crime.1 MLD and 2 MLD proceeded on the basis that the activities sought to be controlled were thedisposal of the proceeds after the offence was committed – namely to prevent the criminaland his accomplices from enjoying the fruits of the crime. However, the United NationsDeclaration on Terrorism Finance has proceeded on the basis that what is required in thecontext of international organised terrorism is a regime which strikes at the channelling offinance before the crime is committed.The drivers behind 3 MLD include recommendations of FATF, and the rise in internationalterrorism. In this regard, therefore, there has been a focus on the processing of moneybefore the commission of the offence, as opposed to its disposal after its commission 3 MLDA) Context of 3 MLDAfter the 9/11 terrorist attacks, the Financial Action Task Force (FATF) undertook the revisionof the international standards on the fight against money laundering, extending them toterrorist financing. This revision led to the 2003 Forty Recommendations and the SpecialRecommendations on terrorist financing. Although in pure legal terms the FATFrecommendations are not legally binding, members to the FATF made a commitment toincorporate this (global) standard into their legislation.Since the FATF Recommendations were substantially revised and expanded in 2003, mainMLD 3 objective is to be in line with that new international standard. MLD 3 focuses on thepreventive measures to avoid the misuse of the financial system in the EU by moneylaunderers and terrorist financiers.Similarly to the previous legislation, the third directive is a minimal harmonisation directive.On the one hand, in accordance with Article 5 8 , Member States may adopt stricter provisionsin the field covered by the directive. In accordance with Article 4 9 , Member States shouldextend the scope of the preventive measures contained in the directive to other professionsand categories of undertakings that although not included in the directive, engage inactivities which are particularly likely to be used for money laundering or terrorist financingpurposes.8 Article 15 of the first directive9 Article 12 of the first directiveRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -20

B) Concerned professionsProfessions concerned by 3 MLD are:• credit institutions (article 2)• financial institutions (article 2) : this includes (Article 3 § 1a) the activities ofcurrency exchange offices (Bureaux de change) and of money transmission orremittance offices;• more extensively to professions and to categories of undertakings, which engagein activities which are particularly likely to be used for money laundering orterrorist financing purposes (article 4)C) Transaction scope for customer due diligenceTransaction scopeCustomer due diligence is necessary if:• There is transaction amounting to EUR 15 000 or more (single operation orseveral linked operations) or more (Article 7).• In addition 3 MLD apply when there is a suspicion of money laundering orterrorist financing, regardless of any derogation, exemption or threshold (Article7).Scope including explicitly Internet3 MLD apply to those activities of the institutions and persons covered which are performedon the Internet (Recital 14).D) Customer due diligence (CDD) scopeCustomer due diligence scope on a regular basisTwo situations should be distinguished:• As regards new customers, CDD is to be conducted before the establishment of abusiness, professional or commercial relation or the execution of transaction.CDD procedures may however take place during the establishment of suchrelation if needed not to interrupt the “normal conduct of business” and providedthere is little risk of money laundering or terrorist financing 10 .• As regards existing customers, CDD procedures are to be conducted at anymoment, on a risk sensitive basis.It should be recalled that ongoing monitoring of the business, professional and commercialrelation is to be conducted at any moment in time and also forms part of the CDD obligations.10 See Article 9 paragraphs 1 and 2, respectively.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -21

Customer due diligence procedures should be applied at appropriate times on a risk-sensitivebasis. (article 9, §6).Customer identificationCustomer due diligence measures shall comprise (Article 8 § 1a): identifying the customerand verifying the customer's identity on the basis of documents, data or informationobtained from a reliable and independent source; There are no specific requirements onwhat type of document is mandatory.A copy or the customer references and identification must be kept for a period of at least fiveyears after the business relationship with their customer has ended (Article 30).As well, the supporting evidence and records of transactions (original documents or validcopies) must be kept for a period of at least five years following the carrying-out of thetransactions (Article 30).It must be pointed out that it is specifically mentioned that currency exchange offices andmoney transmission or remittance offices/providers must comply with this obligation (Article15 § 2).Where an institution or person covered by 3 MLD relies on a third party, the ultimateresponsibility for the customer due diligence procedure remains with the institution orperson to whom the customer is introduced (Recital 27).Beneficial ownerThe question of the beneficial owner is dealt with in much more detail in the new directivecompared to the first MLD.According to the third directive 11 , the beneficial owner should be identified while theverification of the identity is to be performed only to the extent possible, by taking risk-basedand adequate measures: ‘’Customer due diligence measures shall comprise: identifying,where applicable, the beneficial owner and taking risk-based and adequate measures to verifyhis identity so that the institution or person covered by this Directive knows who the beneficialowner is’’Indeed, it is left to Money transfer providers whether they make use of public records ofbeneficial owners, ask their clients for relevant data or get the information otherwise, takinginto account that the extent of such customer due diligence measures relates to the risk ofmoney laundering and terrorist financing, which itself depends on the type of customer ortransaction.In this context, 3 MLD contains a (complex) definition of “beneficial owner” in its Article 3 § 6.This definition provides in the first place a general catch-all clause stating that the beneficialowner means “the natural person(s) who ultimately owns or controls the customer and/or thenatural person on whose behalf a transaction or activity is being conducted”.Identifying a beneficial owner is not always easy. This is particularly so when individualbeneficiaries are yet to be determined and it is therefore impossible to identify an individual11 See Article 8(1)(b).Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -22

as the beneficial owner. In those cases, it would suffice to identify the “class of persons” whoare intended to be the beneficiaries.The directive also clarifies that the obligation to identify the beneficial owner does not applyin the cases when trust relationships are widely used in commercial products as aninternationally recognized feature of the comprehensively supervised wholesale financialmarkets 12 .The question of the beneficial owner is very much linked to the issue of the transparency oflegal entities. The European Commission is currently conducting further work on this issue.Enhanced customer due diligenceOn a risk-sensitive basis, enhanced customer due diligence measures are required (Article 13§ 1).The general principle set out in Article 24 is to refrain Money transfer provider from carryingout transactions with customer or beneficial known or suspected to be related to moneylaundering or terrorist financing until they have reported their suspicions to the competentauthority. The directive foresees in this case that, in conformity with national legislation,instructions may be given by a competent authority not to execute the transaction.However, as a derogation from the general prohibition to carry out suspected transactions,the entities subject to this directive may execute suspected transactions before informing thecompetent authorities where refraining from the execution is impossible :• ‘‘Money transfer providers are refrained from carrying out transactions whichthey know or suspect to be related to money laundering or terrorist financing untilthey have completed enhanced customer and/or transaction verifications’’(Article 24).• ‘‘If refraining a suspicious transaction is impossible for a technical reason orwhatever reason, Money transfer providers must immediately inform thededicated official Financial Intelligent Unit’’.Special measures to be taken when customer has not been physically present for identificationpurposesWhen the customer has not been physically present for identification purposes, adequatemeasures have to be taken to compensate for the higher risk:• for example by ensuring that the customer's identity is established by additionaldocuments, data or information;• or by requiring confirmatory certification by a credit or financial institution12 See Recital 13.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -23

3 MLD risk based approachCDD procedures should be conducted following a risk based approach. Indeed, the risk ofmoney laundering and terrorist financing is not the same in every case and persons cantherefore adapt the extent of the measures to apply depending on the type of customer,business relationship, product or transaction.In any event, legal entities subject to the directive should be in a position to demonstrate tothe authorities that the measures taken are appropriate in view of the risks faced. The riskbased approach is a key aspect of the 3 MLD and is facilitating its smooth application.E) Simplified customer due diligencePossibility to adapt implementing measures on low risk situationAlthough it has to go through a complicated process, the European Commission isempowered to adopt implementing measures, such as certain criteria for identifying low risksituations in which simplified due diligence could suffice, provided that they do not modifythe essential elements of the Directive.Repeated customer identification procedures can be avoidedIn order to avoid repeated customer identification procedures, leading to delays andinefficiency in business, it is appropriate, subject to suitable safeguards, to allow customers tobe introduced whose identification has been carried out elsewhere (point 27).e-money transfer not submitted to customer due diligenceElectronic money, as defined in Article 1 §3b of Directive 2000/46/EC are not submitted tocustomer due diligence to the following conditions (article 11 § 5d):• if the device cannot be recharged, the maximum amount stored in the device isno more than EUR 150,• if the device can be recharged, a limit of EUR 2500 is imposed on the totalamount transacted in a calendar year, except when an amount of EUR 1000 ormore is redeemed in that same calendar year by the bearer as referred in Article3 of e-money DirectiveF) Third party performance on CDDIn order to avoid repeated customer identification procedures, leading to delays andinefficiency in international business, 3 MLD allows financial institutions to rely on a thirdparty for performing the customer due diligence procedure.The third party, or introducer, shall be a person subject to 3 MLD (or to equivalentrequirements if from a third country). In those cases where a person relies on a third party,the ultimate responsibility for the customer due diligence procedure remains with the personto whom the customer is introduced (i.e. the Money transfer provider). Indeed, he alsoretains his own responsibility for all the requirements in the directive to the extent that hehas a relationship with the customer that is covered by the directive, including therequirement to report suspicious transactions and maintain records 13 .13 See recital 27.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -24

The third party performance is important, in particular in cross-border situations. However,its effective application depends of the willingness of Member States during theimplementation process, as Member States are not obliged to allow these procedures, whichare optional.G) Extension of 3 MLD obligations outside of EUIt is required that Money remittance provider (either bank or non bank) must require theirbranches and majority-owned subsidiaries located in third countries to apply measures atleast equivalent to those laid down in 3 MLD with regard to customer due diligence andrecord keeping.However in case the legislation of the third country does not permit application of suchequivalent measures, the competent authorities of the country, where the headquarter islocated, must be informed and coordinated action should be taken ‘‘to pursue a solution’’(article 31 § 2). In this case the Money remittance provider must take additional measures toeffectively handle the risk of money laundering or terrorist financing.This means that in any circumstances and in any country of doing its business, the Moneyremittance provider is responsible to take appropriate measure regarding customer duediligence and record keeping (article 31 § 3).This constraint imposed on Money remittance provider based in EU and having branches orsubsidiaries outside of EU is important to take into consideration, because if the providerdoes not comply with 3 MLD, there is a risk it may loose its license for its EU activities.H) Money remittance supervisionMoney remittance provider shall be licensed or registered in order to operate their businesslegally (article 36 § 1).Licensing implies that a supervisory body has inspected and sanctioned the particular Moneytransfer operator to conduct its business, based on standards or criteria set for it. Nationalauthorities have the power to refuse a license to those who failed a ‘fit and proper test’.I) Role of Financial Intelligence Unit (FIU)3 MLD confirms the growing importance of the FIUs in the fight against money launderingand terrorist financing.This is showed by the specific request contained in the directive to have an FIU as centralnational unit in place with adequate resources and able to have access, either directly orindirectly, to the necessary information, whether financial, administrative or related to lawenforcement that it needs to properly function 14 .2.2.2 European Regulation (EC) N° 1781/2006A) Context of the regulationRecognizing the importance of taking action to combat the financing of terrorism, theFinancial Action Task Force (FATF) has set the basic framework to detect, prevent, and14 See Article 21.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -25

suppress the financing of terrorism and terrorist acts. FATF member states, and their financialinstitutions throughout the world, are obliged to provide information on the parties involvedin payment orders.Regulation (EC) N° 1781/2006 is an EU regulation of 15 November 2006 on information onthe payer accompanying transfers of funds.The Regulation 1781 entered into force on 1 January 2007 and is directly applicable to allnatural and legal persons within the territory of the European Community whose businessincludes the provision of transfer of fund services.Since 1 January 2007, Regulation (EC) 1781/2006 has required the declaration of name,address and account number of the sender of any funds transferred to a financial institution(Money Transfer provider) that has its registered office in the EU. As a result, cross-borderpayment orders which do not contain this information may no longer be executed by banks inthe EU. The regulation has been modified to implement the special recommendation VII (SRVII) of the FATF into EU law and is part of the EU plan of action to combat terrorism.B) Regulation scopeIn order to ensure the transmission of information on the payer throughout the paymentchain, Regulation 1781 is imposing the obligation on Payment Service Providers (PSP) 15 tohave transfers of funds accompanied by accurate and meaningful information on the payer.Regulation 1781 lays down the rules on the information that has to accompany transfers offunds, concerning the payers of those funds, for the purpose of the prevention, investigationand detection of money laundering and terrorist financing. This means that the PSPs sendout payer information to payee PSPs, and check payer information from sending PSPsaccording to the rules of the Regulation. They shall only hand over such information if arequest is received from their relevant national money laundering and terrorist financingauthorities which relates to one of these concerns.When the payment service provider of the payer is located outside EU, enhanced customerdue diligence should be applied.The payment service provider of the payee should exercise special vigilance, assessing therisks, when it becomes aware that information on the payer is missing or incomplete, andshould report suspicious transactions to the competent authorities.Regulation 1781 applies to transfers of funds, in any currency, which are sent or received by aPSP established in the EU (Article 3 § 1).Complete information on the sender (payer) (Article 4)Payment service providers shall ensure that transfers of funds are accompanied by completeinformation on the sender. This especially applies when the PSP of the receiver (payee) islocated outside of the EU (Article7 § 1).Complete information on the sender consists of his name, address and account number:• The address may be substituted with the date and place of birth of the sender, hiscustomer identification number or national identity number.15 PSP = Payment Services Provider as defined by Payment Services Directive (PSD). PSP means anatural or legal person whose business includes the provision of transfer of funds servicesRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -26

• When the sender does not have an account number, the payment serviceprovider of the payer can substitute it by a unique identifier which allows thetransaction to be traced back to the sender.If a lack of information is detected by the PSP, this one should take appropriate action takingaccount a risk on money laundering. Such action should include rejecting the transaction orrequesting sender additional data.The PSP of the sender shall for five years keep records of complete information on the senderwhich accompanies transfers of funds.Way of derogation to complete information of sender accompanying transfers of funds(Article 6)When PSP of sender and PSP of receiver are both located in the EU, transfers of funds areonly required to be accompanied by the account number of the sender or a unique identifierallowing the transaction to be traced back to him.Possible agreements with non EU territories or countriesThe European Commission may authorise any Member State to conclude agreements, with anon EU country or territory, in order to allow for transfers of funds between that country orterritory and the Member State concerned to be treated as transfers of funds within thatMember State, thus allowing transactions to be accompanied only by sender account numberor unique identifier.To get such agreement, the non EU country or territory concerned must share a monetaryunion with the Member State concerned, form part of the currency area of that MemberState or have signed a Monetary Convention with the European Community and must alsorequire PSP under its jurisdiction to apply the same rules as those established underRegulation 1781 (Article 17).C) ExemptionsThere are three important exemptions to Regulation 1781:d) Conclusions• The Regulation 1781 shall not apply to transfers of funds carried out by means ofa mobile telephone or any other digital or Information Technology (IT) device,when such transfers are pre-paid and do not exceed EUR 150 (Article 3 § 4) 16 .• The Regulation 1781 shall not apply to transfers of funds carried out using acredit or debit card, provided that a unique identifier accompanies the transferallowing the transaction to be traced back to the payer (Article 3 § 2).• EU Member State can decide not to apply Regulation 1781 to transfers of fundsusing electronic money if the amount transferred do not exceed EUR 1 000(Article 3 § 3).16 This exemption is also valid in certain circumstances for post-paid transfers, if a unique identifieraccompanying the transfer of funds allows the transaction to be traced back to the sender within EURegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -27

EU Wire Transfers Regulation was coming into force in January 2007. It requires all transfersremitted to destinations outside the EU to have the identification of the sender verified andoriginator information (name, address or date and place of birth, account number or uniqueidentifier for non-account based transactions) to be sent along with the payment. Within theEU, verification documents will need to be kept for 5 years and produced within 3 days uponrequest.2.3 UK and Netherlands money laundering regulationThe regulation described is prior to PSD.2.3.1 UK money laundering regulationAll Money Service Business (MSBs) are required to comply with the UK’s Money LaunderingRegulations (this is including MTOs). This contains a number of requirements including:• Implementation of proper system and controls to prevent money laundering• Appointment of a nominated officer (often referred as a Money Launderingreporting Officer)• Staff training• Know your customer (KYC) and recordkeeping requirements (holding of recordsfor at least five years after the end of the business relationship)All MSBs are required to register with Her Majesty’s Customs and Excise (HMRC), part of HMTreasury. Main requested information is:• Name of business and address of each premises undertaking MSB activity• Name and address of each agents or franchises ; all those who control thebusiness and the nominated Money Laundering reporting Officer• Type of operated MSB• Statement of whether any of the managers hold a conviction for any moneylaundering offenceAn annual registration fee is requested for each premise (around £60).HMRC have the power to prosecute:• Up to two years of imprisonment: HMRC can also prosecute MSBs under theProceeds of Crime Act for more important money laundering offence, which cancarry up to 14 years of imprisonment• A fine of up to £5000 for each breach of the money laundering regulation. Thisfine generally comes after one warning letter issued by HMRCBanks providing remittance services are submitted, because of their banking statute, toregulations by the Financial Services Authority (FSA).FAFT evaluation Report on UKRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -28

A mutual evaluation report was performed in 2007 on FAFT compliance in the UK (no FAFTevaluation report were yet performed for France and the Netherlands).The evaluation report acknowledges that until date of evaluation, CDD, complete originatorinformation in case of money transfer need to be improved. Since that date CDD has beenimproved.FAFT mutual evaluation report on UK (Abstracts)Date of Evaluation June 2007The rating of compliance vis-à-vis the FATF Recommendations is made according to the fourlevels of compliance mentioned in the 2004 Methodology (Compliant (C), Largely Compliant(LC),Partially Compliant (PC), Non-Compliant (NC))Customer due diligence (5) Partially CompliantThere is no requirement in law or regulation to identify the beneficial owner or takereasonable measures to verify the identity of the beneficial owner, or to determine whoare the natural persons that ultimately own or control the customerSuspicious transaction Compliantreporting (13)Special attention for higherrisk Countries (21)SR VII Wire transfer rulesPartially CompliantThere is no requirement for financial institutions to give special attention tobusiness with countries which do not sufficiently apply FATF RecommendationsPartially CompliantIn terms of effectiveness, there are doubts about the current implementation of the veryrecent EU requirements, including the requirement to have in place effective risk-basedprocedures for identifying and handling wire transfers that are not accompanied bycomplete originator information, and about the existence of an effective compliancemonitoring of financial institutions.2.3.2 The Netherlands money laundering regulationAnti Money Laundering RegulationsThe Netherlands has ratified almost all relevant international conventions. It is member ofthe FATF (Financial Intelligence Task Force), of the Egmont Group, and has a FinancialIntelligence Unit, which is called MOT (Melding Ongebruikelijke Transacties).The legislative framework for criminalizing Money Laundering and Financing of Terrorism isfurther enhanced by the Acts of Terrorism. In the Netherlands there are several laws, whichdeal with combating money laundering. The crime of laundering money is penalised underthe Dutch penal code (Wetboek van Strafrecht) as fencing.Money laundering is a serious offence, with possible imprisonment of up to maximum fouryears in addition to the underlying crime. Next to the penalising of money laundering, theDutch Criminal Code and the Dutch Criminal Procedure Code (Wetboek van Strafvordering)can instruct the seizure and confiscation of assets derived from criminal activities, with theobjective of depriving criminals (including those who have laundered money) of the profit oftheir behaviour.Besides the Dutch Penal Code and the Dutch Criminal Procedure Code, there are somespecific anti-money laundering laws, dealing with the role of the financial system related tomoney laundering. Those laws mainly deal with the mandatory identification of customers offinancial institutions and the disclosure of “unusual” financial transactions.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -29

Know your customer rulesDutch regulation defined the Act on Customer Identification for Financial Services (Wetidentificatie bij financiële dienstverlening 1993).The most important provision of this Act is related with the obligation for financialinstitutions to check the identity of new customers, either natural persons or legal entities.Under this Act, financial institutions are defined as: banks, investment institutions, securitiesbrokers, investment managers, life insurance companies and life insurance agents, casinos,credit card companies and currency exchange offices and money transmitters.Furthermore, other professions, companies or institutions that are “particularly suitable formoney laundering purposes” can easily and quickly be brought under the scope of this Act:professional service providers like lawyers, real estate agents,The mandatory identification includes the obligation to register details relating to the identityof the customer. At least the following have to be registered:• the name and the address of the customer;• the nature, the number and the date and place of issue of the document used forthe identification;• the nature of the transaction;• specific information about the value of the goods deposited, a description of theaccount opened.Once the identity check is made, the financial institutions have to record the information andkeep it for at least five years after the transaction or after the end of the relationship with thecustomer. Before recording all this information, the financial institution has to check (ask)whether the customer acts as a principal or for a third party. In the latter case, the institutionhas to check and register both the identity of the appearing customer and of the third party.Despite existing exclusions of the mandatory customer identification, the identity check isalways requested in case of an “unusual transaction”, in which case a second anti-moneylaundering act is applied: the Act on the Disclosure of Unusual Transactions.Following the standard international regulation (see FAFT regulation) on “Customer DueDiligence for banks (CDD) and in line with the international trend of moving to a more riskbased control system, the DNB has introduced the Customer Due Diligence regulation in theNetherlands recently. According to this rule banks have to identify risky customers (forexample by making customers profiles).2.4 OECS countries money laundering regulationFAFT complianceParticular OECS countries in the years 2000 (2000 to 2004) have been listed on the FAFT’sNon Cooperative Country or Territory (NCCT list): Dominica, St Kitts and Nevis, St Vincent andthe Grenadines and Grenada.FAFT was particularly concerned by specific issues and asked for action to be taken on:• Lack of customer identification procedures and retention of records• Lack of requirement to report suspicious transactionsRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -30

• Weak regulation and supervision of offshore entities• Permission given by law to non-residents to own and operate an offshore bankwithout any requirement of identificationActions were taken by concerned governments such as promulgation of Money Laundering(Prevention) Act and the setting of Money Laundering Supervisory Authority (MLSA) andaccordingly the concerned OECS countries have been removed from the NCCT list.Mutual evaluation Reports on FAFT regulation was performed in 2008 on two OECS countries:St Lucia and Antigua and Barbuda and on Barbados (Non OECS country).Evaluation reports insisted that the level of FAFT compliancy was still to be improved, forinstance as regards the Customer Due Diligence (CDD).They also pointed out that there was no legislative requirement for financial institutions,including money remitters to include accurate and meaningful originator information onfunds transfers and related messages.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -31

FAFT Mutual evaluation Report (Abstracts)St LuciaAntigua and(OECS) Barbuda (OECS)Barbados(non OECS)The rating of compliance vis-à-vis the FATF Recommendations is made according to the fourlevels of compliance mentioned in the 2004 Methodology (Compliant (C), Largely Compliant(LC),Partially Compliant (PC), Non-Compliant (NC))Date of Evaluation December 2008 June 2008 July 2008Customer due diligence (5)Suspicious transactionreporting (13)Special attention for higherrisk Countries (21)SR VII Wire transfer rulesNon CompliantThe MLPA is significantlydeficient. These essentialcriteria are required to be inthe law and are not, andeven where they are, it doesnot adequately meet thestandard of the essentialcriteria.No legal obligation toundertake CDD abovedesignated threshold,carrying out occasional wiretransfers covered by SR VII,where the financial institutionhas doubts about theveracity of the adequacy ofpreviously obtainedcustomer identification data.Non CompliantEssential criteria 13.1 -3should be in law / regulations- this is not the case.Non CompliantThere is no requirement forfinancial institutions to givespecial attention tobusiness with countrieswhich do not sufficientlyapply FATFRecommendationsPartially CompliantThere is no enforceablerequirement to ensure thatminimum originatorinformation is obtained andmaintained for wire transfers.Partially CompliantLegislative requirementfor CDD measures wherethere is suspicion ofmoney laundering or thefinancing of terrorism islimited to occasionaltransactions.Partially CompliantThe requirement for FIsto report suspicioustransactions is linked onlyto transactions that arelarge, unusual, complexetc.Non CompliantThere are no measuresthat require competentauthorities to ensure thatfinancial institutions arenotified about AML/CFTweaknesses in othercountries.Non CompliantRequirements for wiretransfers are notenforceable inaccordance with theFATF Methodology.Partially CompliantThere are no legislativerequirements for financialinstitutions to verifyindividual customer identityusing reliable, independentsource documents, data orinformation (identificationdata);No CDD measures wherethe financial institution hasdoubts about the veracity oradequacy of previouslyobtained CDD;Largely compliantNo requirement in law orregulations to reportattempted or abortedsuspicious transactions.Non CompliantThere are no measures thatrequire competentauthorities to ensure thatfinancial institutions arenotified aboutAML/CFT weaknesses inother countries.Partially CompliantStand alone moneyremittersare not subject toany regulatory oversightexcept for exchange controlpurposes.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -32

3. Money transfer regulation3.1 European Union regulation3.1.1 Payment Services Directive (PSD)A) Context of the regulationIn December 2005, the European Commission published a proposal for a Directive onpayment services, the Payment Services Directive (PSD) in the internal market (Directive2007/64/EC). This Directive aims to address concerns about the current state of paymentsystems in the EU. The European Commission believes fragmented national systems and thelack of an internal market in payment services are having a negative impact on the EU’scompetitiveness.Although the EU exists since 1992 and even if citizens and companies can pay with Euro since1999, until the transposition of the PSD, European countries have had very different nationalpayment services. For instance, direct debits cannot be used from a country to another. Areal unified payment market should enable all European citizens and companies to use everymeans of payment as simply and safely as in their own country.PSD aims to tackle these concerns in two ways:• First, it harmonises the legal and technical requirements relating to the provisionof payments services and introduces a new EU-wide licensing regime for“Payment Institutions”. These are businesses which offer payment services butwhich are not licensed as banks or e-money issuers. They will be subject to alower level of regulation reflecting the risks involved in the provision of paymentservices, which are lower than those of deposit taking institutions like banks. PSDis also harmonizing consumer protection and the rights/obligations for paymentproviders and users.• Secondly, it provides the legislative underpinning for the creation of a Single EuroPayments Area (SEPA). The creation of SEPA is intended to enable cross-borderpayments in Euro to be made as cheaply, easily and efficiently as paymentswithin Member States.It is well worth noting that although the PSD is a maximum harmonization Directive, certainelements still allow for different options/choices by individual countries.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -33

B) Payment Services included in PSDPSD is precisely defining the payment services covered by it:Cash payment andcash withdrawals ona payment accountExecution ofpaymenttransactionsPayment ServicesMoney remittancesPayment through telecom Operations requiredfor operating apayment account PSD is defining whata payment accountis (as opposed tobank account) Including transfersof funds and fundscovered by a credit line Execution of directdebits, includingone-off direct debits, Execution ofpaymenttransactions througha payment card or asimilar device, Execution of credittransfers, includingstanding orders Direct Debit, CreditTransfer Cards No e-money in theimmediate (seeElectronic MoneyDirective) Issuing and/oracquiring of paymentinstruments Including ATMservices and billpayment services Remittances : moneyTransfer in P2P Execution of paymenttransactions provided bymeans of anytelecommunication, digitalor IT device. Thetelecommunication, ITsystem or networkoperator is acting only asan intermediary betweenthe payment service userand the supplier of thegoods and services.The payment transactions executed by the telecommunication operators (column 4), sincethey do not act exclusively as an intermediary (for instance, also sellers of digital productspurchased such as ringtones and games ...), are excluded of the PSD scope. The decision notto incorporate this type of operations in the DSP is due to the awareness of Europeanauthorities on the development of digital products and their place in the economic activity,including the risk on the profitability of some business models in case of raising legalconstraints especially prudential requirements in an inappropriate manner.Money remittance is a service included and is defined in the PSD as payment service wherefunds are received from a payer, without any payment accounts being created in the name ofthe payer or the payee, for the sole purpose of transferring a corresponding amount to apayee or to another payment service provider acting on behalf of the payee, and/or wheresuch funds are received on behalf of and made available to the payee.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -34

C) Main content of the PSD- Title I -Subject matter, scopeand definitions- Title II -Payment ServiceProvidersscope and definitions- Title III -Transparency of conditionsand information requirementsfor payment servicesscope and definitions- Title IV -Right and information inrelation to the provisionand use of paymentservices Definitions Scope (payment inEU, electronicpayment (asopposed to paper) Definition ofincluded paymentservices (asdefined in PSDappendix) Payment ServicesProvider (PSP)scopeIncludingPaymentInstitutions status(minimum requiredcapital…) Pre-contractualInformation Contract of a provisionof payment services Focus on thetransparency ContractualFramework= Conduct of Business((COB (COB) Rights andobligations Payment,execution delay ContractTermination Proves,responsibilities CustomerrefundNew Conduct of Business (COB) obligations are defined under PSD, covering transparency ofconditions and information requirements for payment services. Payment Service Provider(PSP) must provide information to the sending customers before and after the transactionhas taken place, which varies on depending on whether the transaction is a single transactionor part of on going business relationship.Under COB rules, PSP must prior to the transaction provide: a unique transaction ID, anindication of maximum execution time, a break down for charges and exchange rate appliedfor the transaction.The COB requirements only apply to transactions in euro or another Member State currencyentirely within the EU (both PSP of sender and receiver are within EU) and apply to all PSP. SoCOB requirements, only apply to ‘‘two legs transactions’’, that is to say to transaction thatboth begin and end in the EU (for instance UK to Spain).However they are discussion within EU governments so that COB obligations would beimplemented into national law on a voluntary basis, so as to cover all types of transactionscoming out from EU: both ‘one leg’ and ‘two legs’ transactions.D) Relation between PSD and e-money DirectiveThe Electronic Money Directive was adopted in May 2000 in order to harmonize thesupervisory and regulatory framework of electronic money in Europe and thereby contributeto the creation of a single market.Indeed, e-money is a means of payment; therefore, the actors and operators distributing e-money should be classified as Payment Service Provider and thus should belong to the scopeof the PSD.However, the PSD is presently excluding e-money and e-money institutions when acting as e-money issuer from its regulatory scope. However, e-money institutions are authorised tooffer payment services as defined by the PSD (other than e-money) and therefore areconsidered as Payment Service Providers.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -35

However the European Commission has expressed its willing to merge the two Directives in anext step, so that, in the future, e-money should be included in the PSD framework.E) Payment Services Providers (PSP)Six different categories of PSP are concerned by the PSD. The three main categories of PSPare:• Credit Institutions (Banks) which take deposits from users, that can be used to fundpayment transactions and which should continue to be subject to the prudentialrequirements under Directive 2006/48/EC.• Electronic Money Institutions which issue electronic money, that can be used to fundpayment transactions and which should continue to be subject to the prudentialrequirements under Directive 2000/46/EC.• Payment Institutions is a new category of PSP with rules and obligations defined inthe PSD. Payment institutions enjoy a specific prudential regime which is differentfrom that of electronic money institutions and credit institutions. However, paymentinstitutions are not allowed to issue electronic money. They are also prohibited fromaccepting deposits from payment service users and are allowed to use funds receivedfrom payment service users only for providing the payment services as defined in thePSD.Main obligations of the PSP issuing a payment instrumentObligations of the PSP issuing a payment instrument are:• To make sure that the personalised security features of the payment instrumentare not accessible to parties other than the payment service user• To refrain from sending an unsolicited payment instrument, except where apayment instrument already given to the payment service user is to be replaced;• To ensure that appropriate means are available at all times, to enable thepayment service user to make a notification or request unblocked• To prevent all use of payment instruments after notification by userMain Responsibilities of the PSP• In the case of unauthorised payment transactions :1. the payer's payment service provider refunds to the payer immediately theamount of the unauthorised payment transaction2. further financial compensation may be determined• If the user denies having authorised an executed payment transactions, the PSPneeds to prove that the payment transaction was authenticated, accuratelyrecorded in the payment accounts and not affected by a technical breakdown orsome other deficiencyRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -36

In the case of user mistake (unique identifier incorrect…), the PSP is notresponsible. However the payer's PSP shall make reasonable efforts to recoverthe funds involved in the payment transaction.User’s rights and obligations concerning PSP• Information and use- Information must be given to PSP in case of loss, theft, misappropriation orother unauthorized transaction- Disputing of transaction by user possible within 13 months following itsestablishment• User responsibilities- He supports up to 150 Euros in losses if he did not follow the safetyprecautions and use,- He takes the entire loss, if he acted fraudulently or due to gross negligence orintentionally. If he has acted diligently and in compliance with the rules, it ispossible to reduce the amount of liabilities- Do not support any loss after the notificationInformation provided by PSPRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -37

Preliminary Information Information provided tothe payment service user :(a) a specification of theinformation or uniqueidentifier thathas to be provided by thepayment service user inorder fora payment order to beproperly executed;(b) the maximum executiontime for the paymentservice to be provided;(c) all charges payable bythe payment service user tohispayment service providerand, where applicable, thebreakdown of the amountsof any charges;(d) where applicable, theactual or referenceexchange rate to be appliedto the payment transaction. Information and conditions provided to the payment service user :1. on the payment service provider :(a) the name of the payment service provider, the geographical address of itshead office and, where applicable, the geographical address of its agent orbranch established in the Member State where the payment service is offered,and any other address, including electronic mail address, relevant forcommunication with the payment service provider; and(b) the particulars of the relevant supervisory authorities and of the registerprovided for in Article 13 or of any other relevant public register of authorisationof the payment service provider and the registration number, or equivalentmeans of identification in that register;2. on use of the payment service:(a) a description of the main characteristics of the payment service to beprovided;(b) a specification of the information or unique identifier that has to be providedby the payment service user in order for a payment order to be properlyexecuted;(c) the form of and procedure for giving consent to execute a paymenttransaction and withdrawal of such consent ;(d) a reference to the point in time of receipt of a payment order and the cut-offtime, ifany, established by the payment service provider;(e) the maximum execution time for the payment services to be provided; and(f) whether there is a possibility to agree on spending limits for the use of thepayment instrument ;3. on charges, interest and exchange rates:(a) all charges payable by the payment service user to the payment serviceprovider and, where applicable, the breakdown of the amounts of any charges;(b) where applicable, the interest and exchange rates to be applied or, ifreference interest and exchange rates are to be used, the method of calculatingthe actual interest, and the relevant date and index or base for determiningsuch reference interest or exchange rate; and(c) if agreed, the immediate application of changes in reference interest orexchange rate and information requirements related to the changes;4. on communication:(a) where applicable, the means of communication, including the technicalrequirements for the payment service user's equipment, agreed between theparties for the transmission of information or notifications under this Directive;(b) the manner in and frequency with which information under this Directive isto be provided or made available;(c) the language or languages in which the framework contract will beconcluded and communication during this contractual relationship undertaken;and

(b) if agreed, the conditions under which the payment service provider reservesthe right to block a payment instrument;(c) the liability of the payer, including information on the relevant amount;(d) how and within what period of time the payment service user is to notify thepayment service provider of any unauthorised or incorrectly executed paymenttransaction as well as the payment service provider's liability for unauthorisedpayment transactions;(e) the liability of the payment service provider for the execution of paymenttransactions; and(f) the conditions for refund;6. on changes in and termination of framework contract:(a) if agreed, information that the payment service user will be deemed to haveaccepted changes in the conditions, unless he notifies the payment serviceprovider that he does not accept them before the date of their proposed date ofentry into force;(b) the duration of the contract; and(c) the right of the payment service user to terminate the framework contractand any agreements relating to;

SinglePaymentTransactionInformationfor the payerSingle PaymentTransactionInformation for thepayeePayment transactionscovered by aframework contractInformation for thepayerPayment transactionscovered by aframework contractInformation for thepayeeInformation during payment transaction Immediatelyafter receipt of thepayment order,the payer's PSPshall provide :(a) a referenceenabling the payerto identify thepaymenttransaction and,where appropriate,informationrelating to thepayee;(b) the amount ofthe paymenttransaction in thecurrency used inthe paymentorder;(c) the amount ofany charges forthe paymenttransactionpayable by thepayer and, whereapplicable, abreakdown of theamounts of suchcharges;(d) whereapplicable, theexchange rateused in thepaymenttransaction by thepayer's paymentservice provider ora referencethereto, whendifferent from therate provided, andthe amount of thepaymenttransaction afterthat currencyconversion; and(e) the date of Immediately after theexecution of thepayment transaction, thepayee's PSP shallprovide :(a) the referenceenabling the payee toidentify the paymenttransaction and, whereappropriate, the payerand any informationtransferred with thepayment transaction;(b) the amount of thepayment transaction inthe currency in which thefunds are at the payee'sdisposal;(c) the amount of anycharges for the paymenttransaction payable bythe payee and, whereapplicable, a breakdownof the amount of suchcharges;(d) where applicable, theexchange rate used inthe payment transactionby the payee's paymentservice provider, and theamount of the paymenttransaction before thatcurrency conversion;and(e) the credit value date. After the amount of anindividual paymenttransaction is debited thepayer's PSP shall provide:(a) a reference enablingthe payer to identify eachpayment transaction and,where appropriate,information relating to thepayee;(b) the amount of thepayment transaction in thecurrency in which thepayer's payment account isdebited or in the currencyused for the paymentorder;(c) the amount of anycharges for the paymenttransaction and, whereapplicable, a breakdownthereof, or the interestpayable by the payer;(d) where applicable, theexchange rate used in thepayment transaction by thepayer's payment serviceprovider, and the amountof the payment transactionafter that currencyconversion; and(e) the debit value date orthe date of receipt of thepayment order. A framework contractmay include a conditionthat the information is to beprovided or made availableperiodically at least once amonth and in an agreedmanner which allows thepayer to store andreproduce informationunchanged. After the execution of anindividual paymenttransaction, the payee'sPSP shall provide:(a) the reference enablingthe payee to identify thepayment transaction and,where appropriate, thepayer, and any informationtransferred with thepayment transaction;(b) the amount of thepayment transaction in thecurrency in which thepayee's payment accountis credited;(c) the amount of anycharges for the paymenttransaction and, whereapplicable, a breakdownthereof, or the interestpayable by the payee;(d) where applicable, theexchange rate used in thepayment transaction by thepayee's payment serviceprovider, and the amountof the payment transactionbefore that currencyconversion; and(e) the credit value date. A framework contractmay include a conditionthat the information is to beprovided or made availableperiodically at least once amonth and in an agreedmanner which allows thepayee to store andreproduce informationunchanged.

Derogation from information requirements for low-value payment instruments and electronic moneyDerogation is granted for payment instruments and electronic money which concern only individualpayment transactions that do not exceed EUR 30 or that either have a spending limit of EUR 150 orstore funds that do not exceed EUR 150 at any time.The PSP shall provide the payer only with information on the main characteristics of the paymentservice, including the way in which the payment instrument can be used.After the execution of a payment transaction, the PSP shall provide only a reference enabling thepayment service user to identify the payment transaction, the amount of the payment transaction,any charges and/or, in the case of several payment transactions of the same kind made to the samepayee, information on the total amount and charges for those payment transactions.SurchargingIn the PSD, surcharging is possible upon PSP decision:“The payment service provider shall not prevent the payee from requesting from the payer a chargeor from offering him a reduction for the use of a given payment instrument’’.However, Member States may forbid or limit the right to request charges taking into account theneed to encourage competition and promote the use of efficient payment instruments. »However, each country can regulate or prohibit the surcharging in accordance with its national laws.A reasonable and proportionate use of surcharging is legitimate under PSD. France expressedopposing to this practice. The UK has expressed its interest to it.F) Payment Institutions (PI)Specificities of Payment Institutions (PI)• Payment institutions hold only payment accounts used exclusively for paymenttransactions. The receipt of funds is not a receipt for deposit.• Payment institutions are not subject to the same specification than that applying tocredit institutions. They are authorized to engage in other activities (hybrid PI). Thecompetent national authorities may require these "hybrid" Payment institutions to set updedicated entity to separate their payments business to reduce this risk.• Payment institutions may also outsource part of their payment services to "agents", forinstance for distribution purpose. In addition, one agent may be delegated on behalf ofdifferent payment institutions. The agent is under the control of the Payment Institution.• Therefore, in addition to the provision of payment services listed previously, paymentinstitutions are authorized to engage in related activities, or just accessories, such as:- the provision of operational and closely related ancillary services such as ensuring theexecution of payment transactions, foreign exchange services, safekeeping activities,and the storage and processing of data; »- the operation of payment systems,- any other business activities, other than the provision of payment services.Authorization is mandatory, if PI executes more than EUR 3 million in payment transactions a monthor wishes to ‘‘passport’’ their services into one or more EU countries. Otherwise they will not besubject to the authorization requirements. Smaller providers that meet the waiver criteria will onlyhave to register (to FSA in the UK). In the UK they will become a ‘small’ payment institution.Constitution of a Payment InstitutionFor money remittances services, minimum initial capital required is EUR 20 000.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -41

An application shall besubmitted with thefollowing:(a) a list operations, settingout in particular paymentservices envisaged;(b) a business planincluding a forecast budgetcalculation for the firstthree financial years ;(c) evidence that thepayment institution holdsinitial capital;Services Capital Method of calculation Money remittances Execution of paymenttransactions made tothe telecommunication,IT system or networkoperator, acting only asan intermediarybetween the paymentservice user and thesupplier of the goodsand services.20 000€50 000€ Method A : At least10 % of its fixedoverheads of thepreceding year Method B :Payment volumeduring the previousyear, divided by 12,multiplied by apercentage rangingfrom 4% to 0.5% Payment institutionwhich providessupplementary paymentservices : protection funds byanother PSP they shall not be mixedat any time with thefunds of any natural orlegal person other thanpayment service userson whose behalf thefunds are held When funds are still

safeguarding paymentservice users' funds;(e) a description of theapplicant's governancearrangements and internalcontrol mechanisms ;(f) a description of theinternal controlmechanisms (to complywith obligations in relationto money laundering andterrorist financing);(g) a description of theapplicant's structuralorganisation, a descriptionof the intended use ofagents and branches anda description ofoutsourcing arrangements,and of its participation in anational or internationalpayment system;(h) the identity of personsholding in the applicant,directly or indirectly,qualifying holdings;(i) the identity of directorsand persons responsiblefor the management of thepayment institution and,where relevant, personsresponsible for themanagement of thepayment services activitiesof the payment institution(good reputation,appropriate knowledge,experience);(j) where applicable, theidentity of statutoryauditors and audit firms;(k) the applicant's legalstatus and articles ofassociation;withdrawals from apayment account and,for both, operationsrequired for operating apayment account. Execution of paymenttransactions, includingtransfers of funds on apayment account andexecution of paymenttransactions where thefunds are covered by acredit line for apayment service user:- execution of directdebits, including oneoffdirect debits,- execution ofpayment transactionsthrough a paymentcard or a similardevice,- execution of credittransfers, includingstanding orders. Issuing and/oracquiring of paymentinstruments.125000€according to thepayment serviceconcerned Method C:Revenues in theprevious year,multiplied by amultiplication factorranging from 10% to1.5% depending on theslices, multiplied by afactor of 0.5 to 1according to paymentservices concerned.Nevertheless ownfunds calculatedaccording to Method Cshall not fall below 80% of the average of theprevious three financialyears for the relevantindicatorinstitution or invested insecure, liquid low-riskassets; they shall be insulatedin the interest of thepayment service usersagainst the claims ofother creditors of thepayment institution, inparticular in the event ofinsolvency; they shall be coveredby an insurance policy orsome other comparableguarantee from aninsurance company or acredit institution, whichdoes not belong to thesame group as thepayment institution itself; If a part of those fundsis to be used for futurepayment transactionswith the remainingamount to be used fornon-payment services,that part of the funds tobe used for futurepayment transactionsshall also be subject tosome requirements Possibility of extensionto Payment Institutionsonly providing paymentservices The Member Statesmay also limit suchsafeguardingrequirements to funds ofthose payment serviceusers whose fundsindividually exceed athreshold of EUR 600.

G) The European passportThe passport system is based on the system of mutual recognition of approvals between MemberStates:• Each PSP approved and supervised in his State of origin is intended to offer its services inother EU countries• But it can only provide services that have been approvedThere are 3 methods for a PSP registered in one EU country to expand its operations in one or morecountries with EU:• Establishing a subsidiary in another Member State: the approval must be requested fromthe competent authority of the country concerned.• free establishment of a branch• the free serviceMETHODS DEFINITIONS LEGAL REGIMESUBSIDIARYBRANCHIndependent legal personPlace of business other than the head office,which is a part of a payment institution, whichhas no legal personality and which carries outdirectly some or all of the transactions inherentto the business of a payment institution; all theplaces of business set up in the same MemberState by a payment institution with a headoffice in another Member State shall beregarded as a single branchLaw of thecountry ofestablishment ofthe subsidiaryFree establishmentin EUAGENTNatural or legal person which acts on behalf ofa payment institution in providing paymentservicesFree serviceRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -44

I) Specific clarifications regarding money remittance in the PSDPSD is providing specific clarifications regarding money remittance in its introductory paragraphs:• Remittance is a payment service falling into PSD regulation. As consequences, moneytransfer operators must be PSP and as such, could be registered as a Payment Institution.• Remittance services are subject to a maximum of one day execution time• Remittance services provided by Payment Institution are submitted to FAFT regulations.Being non FAFT compliant could prevent them for being registered as PaymentInstitution by competent authorities.• However remittance services when provided by Payment Institutions could benefit froma waiver and may be exempted of conditions for authorisation as payment institutions ifstrict requirements relating to the volume of payment transactions are met. So PSPunable to meet all FAFT regulation may nevertheless be treated (registered) as paymentinstitutions, if they are recording a low volume of transactions.Clarifications regarding money remittance as mentioned in the introductory paragraphs of PSD(7) Money remittance is a simple payment service that is usually based on cash provided by a payer toa payment service provider, which remits the corresponding amount for example via communicationnetwork, to a payee or to another payment service provider acting on behalf of the payee.(15) Given the desirability of registering the identity and whereabouts of all persons providingremittance services and of according them all a measure of acceptance, irrespective of whether theyare able to meet the full range of conditions for authorisation as payment institutions, so that noneare forced into the black economy and bring all persons providing remittance service within the ambitof certain minimum legal and regulatory requirements, it is appropriate and in line with the rationaleof Special Recommendation VI of the Financial Action Task Force on Money Laundering to provide amechanism whereby payment service providers unable to meet all those conditions may neverthelessbe treated as payment institutions.For those purposes, Member States should enter such persons in the register of payment institutionswhile not applying all or part of the conditions for authorisation. However, it is essential to make thepossibility of waiver subject to strict requirements relating to the volume of payment transactions.Payment institutions benefiting from a waiver should have neither the right of establishment nor thefreedom to provide services, nor should they indirectly exercise those rights when being a member ofa payment system.(43) In order to improve the efficiency of payments throughout the Community, all payment ordersinitiated by the payer and denominated in euro or the currency of a Member State outside the euroarea, including credit transfers and money remittances, should be subject to a maximum one-dayexecution time.(58) Money remittance is defined in this Directive as a payment service which requires anauthorisation for a payment institution or a registration for some natural or legal persons benefitingfrom a waiver clause under certain circumstances specified in the provisions of this Directive.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -45

3.1.2 Electronic Money DirectiveA) Context of the existing regulation (Directive 2000/46/EC)The EC E-Money Directive was published in September 2000. A review of the e-Money Directive hasbeen published in October 2008 with a proposal from the European Commission for adjustmentscontained in a new e-money Directive that still need to be definitely approved.Within the context of the rapidly evolving electronic commerce, the European Commission has beenwilling to provide a regulatory framework on electronic money thus avoiding hamperingtechnological innovation in particular. Therefore, the e-money Directive introduces a technologyneutrallegal framework that harmonises the prudential supervision of electronic money institutionsto the extent necessary for ensuring their sound and prudent operation and their financial integrity.B) Regulation scope of the existing e-money Directive (Directive 2000/46/EC)Definition of electronic money (e-money)Electronic money is considered has an electronic surrogate for coins and banknotes, which is storedon an electronic device such as a chip card or computer memory and which is generally intended forthe purpose of effecting electronic payments of limited amounts.‘Electronic money’ is defined (Article 3 § b) as a monetary value represented by a claim on the issuerwhich is:• stored on an electronic device• issued on receipt of funds of an amount not less in value than the monetary value issued• accepted as means of payment by undertakings other than the issuerA bearer of electronic money may, during the period of validity, ask the issuer to redeem it at pervalue in coins and bank notes or by a transfer to an account free of charges other than those strictlynecessary to carry out that operation. Redeemability should be understood to be at per value.Redemption of the full amount should always be free of charge.e-money issuerTwo kinds of institution are authorized to issue e-money:• Credit institutions (that is including banks), are allowed to issue and administer means ofpayment including electronic money and to carry on such activities within EU. Creditinstitutions, are regulated under the Capital Requirements Directive (2006/49).• E-money institution, are also allowed to issue e-money ; e-money institution are definedas issuing means of payment in the form of electronic moneye-money institutione-money institution is a specialized institution, other than credit institution, focused on issuance of e-money.e-money institution business activities are strictly restricted to issuing of electronic money and toclosely related financial and non-financial services such as the administering of electronic money bythe performance of operational and other ancillary functions related to its issuance, and the issuingand administering of other means of payment but excluding the granting of any form of credit.Electronic money institutions cannot have any holdings in other undertakings except where theseundertakings perform operational or other ancillary functions related to electronic money issued ordistributed by them.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -46

As explained before, starting November 2009, e-money institution would be considered as apayment service provider regulated under the new Payment Service Directive and as such entitled todeliver payment services as defined by the Directive.Initial capital of e-money institutionDefined minimum capital is EUR 1 million (Article 4 § 1).Own funds must be at minimum of 2 % of the financial liabilities related to outstanding electronicmoney.C) Waiver (exemption)On a national basis, competent authorities can eventually waive the application of the e-moneyDirective to electronic money institutions on the following conditions (article 8):• If total amount of financial liabilities related to outstanding electronic money issued by aparticular e-money institution never exceeds EUR 6 million• Or if e-money issued by a dedicated institution is accepted as payment only by a limitednumber of undertakings meaning for example there is a close financial or businessrelationship with the issuing institution such as a common marketing or distributionscheme• And if maximum e-money stored by one bearer never exceed EUR 150D) Modifications proposed by the European Commission (COM (2008)627) on e-money DirectiveThe European Commission has made a proposal in October 2008 to review the existing e-moneyDirective. It must be pointed out that this proposal still needs to be approved by the EuropeanParliament and by the Council and so is not yet published for application. However it is expected tobe published in 2009 or 2010.The Directive will apply to mobile operator (telecom, digital or information technology device) exceptif the operator does not act as an intermediary between the payment service user and the supplier ofgood and services.New definition of electronic money (e-money)'Electronic money' is defined (Article 2) as a monetary value as represented by a claim on the issuerwhich is stored electronically and issued on receipt of funds, for the purpose of making paymenttransactions. This definition is covering all situations where the payment service provider issues apre-paid stored value in exchange for fundsHowever e-money Directive should not apply to pre-paid instruments that can only be used in alimited way, either because they allow the holder to purchase goods or services only in the premisesof the issuer or within a limited network of service providers under direct commercial agreementwith a professional issuer, or because they can only be used to acquire a limited range of goods orservices. An instrument should be considered to be used within a 'limited network' if it can be usedonly for the purchase of goods and services in a specific store, a chain of stores or for a limited rangeof goods or services, regardless of the geographical location of the point of sale 17 . This exemptiondoes not apply to money transfer.17 Examples of such instruments are store cards, petrol cards, membership cards and public transport cards andmeal vouchersRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -47

This definition is more neutral from a technological point of view than the previous one and issuitable for future device or technology. It covers not only all the electronic money schemes availabletoday in the electronic market but also those which could be developed in the future.The issuance of electronic money does not constitute in itself a deposit-taking activity (Article 8).Clarification is given on the application of redeemability requirements (the possibility for a consumerto get back his electronic money at all times by credit transfer or in cash): when redemption ispartial, before termination of the contract, the issuer may charge the holder a fee which should becommensurate with the cost of the operation.Activities of e-money institutionAs per existing e-money Directive (200/46/EC), electronic money institutions are prohibited fromdoing any business other than the issuance of electronic money and closely related services. Thisrestriction of activities will be modified to a non-exclusivity approach: an e-money institution will beentitled to engage in payment services activities which are including money transfer operations(Article 8).They can also become hybrid e-money institution and be engaged in any business activities, providedit is in accordance with national laws (this is in accordance with PSD).New initial capital of e-money institutionInitial capital for e-money institution will be reduced to EUR 125 000 (vs. EUR 1 million). This willallow smaller businesses to enter the e-money market.New exemptionsOn a national basis, competent authorities can eventually waive the application of the e-moneyDirective to electronic money institutions on the following conditions: the average of the preceding12 months' total amount of payment transactions executed (including agent) does not exceed EUR 3million per month.Money launderingThresholds defined on article 11 § 5d of Directive 2005/60 are aligned in article 16 of new proposal ofe-money Directive.3.1.3 EU regulation on controls of cash entering or leaving the EUA) Context of the existing regulation (Regulation EC 1889/2005)EC regulation 1889 was approved in 2005 for application in June 2007 to prevent money laundering.B) Regulation scopeCash carried by any natural person entering or leaving the EU should be subject to the principle ofobligatory declaration to custom officer. The obligation to declare should be fulfilled upon enteringor leaving the EU. However, in order to focus the authorities' action on significant movements ofcash, only those movements of EUR 10 000 or more are subject to such an obligation.In consequences any natural person entering or leaving the EU and carrying cash of a value of EUR10000 or more shall declare that sum to the custom authorities of the Member State through whichhe is entering or leaving the EU (Article 3).Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -48

The declaration shall contain following details:• (a) the declarant, including full name, date and place of birth and nationality;• (b) the owner of the cash;• (c) the intended recipient of the cash;• (d) the amount and nature of the cash;• (e) the provenance and intended use of the cash;3.2 UK specific regulation3.2.1 e-money regulation in the UKThe e-money Directive was implemented in the UK in April 2002. It was implemented into UK law bymeans of secondary legislation in 2002, which amended the Regulated Activities Order to make e-Money issuance a regulated activity. Are concerned, The Financial Services and Markets Act 2000 18(Regulated Activities) (Amendment) Order 2002 and The Electronic Money (MiscellaneousAmendments) Regulations 2002.The Financial Services and Markets Act amended in March 2002 is confirming the following points:• Issuing electronic money is a specified kind of activity in the UK• A sum is not a deposit if it is immediately exchanged for electronic money.The Financial Services Authority (FSA 19 ) is the competent authority under the act and so e-moneyissuers are required to seek authorisation from the FSA in order to trade.Under FSMA, electronic money is defined: ‘‘as monetary value, represented by a claim on the issuer,which is:(a) stored on an electronic device;(b) issued on receipt of funds; and(c) accepted as a means of payment by persons other than the issuer;".It must be pointed out that on point b, the UK definition of e-money has removed from the originalDirective (200/46/EC) the fact that the e-money issued should be not less in value than the monetaryvalue issued. So in the UK it is possible to issue e-money at discount. The aim is to allow commercialflexibility to the issuer and allow him to promote the use of e-money and the condition is that thefloat held by the issuer must always be equal to the full value of the e-money in issue in case redeemis requested by bearer. FSA is entitled to define rules related to the issuing of e-money at discount.FSMA created a new category of authorised firm (the ELectronic Money Institutions = ELMIs), whichmay issue e-Money, but is subject to a fairly restrictive prudential regime. Authorised banks may alsoissue e-Money, subject to obtaining a Variation of Permission and certain conduct of businessregulations. Small issuers may apply for waivers from regulation and these are ‘’non-passportable’’ inother EU country.18 FSMA19 FSA is the regulator of all providers of financial services in the UK; Bank of England retains responsibility forsystemic riskRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -49

The UK Government pointed out on different occasion a “regulatory gap” between Money ServiceBusinesses and e-money issuers.The e-money Directive, as mentioned before, stipulates that waiver of some or all of its provisionsare possible when e-money issued by a dedicated institution is accepted as payment only by a limitednumber of undertakings. To clarify this point, UK e-money order has been amended to say that e-money in question needs to be accepted as a means of payment in the course of business by notmore than one hundred persons (Article 9C6b). 20Small e-money issuers can seek a waiver which exempts them from regulation by the FSA. Oncewaivered, these issuers must register with HMRC for supervision. This supervision is carried outunder the auspices of the MSB regime. The AML requirements put upon small e-money issuers istailored to the nature of their business as it is the case for e-money issuers regulated by the FSA.3.2.2 Money transfer regulation in the UKIn 2001, the UK Government established Money laundering Regulations and a supervisory regime forthe Money Service Business (MSB) sector to combat money laundering and terrorist finance. MSB inthe UK comprises Money Transmitters, Bureaux de Change and Cheque Cashers. Money transmittersare defined as entities transferring money from location to another without physically moving thecash. The transfer is usually to an overseas location using a variety of methods including wiretransfers, telephone and fax, bank transfers and offsetting liabilities. A fee is charged for the transferand profit made on currency exchange.The UK Government is willing to promote a competitive MSB sector that is properly protected fromthe risk of money laundering and terrorist financing purposes and to strengthen the sector’scompliance culture and becoming active partner in the fight against crime and terrorism.The government decided that, as it was a new regulatory system in a diverse sector, the new ruleswill be kept deliberately light touch with the primary focus on education and outreach.The government is following the philosophy of the Hampton Review Recommendations for BetterRegulation which is advocating entrenching the principle of self assessment throughout theregulatory system so that the burden of enforcement falls most on highest risk business and least onthose with best records of compliance.Until PSD will be effective, Money remittance in the UK is not a regulated activity as defined by theFinancial Services and Markets Act 2000 (FSMA). However e-money is regulated in the UK underFSMA.All firms undertaking MSB activities that are not regulated by the Financial Services Authority (FSA)(that is to say non bank) must register with HMRC. Prior to application of the Payment ServicesDirective (November 2009), HMRC is the supervisory body for dedicated MSBs, which include moneytransmitters, bureau de changes, and third-party check cashers.Under the Money Laundering Regulations, these businesses must apply for registration with HMRC.The only exceptions are businesses that already are regulated by the FSA, such as banks, buildingsocieties, and other financial institutions.Level of Compliance in the MSB SectorA survey conducted in the UK by HMRC between April-September 2005 found that 45 per cent ofMSBs visited by HMRC were judged non-compliant for failure to implement one or more of basic20 Implementation of the e-money directive in the UK, HM Treasury - march 2002Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -50

equirements of proper money laundering controls 21 .This has been considered by HM Treasury as a very high level of non compliant MSBs, with a result of‘‘damaging the sector’s reputation, fair competition, and the UK economy’’.MSBs registration procedures were in particular considered has to be reformed. Unlike other parts ofthe financial sector, there were until recently no means of refusing registration to applicants whowere not judged to be of sufficient honesty, integrity, reputation, competence or capability toundertake their money laundering obligations. Even those with a record of money laundering couldnot be refused entry into the market.Also, there was no mechanism for de-registration of Money transfer operators who, once registered,proved themselves to be of insufficient honesty, integrity, reputation, competence or capability toundertake their Money laundering regulation obligations.As a result the HM Treasury decided to increase the level of enforcement and supervision of the MSBsector so that the applied regulatory regime was becoming more risk-based, intelligence-led,targeted and proportionate.Evolution from a registration to a licensing system in the UKThere are broadly two approaches to defining the group of firms regulated:• One approach, registration, is by definition inclusive: money transfer operators need toadd their name to the supervisor’s list of firms in order to conduct their business• The other approach is licensing, which implies that a supervisory body has inspected andsanctioned the particular money operator to conduct its business, based on the fact thathe has met the standards or criteria set for it.In 2001, the UK Government introduced a new regulatory regime for Money Service Businesses. TheMSB supervisory regime was designed according to a “start low” principle, in an effort to ensure thatonly the minimum necessary level of implementation and enforcement would be required of thesector and supervisory authority. Alongside the establishment of the regime was the commitment toreview the regime to ensure that the “minimum necessary” level of enforcement and supervision, setfor the first phase of the regime’s evolution, continues to be sufficient to protect honest andlegitimate businesses whilst effectively targeting those who abuse the system.So the UK operated from 2001 until 2007 a registration system, which carries with it the advantagesof: minimal barriers to entry, regulator confidence that the majority of operators are listed, andconsequently, a reduced need to “police the perimeter” of the regime to make sure that there are nounregistered operators. Until recently HMRC inspection regime was mainly focused on AML controlsand could be considered as been light touch regime.As previously examined, the Third EU Money Laundering Directive is requiring the establishment of“fit and proper tests” for this sector in the UK.Since the application of the Directive, this has required a distinct move away from the currentregistration regime towards a licensing approach. In this case, the standard for inclusion in theregime is the passing of a ‘fit and proper test’.A licensing approach brings along with it benefits, particularly in terms of the prevention of criminalsfrom obtaining a controlling interest in MSBs and a general hardening of the environment forfinancial criminals. As a result of the 3rd Money Laundering Directive, HMRC was entitled the power21 Regulation of Money Service Business in the UK, HM Treasury - September 2006Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -51

to refuse a licence to those who failed the test, but they also have the power to remove moneyoperator licences where they have proven themselves to be unfit and improper after the fact.As a result a greater constraint due to regulation is coming in the UK to the Money Transfer sectorincluding for the smaller MTOs.PSD regulation in the UKThe PSD is due to be implemented across the EU with effect from 1st November 2009 and aims tosupport the creation of a single market in payment systems in accordance with the objectives of theSingle European Payment Area (SEPA). HM Treasury is responsible for the implementation of the PSDinto UK law.However, PSD should not put regulatory obligations on smaller firms much higher than existing,particularly on smaller UK money transfer companies, which will continue to be only subject toregistration.Under the new law, a range of payment services may be offered by a PSD authorised PaymentInstitution including: credit card business, debit card business, pre-paid card business, mobile phonepayments, direct debits, ATM services, bill payment service providers as well as money remittance.From 1 November 2009, for the first time, payment services will be subject in the UK to a single,regulatory regime, the Payment Services Regulations 2009 (PSRs). The Financial Services Authority(FSA) will be the new regulator for most aspects of the regime.In the UK, two other authorities have been given responsibilities under the PSRs:• the Office of Fair Trading will deal with competition issues relating to access to paymentsystems• and the Financial Ombudsman Service will provide a dispute resolution serviceAny Payment Institution which seeks an authorisation under the PSD in their own home state willthen be able to ‘passport’ its services to other EU countries. That means that, for example, subject tonotifying the regulator in another European country that they had been authorised under the PSD bythe UK Financial Services Authority (FSA is the designated UK regulator under the PSD), a UKcompany could then open a branch in, for example, France and offer payment services without theobligation to seek a further authorisation from the French financial regulator 22 .3.2.3 MSB environment in the UKIn the UK, Remittance Service Providers include banks, money transfer operators (MTOs), andinformal providers. Formal money transfers occur through the MTOs (cash to-cash), banks’ bank-tobanktransfers (account-to-account), postal service (cash-to cash), card value transfer, and informallymainly through people carrying cash. MTOs tend to offer lower rates than banks and target theregular and low-value-service customers while UK banks tend to market their remittance services tohigh-value account holders.MTOs have the largest market share for remittances originating through formal channels, withWestern Union as the biggest market player. The remittances sent via MTOs frequently arrive in lessthan 24 hours. Some MTOs have the ability to transfer the remittances in as little as 15 minutes.The category money transmitter is particularly diverse ranging from large organisation like WesternUnion to smaller one. There are 3200 MSB principals in the UK operating out of over 32000 premises:10.000 (1/3) are dedicated exclusively to Money transfer, 15.000 (1/2) are having the three activities22 CECEI in FranceRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -52

(Money Transfer Operator (MTO), Bureaux de Change and Cheque Cashers) and the rest (15%) arehaving a second activity in addition to Money transfer activity (Bureaux de Change or ChequeCashers). 2366% of these premises are operated by four MSBs: Post office Ltd and Western Union, MoneygramInternational Ltd and Fexco Money Transfer Ltd.The UK Postal Service has a very large network, making it one of the most accessible originationpoints for remittance transfers. The postal service provides access to everyone who lives in the UKthrough its mail, post offices, parcel businesses, and money transfer services through money ordersand MoneyGram. British postal orders are redeemable in 51 countries.In partnership with MoneyGram, money transfer services are available to more than 84,000 locationsin 170 countries. MoneyGram has the largest network in the UK, largely due to the Post Office’sproviding 2700 of MoneyGram’s 4000 locations. Contract with MoneyGram was renewed by the UKPost Office in April 2006.Despite this high level of consolidation in the MSB market, the number of single premises has risenstrongly since 2004, growing by 25%.Total remittances send from the UK to developing countries is estimated to be around £2.5 billion.Most important recipient countries are: India, Pakistan, the Caribbean (particularly Jamaica), China,Bangladesh, Nigeria and Ghana.UK government Study on remittancesAccording to a UK government study performed in 2005, “Sending Money Home,”, when sendingmoney via MTOs, prices ranged:• from 5 percent to 12 percent for sending £100,• and from 4 percent to 6 percent for £500.Below certain threshold amounts, no identification is required to transfer funds through MTOs. Thereis a variation in the minimum amounts requiring ID-based on the MTO. MoneyGram require ID foranything over £500; Travelex and Western Union over £600.Recently, new regulation is requesting more systematically ID (see FAFT regulation).UK government policy regarding remittancesThe UK government has taken positive steps to promote formal transfer mechanisms and reducetransaction costs and barriers to access for remittance senders.As for example Vodafone is working in cooperation with the UK government on this subject.The UK government is initiating dedicated policies with major remittances destination countries.23 Regulation of Money service Business in the UK, HM Treasury (HMRC) September 2006Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -53

Opening of a bank account in the UKTo open a bank account in the UK, citizens need to provide either a passport or some form ofidentification and a utility bill with the home address. Other nationals need to provide a valid fullpassport. Where applicable, visas are requested. If the foreigner lives in the UK, working or studying,a letter from a known employer or known university or college confirming their address is needed. Itis difficult for banks to verify addresses of the applicants who reside in certain foreign countries(remote area in Africa for instance).3.3 The Netherlands specific regulation3.3.1 e-money regulation in the NetherlandsE-money is regulated under the Financial Supervision Acte-money regulated in the Netherlands'Electronic money' is a monetary value stored on an electronic device or stored on-distance in acentral accounting record.The 'receiving of funds' denotes that the purchaser of the electronic money must pay its issuer inexchange for the electronic money. An important criterion is that the electronic money may be paidto others than the one issuing it.Definition of an e-money institutione-money institutions are non bank entities issuing e-money. E-money institutions can receive fundsin exchange for electronic money which can be used to pay others than the one issuing it.Authorization is granted to be become e-money institution. Application should be submitted to DNB(De Nederlandsche Bank NV).Exceptions to the authorization requirementAn e-money institution is exempted from the authorization requirement if it issues electronic moneyto a maximum of EUR 150 per electronic money operator, and:• The combined value of the e-money institution's financial obligations arising from theissue of electronic money never exceeds EUR 3,000,000;• The electronic money is only received by a company that is part of the group to whichthe e-money institution belongs, or• The electronic money is only received by a limited number of easily distinguishablecompanies which either share premises, a site or another confined area, or have closefinancial or business ties with the e-money institution.The single licenceAn e-money institution holding an e-money licence from another EC Member State is entitled tooperate in the Netherlands from a Dutch-based branch or by way of cross-border services. To thisend, it must turn to the supervisory authority of the home country.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -54

Requirements for e-money institutionsBoth licensed e-money institutions and e-money institutions that are legally exempted from a licencerequirement must satisfy the following criteria:• e-money institution must never issue more electronic money than it has received infunds in exchange for the issue of electronic money• at the request of an holder of electronic money, an e-money institution must exchangethe electronic money by paying the equivalent in cash or depositing the equivalent inmoney on a checking account or savings account, charging only the costs involved by theconversion requirement• e-money institution must comply with the Act on Prevention of Money Laundering andFinancing of TerrorismSupplementary requirement for e-money institutions making use of the legal exemption from thelicence requirement: each year these e-money institutions must submit to DNB their annual accountswithin six months upon closing their financial year. These accounts must state the total value of thefinancial obligations arising from the issue of electronic money.3.3.2 Money transfer regulation in he NetherlandsThe DNB (De Nederlandsche Bank 24 ) supervises money transaction operators (Wet op toezichtgeldtransactiekantoren).Since 2004 not only banks, but also money transfer operators need a license from the DNB. Underthe Act on Money Transaction Offices, both money transfer operators and former money exchangeoffices must have a license as MTO.Bank regulationOn bank side, Dutch banks are regulated by a universal banking system, which means that a bank canundertake many kinds of business including securities and insurance business. Banking legislation inthe Netherlands does not explicitly define the activities a financial institution may undertake. As aresult, bank licence is quite broad.Under bank regulation, banks need a license from the DNB in order to be able to provide services inthe Netherlands. All banks with a license are registered in the register of the Credit Act 1992 (WetToezicht Kredietwezen). Banks who have a license of another EU country can provide their serviceunder this agreement. As consequence, they are not under the supervision of the DNB but undertheir respective country supervisor and can also be found in the register of the Credit Act.In order to get a license, banks are requested to have enough capital. Furthermore, they are regularlycontrolled and supervised by the DNB.Money transfer operator regulationPrior to PSD, in order to apply for a MTO license (money transfer operator), this one has to provide abank guarantee and to pay supervisory costs. A bank guarantee is only needed for remittances, notfor money exchange.A bank guarantee has to be obtained from a bank which charges a provision for this. The bankguarantee is necessary to fill the vacuum that emerges during the time between pay out and thecustomer possibility of accessing the money.24 Central Bank of the NetherlandsRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -55

Operating without the required licence is a regulatory offence under the Act on Economic Offenses(Wet Economische Delicten). The Economic Control Agency (FIOD-ECD) is responsible for detectingthese offences. The DNB has also the possibility to sanction violation of the regulation.SupervisionThe Wet Toezicht Kredietwezen separates prudential supervision (DNB) from conduct of businesssupervision (AFM) :• all prudential supervision is in the responsibility of the DNB,• all conduct-of-business supervision is under the Authority for Financial Markets(Autoriteit Financiele Markten, AFM).Banks are, hence, supervised by the AFM and the DNB.The supervising authority periodically checks the institutions that are under his supervision. The DNBsupervises banks and money transfer agents. It can perform on site controls and book controls.In addition, MTOs are submitted to rules of the Wet Inzake de Geldtransactiekantoren with regard tothe integrity of the management and the administrative organization. The DNB controls theprocedures for this.Money Transfer Operator (MTOs) environment in the NetherlandsSince the new supervisory law in 2004 (Wet op Toezicht Geldtransactiekantoren), money transferoperators include the merger of three earlier businesses: money exchange, money transfer andcoupon payments 25 from fixed interest rate assets. Their main task is to deal with cash money. 96%of total receipts of MTOs are cash money and only 4% goes via bank accounts. This form of transfer isparticularly important for people who do not have a bank account.The total turnover of MTOs in 2007 is estimated to be around EUR 375 million (in 2004: EUR 325million). Money transfers account for about 25% of the turnover of Money Transfer Operators.• Western Union (in cooperation with Postbank) is the most popular ways of sendingmoney through a MTO in the Netherlands. Western Union was registered in June 2005 tobecome a money transfer operator on its own; thus it can operate now without a Dutchbank or travel agency. Western Union is also offering cards which allow transfers withoutpaper work and no need for identification when the money is picked up with the card.• MoneyGram has also recently registered as money transfer agent.• MoneyTrans, is the third largest operator in the Netherlands.3.4 France specific regulation3.4.1 e-money regulation in FranceThe ministerial order of January 10th, 2003 has validated regulation n°2002-13 from the Financialand Banking Committee (Comité de la Réglementation Bancaire et Financière 26 ) which isimplementing the e-money Directive.25 Coupon payments from fixed interest assets (Waardepapieren, Wertpapiere).26 CRBFRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -56

Financial institution as defined in FranceArticle 511-1 of the Monetary and Financial Code 27 states that financial institutions are legal entities,which perform as usual occupation banking operations, as defined by Article L. 311-1. So throughtheir activities (designated under the generic term of "banking operations"), the regulation definesthe scope of financial institutions (this is including banks). These activities are including: (i) thereceipt of public funds, (ii) credit operations and (iii) making available to customers or manage meansof payment.To operate, financial institutions must be approved in advance. The approval is granted by specifyingthe banking category, mutual or cooperative banks, municipal credit union, finance company orspecialised financial institution. Only banks, mutual or cooperative banks and credit unions areentitled to receive public funds on immediate demand or at less than a two years' term.In accordance with the articles 511-5 to 511-8, it is moreover prohibited to any entities other than acredit institution to conduct banking services, or receive public funds.e-money regulated in FranceUnder CRBF, e-money is composed of value units, which are electronic money units. Each of them isa debt security (titre de créance) included in an electronic instrument and accepted as means ofpayment as defined by Article L. 311-3 of the Monetary and Financial Code, by parties other than theissuer (Article 1).Electronic money is issued against the receipt of funds. It can not be issued for avalue greater than the funds received in return. It must be pointed out that the French definition ofe-money has removed from the original Directive (200/46/EC); the fact that the e-money issuedshould be not less in value than the monetary value issued and replaced it by should not be greater invalue.The French regulation distinguishes between two types of institution:• 1. The issuing institution: "a financial institution owner of the claim incorporated in theelectronic instrument (...)";• 2. The distributing institution: "a financial institution offering customers loading,reloading or collection services (...)".If those financial institutions are limiting their activity to the issuing, distribution or the managementof electronic money, they are qualified as been electronic money institutions.Redeemability takes place in cash or via electronic transfer to an account at the discretion of thebearer, but beyond € 30, cash refund gives rise to bearer’s identification.The Regulation makes a distinction between the instruments depending on whether bearer isidentified or not. Indeed, electronic money units included in an instrument that does not allow theidentification of the holder, at any time, cannot exceed € 150. In this case, contracts with bearers andacceptors cannot exceed € 30 per transaction.The issuing institution or distributing institution that performs an operation of loading or reloading ofsuch an instrument by cash, for an amount exceeding 30 €, must check and register the identity ofthe bearer who asks for the completion of the transaction, unless that person is a customer of thatinstitution. He holds the identity of that person available to the issuer or distributor concerned, andto banking supervisory authorities for two years.27 Code Monétaire et Financier (CMF)Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -57

Going further, the Regulation introduces the principle of traceability: the issuing institution mustensure traceability for two years of reloading and ensure the tracking of suspicious transactions.When the mechanism implemented allows that the same electronic money units are usedsuccessively for separate transactions, the issuer provides traceability for two years of alltransactions. Distributing institutions provide the assistance necessary for the issuer to ensure thetraceability.To prevent money laundering, issuing and distributing institutions must set up an automated systemfor monitoring unusual transactions of electronic money units.3.4.2 Money transfer regulation in FranceIn France, the framework of the French Banking Regulation is defined by the Monetary and FinancialCode 28 , which is under a modification process to be in accordance with the new Payment ServicesDirective 29 , effective November 2009.Hereafter, we are describing the current French regulation prior to the ongoing modifications inrelation with the PSD.In accordance with article L. 311-1, Banking transactions are consisting in the receiving of funds fromthe public, credit transactions type and the provision or the management of means of payment.Transferring of funds is considered by French laws as provision and management of means ofpayment and as such is a banking transaction submitted to relevant regulation.As defined in Articles L. 311-1, L. 311-3 and L. 511-5 of the Monetary and Financial Code, BankingTransactions are strictly restricted to authorized Credit Institutions (including banks).In accordance with article L. 511- 1, Credit institutions are legal entities whose customary businessactivities are the carrying out of banking transactions under the definition of Article L. 311-1.Pursuant to the banking and financial laws, The Credit Institutions and Investment Firms Committee 30is responsible for approving and granting the individual authorisations or exemptions applied tocredit institutions and investment firms.To exercise their activity, all credit institutions (Banks, Mutual and Cooperative Banks, Savings Banks,financial companies,...) must be previously approved by the CECEI.As a consequence, in France until November 2009, money transfer is a regulated business, submittedto banking regulation and all exemptions must be approved by the CECEI.According to Article L 571-3 of the Monetary and Financial Code, disregarding the prohibitions laiddown in Article L 511-5, is liable to 30 years imprisonment and a fine of EUR 375,000.28 Code Monétaire et Financier (CMF)29 See Payment Services Directive (PSD) corresponding chapter30 Comité des établissements de crédit et des entreprises d’investissement (CECEI)Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -58

Two types of institutions, approved by the CECEI, are presently involved in the money transferbusiness:• Banks• Financial Companies. To get an approval, a financial company requires a minimum capitalof EUR 2.2 million and a shareholding bank.Four Financial Institutions have obtained an approval by the CECEI:• Société Financière de Paiements (a partnership between Western Union (51%) and LaBanque Postale (49%)) in 2003,• Moneygram France in 2006,• Ria France in 2007,• Coinstar Money Transfer in 2007.Moreover, pursuant to Articles L. 519-1 and L. 519-2 of the Monetary and Financial Code, a bankingtransaction intermediary is an entity that, as a regular business, brings together parties interested inconducting a banking transaction, in particular for granting loans.This activity may only be carried out between two entities, at least one of which is a creditinstitution. The intermediary entity may only offer its services in accordance with a mandatespecifying the nature and the type of the transactions it is authorized to carry out.The intermediary entity is frequently a canvasser for financial services, and in any case, is neverentitled to conduct banking transactions itself, but on behalf of the institution from which it hasreceived the mandate. In addition, all canvassers are prohibited from receiving cash, negotiable debtinstruments, securities, bearer checks, or payment in any other form, from the persons canvassed.(article 342-15).Being an Intermediary entity for banking transactions is not sufficient to carry out transfer of fundstransactions into the French territory.CECEI statement regarding International Money TransferIn one of its public statement 31 , CECEI reaffirmed that International Money Transfer is a regulatedactivity in France submitted to the banking regulation.Pursuant to Article L. 311-3 of the Monetary and Financial Code, a means of payment is aninstrument that enables a person to transfer funds, irrespective of the medium or the technique used.Furthermore, Article L 311-1 of this code defines a bank transaction as the act of receiving funds,managing means of payment and providing funds to third parties. This obviously includes the transferof funds from France to the rest of the world, including to European Union countries and including inforeign currency. Article L 511-5 of this code specifies that, no entities other than credit institutions isauthorized to conduct bank transactions as its regular business.All commercial firms are required to get an authorization as credit institution from the CreditInstitutions and Investment Firms Committee (CECEI) in order to provide funds transfer services inFrance or from France as their regular business.31 CECEI, 2003Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -59

Evolution in relation with PSDThe CMF will be modified, effective November 2009, to be in accordance with the Payment ServicesDirective. According to new article 314-01-4, money transfer services will then be considered aspayment services, and not as banking services as it is today under present regulation.3.5 OECS countries specific regulation3.5.1 OECS countriesThe OECS is a nine member grouping comprising:• Antigua and Barbuda,• Commonwealth of Dominica,• Grenada,• Montserrat,• St Kitts and Nevis,• St. Lucia• and St Vincent and the Grenadines.• Anguilla and the British Virgin Islands are associate members of the OECS.Six of the states are independent states: Antigua and Barbuda, Dominica, Grenada, Saint Kitts andNevis, Saint Lucia, and Saint Vincent and the Grenadines. The other three are British overseasterritories: Anguilla, Montserrat, and British Virgin Islands. They are not members of the EU, and themain body of EU law does not apply.3.5.2 ECCBThe Eastern Caribbean Central Bank (ECCB) came into being on October 1983, as successor to theEast Caribbean Currency Authority.The Agreement to establish the Eastern Caribbean Central Bank (ECCB) was signed on July 1983 bythe governments of Antigua and Barbuda, The Commonwealth of Dominica, Grenada, Montserrat, StKitts and Nevis, St Lucia, and St Vincent and the Grenadines. Anguilla acceded to the Act on April1987.ECCB is issuing East Caribbean dollar, the only OECS member not using the East Caribbean dollar astheir de facto currency is the British Virgin Islands, which uses the U.S. dollar instead.The ECCB is considered as one of only four multi-state central banks in the world.Its stated purposes include the promotion and maintenance of monetary stability and the promotionof a sound financial structure conducive to the balanced growth and development of the economiesof Participating Governments.ECCB is also in charge of regulating banking business on behalf of and in collaboration withparticipating governments.The ECCB provides support and monitors developments, primarily in the credit unions and insurancesectors. These sectors are supervised by the relevant government authorities; however there is anongoing initiative to establish single regulatory units within the territories of the ParticipatingGovernments to regulate all financial institutions.Overall, the regulation and supervision of the financial sector in OECS is being enhanced with theultimate objective being the establishment of harmonised laws that are consistent with internationalbest practices with a regulatory and supervisory unit for financial services in each member state.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -60

The Monetary Council is the highest decision making authority. It is comprised of one Ministerappointed by each Government of the participating countries.3.5.3 Banking regulation in OECSThe regulatory framework of the domestic banking system has two main legislative components:• First, there is the ECCB Agreement Act of 1983 and its amendments, which under Article3 paragraph 2(e) of the ECCB Agreement Act give the Eastern Caribbean Central Bank thepower to “regulate banking business on behalf of and in collaboration with ParticipatingGovernments.”• Second, there are the Banking Acts of the various territories of the ParticipatingGovernments which govern the regulation of banking business in those territories.Over the period 1988 to 1992, new banking legislation was enacted in each of the member states.These Acts, collectively referred to as the Uniform Banking Act, are facilitating the harmonisation ofbanking business within the ECCB area.Over the period 2004 to 2006, the Banking Acts in the territories of the Participating Governmentswere revised and upgraded in relation to the Basle core principles. This harmonised bankinglegislation has strengthened the legal framework for the conduct of banking business and enhancedthe regulatory environment.The harmonised Banking Acts recognise the ECCB as the ECCU’s Central Bank, with primaryresponsibility for the supervision of domestic banks. The ultimate authority for regulating institutionscovered by this Act is jointly vested in the Minister of Finance and the ECCB. The Minister of Financeis normally required to act in consultation with, and on the recommendation of the ECCB withrespect to those areas where the Minister of Finance has ultimate responsibility.The Act applies to all institutions that conduct banking business. It requires that a banking licence beobtained from the Minister of Finance before a financial institution can engage in banking business.All commercial banks (and other institutions deemed to be carrying on banking business) arerequired to be licensed under the Banking Act and are regulated by the ECCB.The offshore financial services sector is governed by the Offshore Banking Acts in the respectivecountries and is primarily the responsibility of the national regulators.The table below illustrates the number, year and commencement date of the Banking Act in eachmember territory.The Banking Acts in Member TerritoriesTERRITORYCOMMENCEMENT DATEAnguilla 1 January 2006Antigua & Barbuda 1 January 2006Commonwealth of Dominica 31 March 2006Grenada 31 March 2006Montserrat 1 May 2005St Kitts and Nevis 4 November 2005Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -61

Saint Lucia 1 April 2007St Vincent and the Grenadines 10 April 2007Furthermore, a Money Services Bill/act was crafted to harmonize the operations of non-systemicplayers in the financial sector that are involved in the electronic transfer of funds. These Bills areexpected to be finalized in the upcoming financial year for enactment in all of the territories of theEastern Caribbean Currency Union.In October 2006, the Eastern Caribbean Payments Council (ECPC) was established to support soundand efficient payments and securities clearance and settlement and to serve as a consultative bodyon industry wide issues related to the payment system.The Council consists of six members comprising representatives from the ECCU Bankers Association(2), the Eastern Caribbean Securities Regulatory Commission (1), the Eastern Caribbean Institute ofBanking and Financial Services (1) and the Central Bank (2).3.5.4 Money transfer regulation in OECSGenerally, non-bank money transfer operators have been largely unregulated pending the passage ofthe Money Services Bill in all the OECS participating territories.Pending the passage of the Money Services Bill in all territories, non financial institutions that aremoney transfer operators keep on being largely unregulated, operating under a general businesslicense.Money Services BillThe Money Services Bill provides for regulation and reporting including the gathering of statistics.However, no framework has yet been implemented for the collection of non-bank money transferservices and the associated transactions. Therefore, the precise number of operators and theirrespective characteristics would have to be collected on a primary basis either directly or via therespective ministry of finances.As at May 2009, the Bill was passed in St. Kitts and Nevis, St. Vincent and the Grenadines and Antiguaand Barbuda. The legislation is currently being reviewed in Montserrat, Saint Lucia, Commonwealthof Dominica, Grenada and Anguilla.Where the Legislation has not yet been updated, operators are not regulated.According to the Money Services Bill, all operators will be regulated by license.Money service operators should provide one of the following services as a primary business:• transmission of money or monetary value in any form (class A licence for money transferoperator)• cheque cashing• currency exchange• the issuance, sale or redemption of money orders or traveller’s chequesThe money service licence is not transferable. Money service operator can hold other business.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -62

All money transfer operators must comply with:1. The Proceeds Against Crime Legislation.2. Anti Money Laundering Legislation and Guidelines overseen by the respective FinancialIntelligence Unit in each participating territory.3. Where the Money Services Act has been enacted, the Legislation also provides forcompliance with AML, Governance, Accounting, and Reporting standards.The Money Services Bill provides for guidelines to be developed covering electronic money.Furthermore, several territories have legislation governing electronic transactions which may coverthe use of electronic money.Other services can be offered by money transfer operator:• The Money Services Bill does not preclude any specific class of money transmission andtherefore does not prohibit the development of own ATM networks.• Money transfer operators are not allowed to operate as banks and cannot hold funds ondeposit.Customer Due Diligence applied regarding Money transferStandard Due Diligence for Money Transfer encompasses: Know your customer guidelines, customercontact details and limits to money transfer amount. These are generally collected through thepresentation and storage of information from a valid ID. Standard AML/ATF procedures apply.Constraints to operate money transfer service• For banks: Money transfer services are standard part of Banking Operations. To complywith AML/ATF guidelines most banks will limit transactions to customers within theBanking network (sending customer must have an account at the sending bank and thereceiving customer must have an account at the receiving bank).• For non bank operators: constraints may include the size and frequency of eachtransaction.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -63

4. ConclusionsFrom a regulation standpoint, international remittances are addressed by FAFT compliances andvarious European and national regulations were initiated from it.Since the year 2000, there is a global consensus among countries to reinforce FAFT regulation and itsapplication.FAFT regulation is particularly addressing Customer Due Diligence.Mobile money transfer is also concerned by it and CDD procedures must not been underestimated.Until recently requirements regulating Money Remittance operators have been different in thevarious EU countries. UK had a tradition of light regulation based on simple registration of Moneyremittance operators (as opposed to licensing) but is now moving to a more controlled andsupervising environment.Requirements regulating Money Remittance Operators (until 2009, prior to PSD)UK The Netherlands FranceRegulatory systemRegistration (1500) Licensing (30) Licensing (few)(number ofregistered/licensed)Authority Customs Central Bank CECEI (Central Bank)Capital/guarantee Not required Bank guarantee for Requiredoutstanding amountRequired legal structure Not required Not required Financial institutionFit and proper Not performed Performed PerformedExperience Not required Not required RequiredCriminal recordsChecked, noCheckedCheckedconsequencesBusiness plan / AML program Not required Required forRequiredintegrity issuesOffsite information Annual turnover Monthly NcOnsite visits Risk-based Two to four times Ncper yearIdentificationTransactions over All transactions All transactions€15,000Suspicious transactionreportsRequired Required RequiredThreshold transaction reports Not required Transactions over Nc€2,000Record keeping 5 years 5 years 5 yearsSanctionsFines up to GBP5,000Warnings, order,withdraw license, finesWarnings, order,withdraw license, finesFees on entry GBP 60 per premise €3,000 -Annual fees GBP 60 per premise €3,000 + percentageover annual turnover-Other costs None Annual audit -Staring from November 2009, the Payment Services Directive (PSD) will offer a new legal and unifiedframework in the EU for Money Transfer Operators (MTOs). Under this new law, Money Remittancecould be provided by Payment Institutions (PI) defined as a new class of non-banks that are stillRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -64

egulated firms who must either be authorized or registered and are subject to specific prudentialrequirements.Payment Institutions will be able to offer remittance services but also other payment servicesincluding credit card business, debit card business, pre-paid services, mobile phone payments, directdebits, ATM services and bill payment services.As a specific Payment Services Provider (PSP), PIs compared to banks (also considered as a PSP) arebenefiting from being submitted to light obligations, for instance as regard customer information’s.Payment Institutions may also outsource part of their payments to "agents" for instance fordistribution purpose.Payment Institutions which seek an authorisation under their home state, then will be able to‘‘passport’’ their service to other EU countries. That means that, subject to notifying the regulator inanother EU country, they could offer payment services without the obligation to seek a furtherauthorization in that new country of operations. In the UK, the FSA (Financial Services Authority) isthe designated regulator.This means that all PIs will need an authorisation if they carry out any services envisaged by the PSDsuch as Money remittances.Authorization will be the standard regulation if a PI executes more than EUR 3 million in paymenttransactions a month or wishes to ‘‘passport’’ their services into one or more EU countries other thanthe Member State where they obtain the licence. Otherwise PI will be simply registered.To obtain authorisation, PI must meet initial capital requirements. Applicants for authorisation willneed to show that they have enough initial capital (essentially subscribed capital and reserves). Formoney remittance, EUR 20 000 is required as initial capital. But initial capital depends on serviceundertaken by the PI, and as much as EUR 125 000 could be required depending on the completebusiness scope.In addition, any PI seeking authorisation will have to provide further information: a business plan,budget, description of measures to safeguard customer’s funds, description of AML procedures,identity and suitability of shareholders, directors’ management records, etc.Once authorised, PI must meet ongoing capital requirements, which could be calculated based onone of three methods (fixed overheads requirements or sliding scale of percentages based onpayments volume or Basel ratio calculation type).New Conduct of Business (COB) obligations are defined under PSD covering transparency ofconditions and information requirements for payment services. PI must provide information to thesending customers before and after the transaction has taken place which varies depending on thetransaction being a single transaction or part of an on going business relationship.Under COB rules, PI must prior to the transaction provide: a unique transaction ID, an indication ofmaximum execution time, a break down for charges and exchange rate applied for the transaction.The COB requirements, only apply to transactions in euro or another member state currency 32entirely within the EU 33 and apply to all PIs either authorised or simply registered (small volume oftransactions) and to all PSP. So COB requirements, only apply to ‘‘two leg transactions’’, that is to sayto transaction that both begin and end in the EU (for instance UK to Spain). However they are32 Payment Service Regulations, FSA March April 200933 Precisely EEA which includes EU countries and other countries such as NorwayRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -65

discussions within EU governments, so that COB obligations would be implemented into national lawon a voluntary basis so as to cover all types of transactions: both one leg and two leg transactions.Large MTOs are working both on intra EU and extra EU corridors and are intending to apply COB onany transaction types. In conclusion, whenever possible it is advisable to apply COB to anytransaction coming out from EU.At this stage, the status of e-money institution (sender side) is questionable. The purpose of themobile remittance service is to offer final customer the possibility to deposit cash to be immediatelyremitted to receiver in OECS. As a consequence, there is no necessity for a customer to hold e-moneyon e-money account for a long period of time (sender side). Therefore holding of payment account issufficient on sender side: the money to be remitted shortly will not be kept more than a couple ofdays.In addition, the status of e-money institution is presenting some disadvantages:• Initial capital requested is still high (1 m €)• The level of reporting is higher than for PI• There is no e-money definition in OECS• So far, e-money institution can not have agents (modification still possible)The status of Money Transfer Operator on sender side (EU), could be a financial institution (Bank) ora Payment Institution (non bank) depending on different criteria (see table below).Unless additional banking services are delivered to remittance customers, the status of PaymentInstitution is recommended.BankPayment InstitutionMain authorised services Deposits taking Credit offering Saving and investment services Payment servicesRestrictionPrudential regimeYesLarge credit offeringYesYesActivities restricted tobanking servicesBanking Directive(2002/12)Initial capital (minimum) 5 m €(Banking Acts)NoRestricted credit offeringNoYesNon restricted activities(hybrid PI are possible)PSD(2007/64)20.000 € (EU)(Money remittance)Outsourcing of part of servicespossible to authorized agentsRights an obligations of serviceproviders and usersAnti-Money Laundering (AML)regulationAgents not possiblePSDMLD 3 DirectiveEC regulation 1781/2006Agents possiblePSDMLD 3 DirectivePossible exemption for m-payment (EC regula. 1781)Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -66

GLOSSARYAcquirer: the entity or entities that hold deposit accounts for card acceptors (merchants) and towhich the card acceptor transmits the data relating to the transaction. The acquirer is responsible forthe collection of transaction information and settlement with the acceptors.Agent: An agent is a third party who provides money services on behalf of a principal.Agent (in PSD): natural or legal person which acts on behalf of a payment institution in providingpayment services;AML - Anti Money Laundering: term mainly used in the financial industries to describe the legalcontrols that require financial institution and other regulated entities to prevent or report moneylaundering activitiesAuthentication: the methods used to verify the origin of a message or the identity of a participantconnected to a system.Clearing: the process of transmitting, reconciling and, in some cases, confirming payment orders orsecurity transfer instructions prior to settlement, possibly including the netting of instructions andthe establishment of final positions for settlement. Sometimes the term is used (imprecisely) toinclude settlement.Clearing and settling institution: an institution which transmits information and funds through apayment system network. It may operate as an agent or a principal.Clearing system: a set of procedures whereby financial institutions present and exchange dataand/or documents relating to funds or securities transfers to other financial institutions. Theprocedures often also include a mechanism for the calculation of participants’ bilateral and/ormultilateral net positions, with a view to facilitating the settlement of their obligations on a net basis.Credit card: a card indicating that the holder has been granted a line of credit. It enables the holderto make purchases and/or withdraw cash up to a prearranged ceiling; the credit granted can besettled in full by the end of a specified period or can be settled in part, with the balance taken asextended credit. Interest is charged on the amount of any extended credit and the holder is usuallycharged an annual fee.Credit institution: the definition given to a “bank” in the European Union. The First BankingCo-ordination Directive defines it as an undertaking whose business is to receive deposits or otherrepayable funds from the public and to grant credits for its own account.Credit transfer: a payment order or possibly a sequence of payment orders made for the purpose ofplacing funds at the disposal of the beneficiary. Both the payment instructions and the fundsdescribed therein move from the bank of the payer/originator to the bank of the beneficiary,possibly via several other banks as intermediaries and/or more than one credit transfer system.Customer-to-customer transfer: (see transferability) in electronic money systems, the degree towhich an electronic balance can be transferred between devices without interaction with a centralentity.Customer due diligence (CDD): recommended standards for customer identificationRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -67

Debit card: a card enabling the holder to access his/her deposit account online. The card is oftenused to charge purchases directly at the point of sale (POS) and withdrawals at automated tellermachines (ATMs) to the deposit account.Electronic money: electronic money (e-money) is broadly defined as an electronic store of monetaryvalue on a technical device that may be widely used for making payments to undertakings other thanthe issuer without necessarily involving bank accounts in the transaction, but acting as a prepaidbearer instrument.ELMIs = ELectronic Money Institutions (UK) = e-money institutions = non bank issuing e-moneyFSA: The Financial Services Authority (FSA) the independent body that regulates the financial servicesindustry in the UKHMRC: Her Majesty’s Revenue and Customs (HMRC)KYC: “Know Your Customer” measuresMoney laundering: the attempt to conceal or disguise the ownership or source of the proceeds ofcriminal activity and to integrate them into the legitimate financial systems, in such a way that theycannot be distinguished from assets acquired by legitimate means. Typically, this involves theconversion of cash-based proceeds into account-based forms of money.MLRs: money laundering regulations (UK)Multi-purpose prepaid card: a stored-value card which can be used for a very wide range of paymentpurposes and which has the potential to be used on a national or international scale but maysometimes be restricted to a certain areaMTO: Money Transfer Operators (UK), part of Money Service Business (MSB)MVT service (FAFT definition): Money or value transfer service refers to a financial service thataccepts cash, cheques, other monetary instruments or other stores of value in one location and paysa corresponding sum in cash or other form to a beneficiary in another location by means of acommunication, message, transfer or through a clearing network to which the MVT service belongs.Payment: the payer’s transfer of a monetary claim on a party acceptable to the payee. Typically,claims take the form of banknotes or deposit balances held at a credit institution or at a central bank.Payment Card Company: a company which owns trademarks of payment cards (credit, debit orprepaid cards) and may also provide a number of marketing, processing or other services toinstitutions issuing its cards.Payment instrument: any instrument enabling the holder/user to transfer funds.Payment system: a set of instruments, banking procedures and, typically, interbank funds transfersystems that facilitate the circulation of money.Payment Services: payment services as for example money transfer defined within the PaymentServices DirectivePrepaid card: typically an integrated circuit card on which a representation of value is stored, forwhich the cardholder has paid the issuer in advance, enabling the cardholder to effect transactions.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -68

Settlement: an act that discharges obligations in respect of funds or securities transfers between twoor more parties.Settlement system: a system used to facilitate the settlement of transfers of funds.Traceability: in electronic money systems, the degree to which value-transfer transactions can betraced to the originator(s) or the recipient(s) of the transfer.Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -69

Main regulatory references FAFT forty recommendations Third Money Laundering Directive (3 MLD ) (Directive 2005/60/EC) 2006 Payment Services Directive (PSD) (Directive 2007/64/EC) Electronic Money Directive (Directive 2000/46/EC) European Regulation (EC) N° 1781 European Regulation EC 1889/2005Payment Services Regulations 2009 (UK)Money Laundering regulation 2003 (UK)The Proceeds of Crime Act 2002 (UK)The terrorisms Act 2002 (UK)Credit Act 1992 (NL)Act on Economic Offences (NL)Wet Geldtransactiekantoren (NL)CMF : Code Monétaire et financier (F)The Banking Acts (OECS)Money Services Bill /Act (OECS)Regulatory framework: Implementation of Mobile Money Transfer services - June 2009 -70

List of commercial banks maintaining clearing accounts with the ECCBABI Bank LtdAntigua Commercial BankBank of Antigua LtdBank of Montserrat LimitedBank of Nevis LimitedBank of Nova ScotiaBank of Saint Lucia LtdCaribbean Commercial Bank (Anguilla) LimitedCaribbean Union Bank LtdFirst Caribbean International Bank (Barbados) LtdGrenada Co-operative Bank LtdNational Bank of Anguilla LtdNational Bank of DominicaNational Commercial Bank (SVG) LtdRBTT Bank Caribbean LimitedRBTT Bank Grenada LimitedRBTT Bank (SKN) LimitedRepublic Bank (Grenada) LtdRBC Royal Bank of CanadaScotiabank Anguilla LtdSt Kitts-Nevis-Anguilla National Bank Limited1ST National Bank St Lucia LimitedRegulatory framework: Implementation of Mobile Money Transfer services - June 2009 -71

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