THE Board of Directors of the Caribbean Development Bank (CDB) has approved funding of US$250,000 to strengthen financial transparency, and assist in preventing the loss of correspondent banking relationships (CBRs) in the Region.
In the Caribbean, CBRs facilitate a number of payment systems, including international trade, cross-border payments and receipt of remittances. Recently, some large international banks have started terminating or severely limiting their CBRs with smaller local and regional banks, in an effort to reduce exposure to risks associated with money-laundering and the financing of terrorism. This process, known as de-risking, has negative implications for the Caribbean, potentially resulting in the loss of trade relationships and negative economic impacts.
“CBRs are fundamental to the efficient operation and resilience of the global financial system. This project will contribute to a more stable financial system in the Caribbean, which will in turn allow more banks to access CBRs, so that they can continue to carry out international transactions. This is critical if the Caribbean is to reduce poverty and spur economic development,” said Daniel Best, Director of Projects at the CDB. The project will be a pilot initiative, and will include The Bahamas, Barbados, Belize, Jamaica, and members of the Organisation of Eastern Caribbean States. It has three components: 1. Strengthening the implementation of, and compliance with, international financial integrity standards by governments in the Region, including updating laws and regulations as required.
2. Increasing the technical capacity of banks and credit unions in the Caribbean to conduct customer due diligence, and adopt anti-money laundering best practices. This will include training for staff at financial institutions.
3. Improving public-private sector coordination with regulators to more effectively address de-risking and develop a mechanism for ongoing dialogue between this group and external regulators and foreign banks. The project will be implemented over three years in partnership with the Multilateral Investment Fund (MIF), a member of the Inter-American Development Bank Group. The MIF will also manage the project. Components two and three will be executed by the Office of the Secretary of the Association of Supervisors of Banks of the Americas.
Back in February here, CARICOM had said it will be contracting a lobbyist to help make its case against the withdrawal of correspondent banking services within the Region, even though leaders had acknowledged that there is a virtual stay on the implementation in recent times. The decision was arrived at during CARICOM’s 28th Inter-Sessional Meeting of the Conference of Heads of Government at the Guyana Marriott. CARICOM has long argued that the threat by banks in developed countries to withdraw correspondent banking services would exclude the Region from the global finance and trading system with grave consequences for maintenance of financial stability, economic growth, remittance flows and poverty alleviation.
The threat to Caribbean economies from large-scale withdrawal of correspondent banks was high on the agenda of policymakers attending the 2016 High-Level Caribbean Forum in Port of Spain, Trinidad and Tobago, on November 2, 2016. “The withdrawal of correspondent banking relationships presents a clear and present danger to the Caribbean,” declared IMF Deputy Managing-Director, Tao Zhang, in opening remarks at the forum, which was co-hosted by the IMF and the Government of Trinidad and Tobago. A survey conducted by the Caribbean Association of Banks last year had showed banks in 12 countries in the Region experienced loss of correspondent banking, among them The Bahamas, Belize, Guyana, Jamaica, Suriname, Trinidad and Tobago, and countries in the Eastern Caribbean Currency Union.
On the sidelines of the high-level regional meeting, Prime Minister of Antigua and Barbuda, Gaston Browne, in his capacity as Chair of the Committee on Correspondent Banking, told reporters that the lobbyist will assist in managing the existential threat currently facing the Region. He said in arriving at the decision to employ the services of the lobbyist, the Heads of Government would have first reflected on the progress made over the last year. A presentation was also made by the Governors of the Central Bank Committee.
The Region, Prime Minister Brown said, has managed to gain the attention of a number of multilateral financial institutions, such as the World Bank, Inter-American Development Bank (IDB) and International Monetary Fund (IMF), through its active advocacy initiative to bring awareness on the issue of de-risking. De-risking is the decision taken by financial institutions to exit relationships with and closing the accounts of clients considered “high risk.”
“Our advocacy would have helped to bring the issues, the consequences, potential, intended and unintended consequences to a number of stakeholders globally. Even within the U.S., the Office of the Comptroller would have issued certain guidelines for Corresponding Banks to deal with the issue of de-risking and to avert the type of willy-nilly de-risking that we would have seen in the past,” Prime Minister Browne pointed out.