Safer Corridor Pilot

Secure Identity Management and Transaction Monitoring for International Remittances

 

Abstract

Consult Hyperion worked with the UK’s Department for International Development (DFID), the World Bank and FSD Africa to specify the details of an innovative pilot which is aimed at addressing the specific needs of the UK – Somalia remittance corridor. This corridor faces challenges relating to the lack of regulatory supervision of money transfer operators (MTOs) in Somalia, leading to concerns around the accurate identification of recipients and the meticulous monitoring of transactions, necessary to counter money laundering and the potential funding of terrorist activity (together known as anti-money laundering and countering the financing of terrorism, or AML/CFT).

The proposed pilot uses an enhanced form of Consult Hyperion’s TAP service to perform two primary functions:

• The registration and subsequent authentication of recipients, this authentication applying across multiple MTOs;

• The recording of transactions, including assigning a risk rating to those transactions, based on MTO agent behaviour and the AML/CFT risk associated with an individual transaction.

Background

An estimated US$1.3 billion is remitted annually to Somalia by its diaspora. This remittance flow accounts for around 50% of Somalia’s GNI and 80% of investment in the country. According to the World Bank, 40% of the population (or 3.4 million people) rely on remittances to meet their basic needs. As a result, any reduction in remittances could have significant developmental impacts on Somalia.

In recent years banks have become increasingly risk averse to operating in fragile corridors, such as remittances from the UK to Somalia. Banks have increased their focus on ensuring compliance with international AML/CFT regulations, and there have been a number of high-profile enforcement actions with large fines for banks for AML/CFT deficiencies. A consequence of this de-risking by banks is that many banks have closed their accounts with MTOs; including the accounts of MTOs serving the UK – Somalia corridor.

Consult Hyperion had previously conducted a study into practical solutions to address these issues, which made a number of innovative recommendations. This resulted in Consult Hyperion being further engaged to develop a service design for the Safer Corridor Pilot, which aims to provide a workable solution to address the deficiencies in receiving market regulation and its enforcement.

Our Approach

The approach taken in the definition of the Safer Corridor Pilot consisted of 4 elements:

A review of existing literature was undertaken, including the various reports from the World Bank, and comprehensive reports from the UNDP and others.

An extensive programme of stakeholder consultation, in both the UK and Nairobi (as a proxy for Somalia), including experts from DFID and the World Bank, HMRC, Stelapoint, the British Bankers Association, MF Global, the Financial Conduct Authority, the US Treasury, the UK Treasury, the Financial Integrity Network, Barclays Bank UK, the Ministry of Defence, SOMSA, Dahabshiil, RT Pay, the Safer Corridor Advisory Group, the Bank of Somaliland, DFID Somalia, DFID Kenya, Juba Express, International NGOs, Oxfam Somalia, the Bank of Somalia, Somaliland Government Ministers, Sir Brian Pomeroy (President of the Financial Inclusion Commission), and the Safer Corridor Pilot Action Group.

Fieldwork in Somalia (undertaken by local partners Katuni, under the direction of Consult Hyperion), based around in-depth, semi-structured interviews with MTO representatives, MTO agents, and MTO customers

Consult Hyperion expertise and experience was used to distil all of the above into a coherent service design. We have a track record in financial inclusion and remittances into emerging markets that stretches back more than a decade, including a thorough operational and compliance understanding of the regulatory environment. All of this is underpinned by our core work in developing and implementing payments standards for the global payments organisations, including Visa, MasterCard and American Express.

The resulting service design defines a Trusted Third Party (TTP) operating in-country which supports:

• Customer registration, including biometric capture for subsequent authentication and to identify attempts at multiple registration;

• Support for biometric customer authentication during remittance withdrawal transactions;

• Transaction recording and monitoring for the purposes of AML reporting, including the assignment of risk ratings to transactions. The TTP will never instruct an MTO to refuse a transaction, but the MTO is advised when a transaction is high risk, and the MTO’s actions in response will be reported;

• Training, monitoring and auditing of the Know Your Customer (KYC) practices of MTO agents during customer registration, and their use of the TTP service afterwards for authentication.

This service is defined in terms of an extension to Consult Hyperion’s TAP service, built to address similar issues in Nigeria, and which is uniquely suited to the needs of the Safer Corridor Pilot:

• Secure and transparent;
• Supported by a strong Back Office;
• Simple to deploy – built on industry-standard Android tablets and contactless cards;
• Lightweight and robust;
• Easy to use, with a straightforward UI;
• Manages registration issues, and disables attempts at multiple registration;
• Authenticates customers at the POS;
• Works out of network coverage.

Why Consult Hyperion?

Consult Hyperion has a long track record in financial inclusion in general and international remittances in particular, always from the perspectives of innovation, cost effectiveness and regulatory compliance.

Our work in identity management, including in the development and operation of the TAP service in rural Nigeria, meant that we were fully au fait with the difficulties associated with establishing identity in the emerging markets, and had demonstrated a workable solution.

In addition, our work with the GSMA in defining remittance service standards for mobile money operators established our regulatory and compliance credentials.

This range of experience, combined with our core financial systems expertise and our well established capabilities as new technology innovators, marked us out as uniquely qualified for this project.

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CHYP USA is a Consult Hyperion company

About Our Customer

Our principal customer was FSD Africa, acting on behalf of DFID. FSD Africa is a programme (initially funded by DFID) that promotes financial sector development across sub-Saharan Africa.

Both DFID and FSD Africa are highly motivated to improve the flow of remittances along the UK – Somalia corridor, for both humanitarian reasons and in order to support the activities of NGOs in-country.

As experts in international financial transactions and intermediaries with both the financial sector and regulatory authorities around the world, the World Bank will lead the deployment and operation of the Safer Corridor Pilot.

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Keywords: Secure Corridor, Remittances, Financial Inclusion, Somalia, TAP, DFID, World Bank, FSD Africa

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