Correspondent De-Risk Requires ‘Back Up Plan’


Tribune Business Editor


The dangers presented by correspondent bank ‘de-risking’ must be “carefully managed”, the Central Bank’s governor has warned, urging Bahamas-based institutions to ensure they have a “back-up plan”.

John Rolle, who is due to address Bahamas Chamber of Commerce and Employers Confederation (BCCEC) members on the issue today, told Tribune Business that a sound regulatory regime was key to combating the withdrawal of correspondent banking services.

Emphasising that individual institutions needed to understand their role, and implement the necessary safeguards, Mr Rolle said all Bahamian regulatory agencies were working to strengthen “areas of risk” in the country’s money laundering and terror financing defences.

Amid an increasing tendency by developed country banks to terminate correspondent relationships with their Caribbean counterparts, Mr Rolle told Tribune Business: “I think the most we can say at this stage is it has to be carefully managed in terms of making sure all the stakeholders understand what is expected of us in terms of the anti-money laundering regime.”

Regulatory deficiencies, coupled with increased compliance costs and the threat of sanctions by home country regulators, are the reasons most commonly cited by banks for withdrawing correspondent services from the Caribbean.

Mr Rolle said the Central Bank was set to conduct another survey of its licensees to determine if any new problems or issues had arisen over the past year in relation to this issue.

He urged all Bahamas-based institutions to make sure relationships with their correspondent counterparts were strong.

“We know some of these institutions are getting out of the business no matter what, so an important part is to have contingencies or back up arrangements in place, always exploring where opportunities exist,” Mr Rolle told Tribune Business.

He added that the Attorney General’s Office was leading an initiative “at the Task Force level” where all the regulators were working to strengthen areas identified as weaknesses and/or risks in the anti-money laundering regime.

Correspondent banks are those foreign entities that allow Bahamian financial institutions to provide services in their own countries, using their physical and electronic banking infrastructures.

They give Bahamian banks, and their clients, access to the international capital markets and financial system, enabling transactions to clear and be settled on a timely basis, and foreign currency deposits to be taken.

Foreign correspondent banks thus provide the key gateway to the world economy and financial system, lubricating the conduct of international commerce by Bahamian companies - an access that is now being threatened region-wide.

Such access is vital to an economy that imports virtually all it consumes.

Abhilash Bhachech, the Central Bank’s inspector of banks and trust companies, said the regulator’s first correspondent bank ‘de-risk’ survey showed that while the impact was not systemic, relationships enjoyed by Bahamas-based financial institutions were either subject to greater scrutiny or being reduced.

A recent IMF analysis found that while Bahamian institutions have come under greater scrutiny from their correspondents, there has been “temporary disruption” in only a few instances.

“Financial institutions in the Bahamas have experienced additional scrutiny of their correspondent banking relationships, although only in a few cases has this resulted in temporary disruptions of correspondent banking services,” the IMF said.

“Five financial institutions (representing about 19 per cent of the assets of the banking system) have recently lost one or more correspondent banking relationships.”

The IMF added that the money transfer and remittances business has been impacted as well, along with business lines including credit card payments, cash management, investment services, and clearing and settlement.

“Although the impact has been limited so far, further pressure on correspondent banking relationships could have an adverse effect on the financial sector and increase costs of outgoing remittances in the Caribbean,” the Fund said.

“Indeed, the Bahamas is a source of remittances to other countries. In Haiti, for example, the impact of this spillover would be immediate, as about 75 per cent of remittances from the Bahamas to Haiti are paid and received in the same day.”


banker 4 years, 3 months ago

Banks who are not clean as a whistle and haven't implemented the proper safeguards, AML, KYC, FATCA and TEIA compliance will be de-risked. Those who are clean and can demonstrate it will have an easier time, but still will not get a free pass because of their Caribbean cohorts who are unenlightened and will accept cash from anyone.

Just waiting for BoB to be de-risked for accepting webshop money.


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