How To Solve The Caribbean’s De-Risking Crisis? – A Commonwealth Perspective

The Commonwealth recently held a meeting on addressing the crisis of De-risking which is affecting many Caribbean nations.

By NAN Business Editor

News Americas, NEW YORK, NY, Fri. Aug. 19, 2016: As the Caribbean continues to battle with the issue of de-risking – the issue where banks and financial institutions exit relationships with clients/nations perceived to be “high risk” – the Commonwealth is stepping into the fray and offering up a number of solutions. Here are six solutions being offered up by the Commonwealth Secretariat to address what it says is the “detrimental” decline in international banking for many nations, businesses and individuals in the Caribbean region as well as in the Pacific and South Asian countries:

1:  Capacity building – for regulators, financial institutions and commercial entities so that countries are better able to implement The Financial Action Task Force (on Money Laundering) (FATF) standards, and banks are better able to distinguish between high-risk and low-risk customers.

2: Enhancing the role of global forums – to give greater voice to developing country needs, to facilitate the sharing of information (such as identified risks) and best practice, and to harmonize approaches to regulation.

3: Best practice standards- that identify a list of ‘reputable’ Money Services Business (MSB’s), where inclusion to this list requires adhering to agreed high-standards of risk management. These standards, the Commonwealth says, would be compiled in collaboration with the banking industry to determine the measures necessary for MSBs to satisfy banks’ internal risk standards.

4: Guidance for banks – to ease banks’ concerns over their liability for Anti Money Laundering and Counter-Financing of Terrorism (AML/CFT) breaches and to provide greater guidance on how to bank ‘higher-risk’ customers.

5: An impartial appeals process – that requires commercial banks to obtain regulatory consent before they can close accounts and allows MSBs to appeal account closures.

6: The use of virtual currencies – to facilitate international money transfers and avoid formal banking networks.

7: A bank for ‘higher-risk’ MSBs – to provide temporary bank services to ‘higher-risk’ MSBs that have  had their accounts closed. The bank would engage with local regulators and the FATF to identify compliance issues, and work directly with de-banked MSBs to help improve standards and re-open their closed commercial accounts.

Paulette Simpson, National’s Executive Corporate Affairs and Public Policy of Jamaica National, one of Jamaica’s largest financial institutions, who attended a recent public meeting hosted by the Commonwealth Secretariat, appealed for an acknowledgement by banks that people’s lives are hanging in the balance.

Stressing the urgency of the situation for institutions like Jamaica National, which was given three months to terminate one 25-year correspondent banking relationship, she called for continued dialogue and immediate solutions.

But David Lewis, Executive Secretary of the Financial Action Task Force (FATF), said his organization takes de-risking seriously. He highlighted threats such as underground financial channels, which can be used by criminals and terrorists, but said they are examining the issue to determine whether there was “overzealous application” of the regulations.

“Banks have told us that the cost of maintaining correspondent relationships can greatly outweigh the profits generated. A time-consuming case for the internal compliance team could cost more than several years’ worth of profit,” Lewis added.