Commonwealth Takes Notice of Region’s De-Risking Worries

Money in the bank

Financial institutions are terminating or restricting correspondent banking relationships (CBRs) with legitimate clients as a way of mitigating legal risks.


LONDON, England, Saturday August 13, 2016 – Caribbean countries are not alone in worrying about how de-risking is threatening their financial stability. The Commonwealth is not only noticing it but trying to come up with solutions.

Passions ran high as money transfer businesses and smaller financial institutions met this week at the Commonwealth Secretariat to address a “detrimental” decline in international banking for many businesses and individuals.

The public meeting was convened to discuss the report, Disconnecting from Global Finance, which proposes solutions to the trend of financial institutions terminating or restricting so-called correspondent banking relationships (CBRs) with legitimate clients as a way of mitigating legal risks. This practice, which is a response in part to increased regulation, is known as de-risking.

“Major banks are now avoiding banking customers, or categories of customers, they deem low profit or high risk. The drivers are complex and varied but global regulations that are designed to stop money laundering and the financing of terrorism have contributed to this worrying phenomenon,” said Commonwealth Economic Policy expert Samantha Attridge, Head of Finance and Development Policy.

“Our report shows a worrying rise in CBR closures, doubling year-on-year since 2013. The issue is particularly affecting regions such as the Caribbean, where for example in Belize seven of Belize’s nine banks lost their CBRs, as well as the Central Bank losing one of its CBRs.”

De-risking is curtailing countries’ access to essential cross-border financial services such as trade finance and international money transfers, which are essential to many economies. The issue is particularly detrimental to vulnerable economies and small states in the Commonwealth, Attridge said.

Participants at the meeting on Wednesday included the Executive Secretary of the Financial Action Task Force (FATF), the international anti-money laundering and counter financing terrorism standard setter, as well as senior representatives from the British Bankers’ Association, HSBC Holdings, Santander and the Wolfsberg Group.

Delegates applauded the Commonwealth for proposing measures including setting best practice standards for money service businesses to boost their legitimacy and reputation, and improving guidance and risk-tolerance standards for banks, that balance the need to prevent illegal activity with ensuring smaller institutions in developing countries are not excluded from the global financial system.

The Disconnecting from Global Finance report also proposes building capacity for financial regulators in developing countries and ensuring they are part of global conversations on the setting of standards and policies.

Paulette Simpson, National’s Executive Corporate Affairs and Public Policy of Jamaica National, one of Jamaica’s largest financial institutions, 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.

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