What we know about the effects of the impending suspension of banking intermediation by the EU

In the wake of Brexit, the European Union plans to prohibit foreign banks not established on its territory from offering home country banking services to their customers residing in a country of the Union. How will this decision impact the subsidiaries of Moroccan banks in the EU? What are the consequences for Moroccans around the world? Response elements.

On January 12, during the Rabat Forum on Reducing African Diaspora Remittance Coststhe wali of Bank Al-Maghrib (BAM) returned to various points surrounding the community of Moroccans of the world (MDM).

He notably mentioned the hardening of the European authorities on the transfers of MDM. “Several banking authorities in EU countries have decided to suspend intermediation activity operated by the banking subsidiaries located in Europe near diasporaand on behalf of their Moroccan parent companies,” he explained.

Currently, a draft European directive, relating in particular to branches in third countries, could severely restrict the activity of branches of Moroccan banks in certain countries of the Union. “This project, whose adoption is imminent, provides for the prohibition for foreign banks not established in the EU to offer banking services from the country of origin directly to their customers residing in a country of the Union”, underlined Abdellatif Jouahri.

A decision that comes in the wake of Brexit

Concretely, what does this mean? What are the future impacts for MDMs and Moroccan banks with subsidiaries abroad?

One might think that the European decision, about to be implemented, was designed specifically to put pressure on Morocco, but this is not the case. The measure concerns all foreign banks operating on European soil.

Contacted on the subject, an expert from the banking sector explains the reasons for this European decision and its origin. “Today, following Brexit, the European Commission is tightening the screws on foreign banks and restricting, or even banning, the sale of products and services in the European Union area,” explains our source.

In the end, the banking consequences following Brexit will create collateral damage to which Morocco will be exposed. “This new regulation will cause collateral damage to Moroccan banks. It stems from the consequences of Brexit. In France, the Prudential Control and Resolution Authority (ACPR) has already ruled on the intervention, on its territory, of banks from countries eligible for development aid within the meaning of the OECD criteria. To this end, it has created an appropriate regulatory framework which allows these banks to rely on their banking subsidiaries in France to carry out intermediation for their account on French territory. I simply think that the European Commission is not aware of the collateral damage it will cause,” said our source.

As a reminder, the Governor of the Central Bank called for a major diplomatic action to protect the achievements and maintain the links between the Kingdom and its diaspora.

This draft European directive, whose adoption is imminent, will have an impact on the entire European territory. “This is a European directive that all the countries of the Union must apply. Some countries, such as the Netherlands, Italy and more recently Belgium, consider that the activity of intermediation for the account of a foreign bank is illegal within the meaning of their own banking laws, have already prohibited Moroccan banks from carrying out this type of activity on their territory”, indicates our interlocutor.

This will have impacts on Moroccan banks operating with subsidiaries approved as credit institutions in European countries, as well as on its MDM customers. These are mainly the BCP and Attijariwafa bank. But concretely, what are the reproaches addressed to these two Moroccan banks holding subsidiaries in the European Union?

“These subsidiaries recruit customers for the Moroccan parent companies”

The subsidiaries of Moroccan banks established in the European Union play a simple role. To sum up, they are a kind of front office 100% owned by the parent company in Morocco. It is a customer acquisition showcase intended to canvass and sell financial products and services.

These subsidiaries are credit institutions and hold an authorization to carry out their activities within European countries. But it should be noted that they do not manage the money. They don’t collect. They act for their parent company, hence the notion of intermediation. “When an MDM goes to see one of these subsidiaries of BCP or Attijariwafa bank, for example, in France, Germany or elsewhere, the bank can present to him the offer of products and services of the Moroccan bank and assist him in carrying out opening an account on the books of the Moroccan bank. Concretely, these subsidiaries recruit customers for the Moroccan parent companies”, explains our expert.

In short, a Moroccan living in France can contact a subsidiary in Paris which will make it easier for him to open an account in Morocco. The subsidiary will collect his information, his file, and send it to the parent company in the Kingdom without his having to come there. The MDM client can also carry out banking transactions and subscribe to financial services within the subsidiaries of the parent companies.

“The MDM can make money transfers directly to its account in Morocco, either through the bank subsidiary, or through the network of partners of the Moroccan bank, because the latter has dozens, even hundreds of partners in the world. When he has built up assets that he deems sufficiently large, he may want to have them placed in a remunerated term deposit, for example. To do this, he can do so from the subsidiary which will transmit the application and the documents signed at the parent company. Ditto for a credit application”, continues our interlocutor.

Henceforth, the aforementioned operations, namely the opening of an account and investment, will be prohibited. It is this interface that the subsidiaries play, that the regulators call “intermediation on behalf of the parent companies”, which will no longer be done. This is already the case in various European countries such as Italy, the Netherlands and Belgium.

But why this prohibition when the subsidiaries do not touch the accounts, do not manage the funds, do not collect the savings directly? “In reality, the activities of its subsidiaries are interpreted by certain regulators as being collection of savings in a territory in which the Moroccan parent companies BCP and Attijariwafa Bank are not approved. It is their subsidiaries that are approved and not the parent companies”, explains our source.

In sum, the subsidiaries are approved to sell their own products and not those of their parent companies. To simplify, regulators would like subsidiaries based in Europe not to sell Moroccan financial products or services, but European ones. “What is desired is that these subsidiaries sell financial products, in euros, on their books, that they sell investment products in euros, on their books, and that they make credit in euros which appears in their balance sheet and not Moroccan products”, adds our interlocutor.

This means that after the adoption of this project, the subsidiaries of Moroccan banks within the European Union will no longer be able to acquire customers or sell Moroccan financial products. “It’s the fundamental thing that will change. The subsidiaries of Moroccan banks will no longer do this work of banking”, explains our source. This means that their customer portfolio will stagnate at best, if not, decline due to the impossibility of prospecting for new customers.

Transfers will not be impacted

In 2022, MDM transfers will cross the symbolic bar of 100 billion dirhams. Will they be impacted by this change in regulation?

For our source, it is important to remember that “basically, an MDM client has the right to send his savings wherever he wants. What is criticized by the European authorities is located upstream and not downstream. The problem, c It is the fact of having a salesperson who will canvass customers residing in Europe to sell them Moroccan financial products and services (the opening of an account, the investment product in Morocco, etc.). is there, not in transfer operations. The reading is that Moroccan banks rely on their subsidiaries abroad to place Moroccan financial products”.

Especially since the majority of the transfers made are not made via the subsidiaries of Moroccan banks in Europe, but through the networks of partners. They therefore go through the partners of their banks in their country of residence to deposit money in their account in Morocco.

“Each subsidiary has a few agencies that have many partners, which notably allows a reduction in transaction costs. An MDM who wishes to make a transfer will use a banking network, from his bank in his country of residence or from a banking network partner to that of the Moroccan subsidiary established in his country. He makes the transfer to his account in Morocco without having to go through the subsidiary. The only thing the subsidiary will do is document the operation”, explains our source.

In short, MDMs will still be able to send money to their accounts in Morocco via different means.

Contacted on the subject, Hazim Sebbata, Managing Director of CashPlus, explains to us that “around 2015, two-thirds of transfers were bank transfers and one-third were ‘cash to cash’, i.e. instant transfers that go through the Money Transfer Operator ( MTO) such as Moneygram or Western Union. Today, these instant flows represent more than half of transfers. That is to say, there is a tendency among MDMs to send less via banks and more via instant systems. Concretely, an MDM prefers to deposit 100 euros in cash at an MTO so that his family can collect the money in cash, or at a CashPlus branch in the second that follows”.

Another instant trend that marks the evolution of transfers is digital, which makes it easier to deposit and withdraw money. “The other scenario is to not go to an agency, but to an MTO application, put your bank card in there and send 100 euros for your family to collect the money here in Whatever the restrictions applied, there is not just one money transfer channel that MDMs already appreciate”, concludes Hazim Sebbata.

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