Don’t bank on it

US institutions are processing fewer financial transactions in the Caribbean as de-risking sets in.

Over the past decade, US banks have reduced the volume of financial transactions they process in the Caribbean by 30%. According to regional leaders, this is due to regulations on correspondent banking in the region, made to monitor and detect money-laundering and illegal financial activities, that have made the Caribbean globally uncompetitive. Some US banks have claimed that the due diligence required is now more costly in the Caribbean.

“The eastern Caribbean is increasingly reliant upon indigenous banks,” explained a risk management consultant in the region, “the international banks have left: Scotia, CIBC, RBC; they’ve all gone. Enhanced compliance requirements are becoming bothersome and the whole financial system has been slowed.”

“The eastern Caribbean is increasingly reliant upon indigenous banks, the international banks have left: Scotia, CIBC, RBC; they’ve all gone.”

Risk management consultant, Barbados

Last April, Caribbean leaders met with members of the US Congress who said that the Caribbean was an example of how de-risking policies could jeopardise the finances of an entire region. Maxine Waters, Chair of the US House Committee on Financial Services said that US banks should apply regulations appropriately to specific risks.

In September, at a hearing before the US House Committee on Financial Services the Prime Minister of Barbados, Mia Mottley, called on US banks to reconsider what she defined as “nonsensical” corresponding bank regulations which are hindering the region’s competitiveness.

Mottley accused US financial institutions of hypocrisy and said that money-launderers like Russian oligarchs preferred suspect banking systems in Switzerland, Luxembourg, and US states such as Delaware, before Caribbean nations. She said that overly cautious due diligence was driving bad actors underground and that international institutions such as the Financial Action Task Force (“FATF”) and OECD rigid lists and regulations mistakenly focused on processes and forms while missing out on defining how to prosecute money launderers.

The risk management consultant continued, “The challenge is that the Caribbean is a small market and it may not be worth the regulatory hassle. I understand the need for better checks and compliance, but the current system is not working. There needs to be better information sharing, particularly in terms of best practice, between local and international financial institutions.”

“The challenge is that the Caribbean is a small market and it may not be worth the regulatory hassle.”

Risk management consultant, Barbados

Caribbean nations are calling for financial institutions to adopt a multilateral approach which can focus on specific corresponding banking regulations for small countries. A regional banking consultant explained, “The banks need to step up too. The banks that don’t have or don’t need much of that correspondent relationship may not realise how important their role is in holding up the system. After all, it’s not just a bank-to-bank relationship, it’s a system-to-system relationship, because it’s our banking system integrating with the US through the correspondent banks. So, if one bank is suspicious, the whole system will come under scrutiny.”

Our sources felt that Caribbean countries themselves needed to increase their levels of co-operation. One financial analyst in the region summed up, “I don’t think we need external help. We know what needs to be done. We know how to get it done. What is lacking are two things: a Central Regional body and the right people with the right resources. A convoy moves at the speed of its slowest vehicle, by working together everyone can move faster.”

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