The Caribbean Association of Banks Inc. (CAB) seeks to address the significant issue of the loss of Correspondent Banking relationships currently threatening the regions’ financial services sector. At its recently held CEO Forum on De-Risking, CEO’s, Directors and Compliance Professionals from regional banks together with Technical Service Providers, a US Legal Representative and a potential provider of Correspondent Banking services came together, to explore potential solutions and develop a set of actions in response to this threat.
In her opening remarks to the attendees, Ms. Joanna Charles, Chairperson of the CAB, emphasized the fact that it is no longer “Business as Usual” for the Caribbean financial services industry due to the unprecedented regulatory, legislative and economic changes taking place. She stressed that this forum was a call to action by members in pursuing some initiatives towards addressing those imminent threats. She remarked that “The need to ensure the viability of the financial services sector, rests with its members and cannot be left in the hands of third parties”.
In many Caribbean jurisdictions there has been a recent trend of de-risking adopted by global banks, which has led them to either terminate or threaten to terminate their correspondent banking relationships with local banks. Correspondent Banking relationships perform a critical role in facilitating the flow of funds across the globe such as Remittances, Foreign Direct Investments and International Trade. Consequently, as Caribbean countries rely heavily on these economic activities, de-risking has the potential to destabilise our economies, promote financial exclusion and increase poverty levels.
A Correspondent Bank is a financial institution that provides services on behalf of another financial institution. Correspondent banks enable banks in one country to conduct business in a foreign country.When financial institutions terminate or restrict Correspondent Banking business relationships or services with their client (respondent) banks to avoid, rather than manage, risk, these financial institutions are said to be “de-risking”.
The CAB forum discussed and agreed on the following key potential solutions:
- The establishment of a clearing institution in the US,
- Alternative Payment Methods,
- Alternative Correspondent Banking Relationships (UK).
A six member committee was set up to advance these recommendations.
The CAB is a community of banks and other financial institutions in the Caribbean region, which proactively influences issues impacting the financial services sector through advocacy, education and networking. The CAB represents fifty-one (51) banks and financial institutions in the Caribbean with an asset base in excess of US$31 billion as at Dec 31, 2015, in addition to twelve (12) Service members comprising regional and international technological and professional institutions and three (3) Honorary Members.