Financial inclusion is a crucial aspect of integration. In a financially advanced area like the European Union, it is essential to be able to receive transfers from the government or an employer, pay invoices electronically, keep savings safe or use a card for various transactions. Financial inclusion of labour migrants and foreign students is relatively straightforward because of their granted residency rights and because they possess proper identification documents. However, the financial inclusion of asylum seekers and refugees poses major challenges. A large majority of newly-arrived refugees do not have a valid identity document, which makes it extremely hard for the private sector to serve refugees according to a set procedure.
There are contradictory forces at work in relation to financial regulation and financial inclusion. The continuing tightening of financial regulation and oversight of the financial sector (which is important in the fight against money-laundering and terrorist financing) works against the economic integration of refugees. Financial regulations, which specify the customer-due-diligence process that financial institutions have to follow before they provide financial services, are generally called ‘Know Your Customer’ (KYC) regulations. Such regulations are adopted worldwide, often to serve anti-money-laundering goals. In the EU, the 2015/849 Anti-Money-Laundering/Combating the Financing of Terrorism (AML/CFT) Directive provides a framework, which is translated into national law by each EU member states.
There is an intense discussion on whether KYC regulations act as a barrier for financial inclusion of refugees, as we discuss in our new report with Uuriintuya Batsaikhan and Inês Gonçalves Raposo, which has just been published. Yet in order to shed light on banks’ attitudes towards the financial integration of refugees in the EU, and their assessments of whether KYC regulations negatively impact the ability of financial institutions in Europe to offer basic and more advanced financial services to refugees, we conducted a survey of financial institutions.
The survey included 15 questions and we received 14 responses from financial institutions in nine European countries: Austria, Cyprus, Estonia, Germany, Greece, Italy, Luxembourg, Spain and Sweden. While our respondents are not a representative sample in a statistical sense, it is reassuring that we received responses from countries that have received a very large share of the refugees that have entered Europe and also from countries with fewer refugees. Moreover, half the respondents have refugee clients and half do not, enabling us to assess the responses accordingly.
Let me highlight here some interesting conclusions from our survey, while the complete results are presented in Chapter 6 of our report.
Supervisory authorities have issued guidelines on the financial integration of refugees only in about half of the EU countries. Differences were also apparent in relation to a number of other issues, indicating that EU directives are implemented differently in various EU member states.
Most banks regard EU know-your-customer requirements as somewhat or overly restrictive in terms of offering financial services to refugees (Figure 1), yet there is a difference in banks’ responses depending on whether they have refugee clients or not. Banks that have refugee clients tend to view KYC regulations as being more restrictive, more so than banks that do not have refugee clients. We cannot exclude the hypothesis that this difference in the responses is related to actual experience: banks that actually deal with refugees might have learned that financial inclusion of refugees is a difficult process and KYC regulations are sometimes restrictive in this regard.
Financial institutions generally do not provide specialised products, or are not equipped to deal with the specific needs of refugees – and show little interest in doing so. Almost one-third of banks (both those banks that have and those that do not have refugee clients) responded that offering financial services to refugees is not interesting at all, while most other banks have only little interest or some interest (Figure 2).
Several important conclusions emerge from our work.
First, we propose the creation of a new system for the identification of asylum seekers and refugees, by creating a European identity document for refugees and setting up national central registries of refugees – as well as a pan-European registry, which would be linked to national registries. Such instruments, supported with European financing, would serve as a reliable source for the verification of the refugees’ data. It would eliminate the possibility for asylum seekers to apply for asylum in more than one country and would greatly facilitate the identification of refugees, tracking their residence within the EU, and their financial inclusion.
Second, national authorities should review the implementation of their specific KYC rules. Those countries that have not yet done so should provide clear guidelines about the financial inclusion of refugees. Together with a new identification system, this could increase the interest of financial institutions in offering financial services to refugees.
Third, private-sector initiatives – such as offering micro-credit to refugees, offering short-term employment and providing internet access – would facilitate their inclusion. Financial institutions themselves could also take further steps, for example by establishing special units with employees who speak different languages, producing internal written guidelines, and offering training to staff on the financial inclusion of refugees. Financial institutions could also volunteer to organise training for refugees, set up dedicated websites, and issue booklets to promote the financial inclusion of refugees.
And fourth, the private and public sectors should work together on the integration of refugees. Public-private partnerships should be explored on issues such as the establishment of common and robust principles for financial inclusion, private-sector support for the set-up of national and pan-European refugee registries, cooperation on training of refugees, and social inclusion.
While in our report we make a number of recommendations to contain the refugee crisis – by, for example, building further partnerships with neighbourhood countries and supporting their refugee camps, stronger border protection measures and fight against illegal immigration – the flow of refugees into the EU is likely to continue. For both humanitarian reasons and the EU’s economic and social interests, integration of refugees is a top priority, in which financial integration has a major role.
 We would like to thank the representatives of Erste Bank, FOREX Bank Sweden, Santander, POST Finance Luxembourg, Europa Bank Greece, Banka Popolare Etica Italy, National Bank of Greece (who agreed to mention the name of their institutions) and the representatives of seven other financial institutions (who wished to keep the name of their institution anonymous) for their participation in our survey. We also thank the European Banking Federation, the European Saving and Retail Banking Group, Finance Norway and UK Finance for their support.