Economic Development & Outlook Discussions
Executive Summary – Q3 2019 (Tuesday, September 3rd, 2019)
In 2019 as we change from a monthly Discussion format to a Quarterly format we also recognize the need to bring together a wider section of stakeholders and as such we continue to adhere to our Chatham House rules format however with the disclaimer that we need to acknowledge our Distinguished Guests and Speakers by mention of their names and titles with their expressed permission in our invitations and in Executive Summaries.
The subject of this Quarterly Discussion was “Modernizing the Financial Sector“ with almost an exclusive emphasis on Anti-Money Laundering (AML) Compliance Issues.
We are therefore extremely grateful to Thuang Han, Managing Director, CB Insurance Public Limited & CB Securities Limited and George Koshy, Director Risk & Compliance, UAB Bank Limited for their valuable insights and perspectives.
A brief overview of all the subject matters discussed.
Myanmar’s recent history on AML Compliance Issues
In June 2016, Myanmar was removed from the list of states that were weak in combating money laundering and terrorist financing by the Financial Action Task Force (FAFT), an inter-governmental organization founded in 1997 as a G-7 initiative.
In September 2018, a Mutual Evaluation Report on Myanmar however identified many serious deficiencies in its compliance on AML Compliance progress and in August 2019, in a follow-up report, whilst there were some mentions of improvements, many deficiencies still remained.
AML ratings and reviews towards AML compliance by FAFT and other organizations are significant to the integration of Myanmar into the global financial system and for the ease of trade and investments into Myanmar
AML Law of 2014, guidelines and initiatives
Discussions centered on the practical workings amongst Myanmar banks in combating money laundering.
It was noted that the Anti-money Laundering Law was enacted in 2014 and the Central Bank of Myanmar had issued two (2) major guidelines to banks in 2015.
Key to the contribution by most of the larger banks as a part of these requirements towards AML Compliance is the “Customer Due Diligence” process and the identification of Customers before an account is opened or when money is remitted. Also discussed was the “Enhanced Due Diligence” processes for accounts and customers that were rated as “high risk”.
In customer identification, whilst Myanmar has a National Registration Card (NRC) system for individuals which is essential in identification, the cards are of poor quality with little security features to ensure its authenticity. However, it was further noted that upgrades to a more secure NRC system and database is currently being envisioned at the national level.
Also observed during the discussions was the recent implementation of a Myanmar Companies online (MyCO) by the Directorate of Investment and Company Administration (DICA), a government agency under the Ministry of National Planning and Economic Development (which acts as Myanmar’s company register).
It was noted that this initiative has enabled better transparency in verifying details of limited companies and this has aided the process of identification in opening and operating a bank account
Institutional, Societal and Technological challenges
Discussion participants focused on the three challenges with strong linkages to the AML Compliance issues namely:
The lack of institutional mechanisms such as pattern checking on transactions or the availability of a Credit Bureau along with the lack of a Common Reporting Standard (CRS) for the Automatic exchange of information (AEOI) was discussed in the realm of making Myanmar a more attractive destination for Foreign Banks and Institutions.
The problems associated with large unbanked and poor sections of the population in Myanmar. The dilemma faced by this unserved population of society comes in the form of challenges faced by them in opening a bank account due to the need for strict documentation. Micro-finance businesses while serving the unbanked are also challenged in understanding the larger AML Compliance complexities and their obligations towards the same.
An impending problem on AML Compliance issue as it relates to an industry wide transition towards ‘digital banking’ especially as driven by mobile money providers and their varying approaches to AML Compliance. A larger and more focused discussion captured below.
Digital banking compliance and challenges magnified
There was discussion on the need in Myanmar for a more sophisticated “e-KYC” (electronic know-your-customer) in being able to open an account or transfer monies electronically as the current process is severely challenged.
Currently represented by only a single piece of authentication i.e. a mobile number / SIM card, it was articulated that the entire AML Compliance issue has thereby left unattended or at best the liability outsourced to the telecom provider who risk being implicated by default to have complied with the Know your customer (KYC) guidelines by enforcing an updated and verified identification of the mobile number / SIM card recipient.
Discussion participants highlighted the need for clearer compliance guidelines to be articulated or a more robust and comprehensive legislation, which would also be desired to enable a level playing field between Banks and the new technology enablers of this industry i.e. mobile money industry participants.
Conclusions and Recommendation
There was a near unanimous consent amongst all stakeholders present that AML Compliance is critical in the integration of Myanmar into the global financial system and such compliance cannot be compromised.
Conversely there was universal recognition on the need for the development of formal regulation or guidelines in identification documents and improvement in techniques in identification (e.g. facial recognition) which can enhance the ease of opening or operation accounts either at bank counters or digitally, in addition to addressing the concerns raised by the Institutional, Societal and Technological challenges discussed above.
The Discussions thereafter adjourned, with the next Quarterly Discussion date tentatively agreed for Tuesday, December 10th, 2019.