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DE-RISKING AND CORRESPONDENT BANKING. To the average Barbadian these two phrases probably do not mean much, but in reality they are very important. Already this year, BARBADOS BUSINESS AUTHORITY has published a series of articles authored by Louis Parris.
Parris is a certified compliance professional, consultant and publisher of the Caribbean Banking Intelligence Anti-Money Laundering Compliance Newsletter. With such a background he is well placed to speak on such issues, which have become an important concern for individuals and companies operating in Barbados and the Caribbean, including banks.
Parris said de-risking was “the phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk in line with the Financial Action Task Force’s risk-based approach”. Correspondent banking, he noted, was “the banking related service provided by one bank (correspondent) to an overseas bank (respondent) to enable the respondent to provide foreign currency services”. It includes opening and maintaining accounts, payment services and collections, and was “essential to the import/export trade as well as remittances”, he noted.
In real terms, the changes in these relationships due to de-risking has been having a negative impact in Barbados.
One area affected is the international business and financial services sector. Speaking earlier this year, former Barbados International Business Association (BIBA) president Connie Smith said: “Increasingly, some members of BIBA have been raising concerns with us about the hurdles they and their clients are facing as clients of local commercial banks . . . the strict requirements being imposed on international business clients by commercial banks is as a result of the risk profile with which Barbados is viewed by the international correspondent banks that mediate between the local commercial banks and the global financial community.”
The Caribbean Association of Banks has also raised its own concerns, stating in April that “the unfair and unsubstantiated labelling of the Caribbean region as a high risk area for financial services by some United States organisations is resulting in the disturbing threat of loss of correspondent banking relationships to banks in the region”.
The issue also came up recently at a meeting of the Financial Stability Board in London. Reporting on that meeting, Central Bank Governor Dr DeLisle Worrell said the preliminary findings of a World Bank study on the issue found that the Caribbean was among the areas most affected by the decline in correspondent banking relationships.
In a June commentary on the issue, Financial Stability Board chairman Mark Carney and the World Bank’s chief financial officer Bertrand Badré said “authorities must ensure that they provide a clear and consistent interpretation and enforcement of international standards”.
They also cautioned: “The financial abandonment of whole groups of customers – or even countries – is not something that can be ignored by the members of the G20. The FSB and the World Bank are playing our part in coordinating efforts to prevent the loss of basic banking services needed to finance investment in some of the most vulnerable areas in teh world. This is important not only for the countries directly affected, but for all of us as we seek to build a global financial system that can support growth for all.”
A clearer picture of the impact de-risking and the loss of correspondent banking relations are having on Barbados and other Caribbean countries will be given next month when the FSB’s Regional Consultative Group for the Americas meets in Barbados.