To ask the Secretary of State for International Development, what assessment her Department has made of (a) the implications for her policies of the statement by the World Bank that the single most important factor leading to high remittance prices is a lack of transparency in the market and (b) the effectiveness of the World Bank's methodology for calculating the (a) cost of remittances and (b) exchange rate margin as calculated from a publicly available interbank rate.
In May, the UK and Swiss Governments, with the support of the World Bank and other partners, launched a global Call to Action on remittances. This called on policymakers, regulators and remittance service providers to take action to keep remittances flowing during the crisis.
The Government has taken steps to support remittance service providers in the UK, including enabling them to remain open through lockdown by including them on the list of essential businesses.
Remittance prices are high for many reasons, including underdeveloped financial infrastructure in some countries, limited competition, regulatory obstacles, lack of access to the banking sector by remittance senders and/or receivers, and difficulties for migrants to obtain the necessary identification documentation to enter the financial mainstream.
The Government recognises that transparency is an important factor leading to high remittances prices. We are working to improve price transparency for consumers with the Treasury, the FCA and the industry.
In the remittances market, the total cost might not always be clear to customers as there are a number of variable factors including: the transaction fee, the exchange rate applied and the margin and speed of the service. We are working on ways to support increasing transparency of data so it is clear for the remitter and receiver how the total cost is calculated.
The World Bank Remittances Prices Worldwide (RPW) reports uses example transactions of $200 and $500 to illustrate the overall charge for sending this money in percentage terms. However, capturing this cost can be challenging as some costs can be hidden, especially where host country’s currencies are not directly convertible into the recipient’s country’s currency.
The World Bank methodology uses the inter-bank rate that is published by central banks as a reference point and this is generally a reliable data point for exchange rates. However, some countries have multiple exchange range windows which may not be captured by the inter-bank rates.
We find the World Bank’s methodology adequate and their data informative, however we recognise that some remittance service providers do not consider this an accurate representation of their charges. This could be due to several factors. We are working with the industry to improve data accuracy.