The news has been full in recent days of the financial activities of the “super-rich” and fiscally sophisticated. (That’s my phrase, that last bit, but I can imagine it catching on. Who knows: we might even start talking about the “sophiscallated” – you heard it here first.) But at the November 2017 plenary meeting of the FATF in Buenos Aires, attention was fixed more on the other end of the spectrum: the financially excluded. Life is full of contradictions, of course (why is anything delicious bad for us, while wholesome home-knitted yoghurt tastes disgusting?), and in the financial sector we wrestle with this one: how can you make rational, profitable, risk-based decisions about which clients to acquire and retain, without shutting out those who – for entirely un-criminal reasons – cannot meet your standards of due diligence? Yes folks: it’s the familiar de-risking versus financial exclusion dilemma.
One of the documents to come out of the FATF plenary is a supplement to – but one which, bizarrely, is put at the front of – their 2013 guidance on financial exclusion. This supplement examines the knotty problem of CDD and financial inclusion, given that “18% of all adults without an account cited documentation requirements to establish proof of identity as an important barrier to account ownership”. All sorts of people find it hard to attain modern standards of due diligence documentation, from those who are paid cash in hand to asylum seekers and refugees. That said, it has to be recognised that financial service businesses are, well, businesses and therefore need to make a profit, and having their staff spend hours thinking imaginatively about how to facilitate financial inclusion for clients who are never going to bring in much profit does not make commercial sense. However, it makes both moral sense (these people are as deserving of financial provision as the wealthy, particularly in a world where those who pay cash rather than by bank transfer are penalised for it and end up paying more, e.g. having an electricity meter fed with coins is much more expensive than paying a monthly bill by direct debit) and AML sense (if people are using financial services we can check and monitor them, but if they’re not, we can’t).
So what practical solutions does the FATF offer? The supplement reveals that many countries have tried all sorts of things, and a popular idea is the tiered bank account, where minimal – if any – due diligence is done on applicants for a most basic account, offering limited services and small transactions only, albeit enough to pay an electricity bill. I like the plain-speaking Indian approach, which is to call these “small accounts”. Fiji is happy to accept identification letters from referees (no, not Pierluigi Collina, but including schoolteachers and village headmen). Many countries are sensitive to the need to relax requirements after a disaster, as when typhoon Haiyan swept through the Philippines in 2013, carrying away many people’s belongings including their identity papers. And the development of more sophisticated ID systems – often relying on biometric data – is of great help. I welcome all of this, as I think it puts the financial inclusion responsibility back where it belongs: with governments, and not with individual banks.