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United Caribbean needs to tackle correspondent banking issue

ROUNDTABLE DISCUSSION: Former Barbados prime minister Owen Arthur (left) and Jamaica National Building Society (JNBS) General manager Earl Jarret

CARIBBEAN STAKEHOLDERS, including former prime minister of Barbados, Owen Arthur, agree that there is a need for unified Caribbean efforts to combat the growing move by large, mainly US-based international banks, to sever relationships with smaller Caribbean-based financial institutions, including money services businesses.

The calls were made during a roundtable discussion on Correspondent Banking in Kingston, Jamaica, last week (Jan 19), organised by the think tank, the Caribbean Policy and Research Institute (CaPRI) in partnership with the Jamaica National Building Society (JNBS), amid concerns about the implications for trade-dependent Caribbean economies and societies.

Addressing participants at the forum, Arthur acknowledged that while Caribbean countries are not the only ones being affected by the move by large banks to “de-risk” their operations, they must form strategic alliances; and, add their voice to the cause; as well as, commit the resources necessary to strengthen their position to resist any unfair application of global regulations and standards.

According to the former Barbados prime minister, the practice of de-risking, which involves the closure of accounts of categories of financial institutions deemed high-risk for money laundering and terrorism financing, diminishes the Caribbean’s access to global financial markets and impacts the flow of nearly US $10 billion in remittances to the region, annually.

“The wholesale cutting loose of clients, without evaluating their risks, was not intended to be a substantive part of the fight to combat global financial crime and terrorism,” Arthur argued, “But, this is precisely the direction in which the de-risking exercise is taking the global financial community.”

He said that although the Caribbean cannot shirk global efforts to reduce financial crime, fight terrorism and strengthen financial systems, it must advocate for fair application of the rules.

“The Caribbean cannot profess to wish to stand askance from this global initiative,” he declared. “What it can and must do is to add its voice to those who are insisting that, where rules and standards are set, which are intended to be applied fairly and uniformly, this should be observed in practice.”

Against that background, Arthur called for Caribbean countries to ensure their standards and compliance mechanisms meet global requirements, which, he stressed, could be achieved through the implementation of the second phase of the Caribbean Single Market and Economy.

“The plan to move to a Single Economy called for the putting in place, for example, of a Regional Financial Services Agreement and a Regional Investment Code, which, if brought into existence, would have been designed to govern and bring order to the operation of the regional financial sector, and set out clear guidelines concerning that sector’s relationship with the global economy,” he explained.

“The issue now being grappled with, concerning Correspondent Banking, surely must accentuate the need for the Caribbean to have in place mechanisms that can allow it to respond on this matter, as on all others, in a coherent and sustained manner, rather than in a spasmodic way,” he maintained.

Detailing the implications for trade and reputational damage, as well as compliance costs for businesses which face account closures, Co-executive Director of CaPRI, Dr Damien King similarly noted the need for regional coordination and stronger leadership to develop better systems and standards that improve accountability and reduce the compliance burden.

“And, I don’t mean there’s a leadership in the pejorative sense, but what we have is many jurisdictions at many levels that overlap; and are not consistent; and then international banks responding to that, by setting up their own rules and decisions,” Dr King argued.

He said there is a need for definitions, standards, uniformed policies and streamlined mechanisms to make monitoring and evaluation easier. He noted for example, that Caribbean banks and money services businesses could design and implement a common system to allow for sharing of data to assist Caribbean institutions to better know their customers.

He also said Caribbean governments should also advance the issues as a developmental matter at the international level, an approach the President of the Jamaica Bankers’ Association, Nigel Holness endorsed. Holness said regional leadership is needed to tackle the stigma attached to the Caribbean as being corrupt and shallow on compliance.

“The reality is: we are facing a head on strong wind and we have to face it as a community, and not individual countries tackling the issue on their own. What we are doing in Jamaica we have to replicate that across the Caribbean,” he argued.

However, Leesa Kow, president of the Jamaica Money Remitters’ Association, said an important part of the advocacy approach is also to improve understanding of the broad impact of de-risking practices and who it affects globally; as well as, to deepen understanding of the remittance industry and how it operates.

“Banks in the United States of America and in the United Kingdom are also suffering,” Kow said, noting that more than 50 percent of money transfer operators in the US also lost bank accounts.

“The reality is that money transfer companies and operators are more heavily regulated and scrutinised than banks although they adhere to the same regulations and rules as banks,” the JMRA president, who is also General Manager of JN Money Services Limited, said. “Therefore, as we consider the solutions, we need to consider that there is a deeper understanding that we need to get about what’s happening.”

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