Wholesale derisking threatens Caribbean region


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AML cost/benefit issues and perceived risk result in ‘derisking’

High costs and perceived high risks are driving a trend among some large Western banks to end correspondent banking to whole countries and regions. This move to ‘derisk’ is nearly guaranteed to have a calamitous impact on those cut off from correspondent banking. Various financial institutions in the Caribbean are grappling with this reality, and the Caribbean Community (CARICOM) is making this ‘derisking’ threat a priority issue.

Belizean Prime Minister Dean Barrow spoke this week at the CARICOM intercessional meeting, and he warned that derisking presents “absolutely cataclysmic ramifications” for member nations of the Caribbean Community. Barrow said that the closing of correspondent banking “deprives our banks of the ability to keep US deposits, do wire transfers, facilitate credit card settlements for their local clients and our economy.” Barrow is urging members of CARICOM to unite in seeking a solution to this massive economic threat.

Dexter F. Cecilia, an industry expert in the Caribbean region, agrees. “This is the largest threat to the people of the Caribbean Islands,” said Cecilia, the Managing Director of D.C. Innovative Consultancy B.V., with its office based in Curacao.

Amandala, a leading Belize newspaper, has reported extensively on this topic of derisking and the threat it poses to Belize and to the larger Caribbean region, which participates vigorously in international trade and financial services. According to an August 2015 report in Amandala, government officials in Belize are alarmed that their concerted efforts to stabilize their currency and their economy and to upgrade their AML regulations with reference to international standards may not be enough in the face of wholesale derisking.

Cecilia consults with regional banks on AML issues, and he is confident that better and better AML programs and efforts will improve correspondent-banking prospects for banks in the Caribbean. Said Cecilia, “We get frequent requests from customers for assistance in establishing correspondent bank relationships and the process stops when it comes to compliance from the correspondent side.  We need to bring our banking systems and the risk they pose into the 21st century.”

Embrace AML/CTF solutions to counter threat of derisking

AML Partners CEO Frank Cummings has worked with numerous international banks seeking to upgrade their AML/CTF Compliance programs, and he agrees with Cecilia that one of the most powerful strategies available to the region is taking advantage of the technologies available to boost AML/CTF Compliance and overall transparency.

“There is no justification for wholesale derisking or for inadequate AML at this point—this is the 21st Century,” Cummings said. “We have tremendous technologies to support AML/CTF efforts for banks that embrace transparency and compliance. Banks and nations that demonstrably meet international standards for AML/CTF should not be punished for the bad actors whom they cannot control. And with sophisticated CDD/KYC software, transaction monitoring, and sanctions screening, there is no justification anymore for weak AML/CTF. Banks and nations that embrace and meet strong AML standards should be able to count on full access to the international financial system.”

Cecilia similarly emphasizes the importance of Caribbean nations adopting AML technologies that support the highest levels of AML success. For example, he urges financial institutions to consider software solutions that include “seamlessly integrating KYC, Sanction Screening and Transaction Monitoring into one solution. Having each component feeding information between them and obtaining up-to-the-minute information will solve this [AML] issue,” Cecilia said.

“This solution already exists and it is available,” Cecilia said. “Once we can prove to the US correspondent banks the Caribbean region is indeed up to date in the 21st century, they will surely change the way they view us right now as high risk.”