Today is World Refugee Day, an annual event organised by the UN to celebrate and honour refugees from around the world and to raise awareness of their plight and efforts to protect their human rights. In the past 12 months, the world has seen fresh flows of refugees from Afghanistan and Ukraine, adding to those continuing to flee from Syria, Venezuela, South Sudan and other conflict and crisis zones.
Access to financial services for refugees and asylum seekers is a well-recognised problem. Most face barriers to opening accounts and accessing the products and services they need to find work and accommodation in order to rebuild their lives. Some lack acceptable forms of identification or cannot provide documentation to prove their address or income. In some countries in Europe, banks may even refuse to accept passports from certain refugee-producing countries, given the risk of fraud. There are also barriers which are not unique to refugees, such as language skills, the accessibility of branch locations, or familiarity with technology.
Germany’s Passport Restrictions
Licensed banks in Germany are required to use a system run by the post office, Postbank, to check that potential clients meet KYC requirements. The Postbank has a list of nationalities for which it cannot process passports, including countries such as Syria, Afghanistan and Pakistan. This means that people from many of the top refugee-producing countries cannot access banking services with any licensed bank in Germany.
This creates an odd situation for developing FinTechs, which may “outgrow” the refugee market. EMIs without full banking licences can use alternative document-checking services which do not automatically preclude certain nationalities. However, if they subsequently become a licensed bank they will have to use the Postbank system and decline high-risk passports.
The ongoing flux of refugees from Ukraine prompted the European Banking Authority (EBA) to instruct banks to make it easier for refugees to open accounts, and to state that both banks and supervisors must ensure refugees can access the EU’s financial system without having to zealously comply with AML rules. (This follows a 2016 EBA paper in which it commented that a combination of country risk and uncertainty over ID documents means the ML/TF threat posed by refugees and asylum seekers is “unlikely to be low”, but that the risk could still be managed effectively.)
Some regulators have taken steps to address the problem. An EU regulation passed in 2015 requires banks to offer basic payment accounts to all customers legally residing in EU countries, including asylum seekers and refugees. Banks need not insist on a passport or ID card, but should accept any official document containing a full name, nationality, date and place of birth and residence, such as a residency permit. However, many EU national regulators have still not issued guidelines to implement this regulation.
Provisions may also vary depending on refugees’ country of origin, with many institutions making exceptions for Ukrainian nationals. A number of digital banks including Wise, Revolut, and bunq, are offering free accounts and simplified account opening processes for Ukrainians (or in the case of Revolut, anyone fleeing Ukraine whatever their nationality). In the UK, HSBC was one of the first institutions to allow Ukrainian refugees to apply for an account, introducing a new account opening process in March.
Some examples of best practice:
Lloyds Bank and the Lloyds Foundation
Through the Lloyds Foundation, LLoyds Bank works with charities supporting refugees, homeless people and victims of domestic abuse to understand their needs and identify areas where the bank should change its processes to allow access to its services. It is looking at how to support people who do not speak English, again by partnering with charities to share expertise.
The bank has launched a programme to allow refugees and other vulnerable groups to use alternative sources of ID to access its services, including biometric residence permits or letters of recommendation from charities verified by the foundation, confirming the identities of applicants.
BNP Paribas
BNP Paribas offers refugees and other frequently unbanked individuals easy access to financial services through its FinTech company Nickel, with no need for a fixed address. Rather than working with partner organisations to verify individuals’ identities, thus limiting support to individuals already ‘in the system’ and receiving support, Nickel enables users to access services directly at their nearest tobacconist and to use the address of temporary migrant housing or nearby service providers such as a laundrette or post office. BNP Paribas also offers training to refugees and migrants through a series of partnerships, and supports lending to early-stage refugee-led enterprises.
Interestingly, Nickel is not run as a charitable initiative - it charges €20 a year for its services and a 2% fee for each transaction. BNP Paribas says this shows that social businesses with a for-good imperative can also make money, thus making them more sustainable and resilient.
HSBC
HSBC has introduced a new account opening process for Ukrainian refugees, following on from earlier programmes to provide services to vulnerable users including survivors of domestic abuse and the homeless. It is not clear if it intends to extend these processes to all refugees and asylum seekers.
HSBC says it has already helped over 1,000 victims of modern slavery and human trafficking through its Survivor Bank service, which provides access to a basic bank account without the need for photo ID or proof of address. It accepts applications from people who are supported by a caseworker from the Salvation Army or one of 18 other charities that can verify their identify.
HSBC provides a similar service to those without a fixed address. In partnership with the housing charity Shelter, the bank’s No Fixed Address programme enables caseworkers to verify the identity of individuals who lack the necessary documentation.
Recommendations for financial institutions
Consider how you can meet your regulatory requirements on KYC and customer due diligence while removing unnecessary hurdles for vulnerable users including asylum seekers. There is clear support for this approach from regulators and industry bodies, and major banking groups such as HSBC have already started leading the way.
Consider manual or in-person alternatives to your automated, digital onboarding process. This will benefit both refugees and other marginalised groups (such as the elderly or others less familiar with technology, or people with certain disabilities).
Review your customer risk assessment model. Many models are heavily but often unhelpfully influenced by nationality. The combination of nationality, refugee status, employment status, and thin credit files can all combine to make refugees high-risk customers. This may place them outside a firm’s risk appetite and denied access products and services, or require them to undergo additional due diligence (which they may well fail), or may mean they are subject to additional ongoing scrutiny. This in turn can result in payments being blocked or accounts being frozen pending investigation, which can have serious knock-on effects, unfairly disadvantaging refugees and other affected groups.
At FINTRAIL, we strive to improve diversity, equity and inclusion (DE&I) in all aspects of anti-financial crime. We co-created the FinCrime Principles of Inclusion as part of Tech Nation’s Finclusion 2021 to increase awareness of this important area and to provide practical, implementable guidance. Find out more and download the principles here.
If you would like to discuss any of the topics raised in this article, or how FINTRAIL can assist you review your existing controls and procedures to ensure inclusion for refugees and other vulnerable groups, please email us at contact@fintrail.com.