Caribbean To Tackle Correspondent Bank Woe At Idb Meeting


Tribune Business Editor


The Bahamas and wider Caribbean plan to use next month’s Inter-American Development Bank (IDB) Board of Governors meeting to address the damage being caused by loss of US correspondent banking relationships.

Tanya McCartney, the Bahamas Financial Services Board (BFSB) chief executive, told Tribune Business yesterday that a Cabinet Minister had disclosed the region’s plans to meet with US Treasury and private sector representatives during the April 7-10 meeting in Nassau.

Michael Halkitis, minister of state for finance, during a ministerial ‘roundtable’ at last weekend’s financial services industry conclave in Abaco, detailed the unified response to an issue that threatens both the Bahamian and Caribbean financial services industries.

“He indicated that a regional approach is going to be taken because the other Caribbean countries are perhaps feeling it a little more than we are, although we are feeling it, too,’ Ms McCartney said of Mr Halkitis’s response to a question asked at the conclave.

“It is intended that a meeting with some of the major correspondent banks and the US Treasury Department will be set up at the IDB session.

“It will be a regional approach, with the private sector involved. The intent is to sensitise them to improvements to our regulatory framework and compliance regime.”

Such an approach has been recommended in The Tribune by columnist Sir Ronald Sanders, the Antigua & Barbuda ambassador to the US, who has warned that the loss of American correspondent banking relationships threatens not only the region’s financial services sectors but its wider economies.

Ms McCartney yesterday told Tribune Business that the BFSB backed the strategy of addressing the issue on a regional, as opposed to national, basis.

She added, though, that Bahamian financial services regulators ought to have more regular meetings with their international counterparts to educate them about improvements to the supervisory regime.

Ms McCartney said Bahamian regulators ought to “inform their counterparts on the strides made in the level of oversight. It improves the risk profile of the jurisdiction”.

Correspondent banks are those that allow Bahamian financial institutions to provide services in their home 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.

Foreign correspondent banks thus provide a vital gateway to the world. This access, though, has tightened in recent months as international banks respond to increased global regulatory pressures to either place tighter controls on or drop altogether their correspondent banking relationships.

The potential loss of access to the US financial system would be fatal to many Bahamas-based and Caribbean financial institutions.

While this has yet to occur in the Bahamas, a Central Bank of the Bahamas survey of its licensees, published in January 2016, acknowledged that the pressure was on, with local institutions being subjected to “heightened due diligence” by their US correspondent counterparts.

Abhilash Bhachech, the Central Bank’s inspector of banks and trust companies, confirmed that Bahamian institutions were already feeling the effects of correspondent ‘de-risking’.

While the effect was not systemic, Mr Bhachech said the Central Bank had seen where relationships held by Bahamas-based financial institutions were either subject to greater scrutiny or reduced.

Referring to the Central Bank’s correspondent banking survey conducted in June 2015, Mr Bhachech said: In sum, the results indicated ‘de-risking’ of global correspondent banks has mainly impacted local commercial banks and standalone international banks.

“While the impact does not appear to be systemic, the bank has observed several instances of scrutiny and/or downsizing of correspondent relationships initiated both locally and internationally.

“For example, while four banks reported having a correspondent banking relationship terminated, all were able to find replacements. However, the level of difficulty or ease with which they were able to replace their correspondent bank was due in part to the nature of their operations, as well as the foreign correspondent bank’s onboarding requirements.”

Mr Bhachech added: “A small number of banks confirmed that de-risking has had an adverse impact on their operations, and an even smaller number has advised that this has had an impact on their remittance services.

“In the event of a withdrawal of a correspondent bank, 15 banks (or 30 per cent) indicated that they had a contingency plan in place for its replacement.

“Thirty-five banks indicated they had no contingency plan in place.”

The Central Bank received 53 responses from the 97 public banks and trust companies that it sent the correspondent banking survey to.


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