Region stands to lose billions in remittances, warns Arthur
It forms part of the global crackdown against financial crime and international terrorism.
And in the wake of the 2008 global financial crisis, its focus has been on strengthening financial systems by requiring financial institutions to meet more “exacting” liquidity and capital requirements.
But former Prime Minister Owen Arthur today warned that the phenomenon of correspondent banking poses a “formidable” challenge to Caribbean countries.
Speaking in Jamaica, Arthur highlighted the US$10 billion a year this region receives in remittances, while warning that this, the region’s single largest financial inflow, upon which countless Caribbean households depend for a sustainable livelihood, could be in jeopardy.
“The threat posed by the Correspondent Banking crisis to money services businesses that are involved in dealing with remittances is above all a threat to the stability of the society at large and hence has effectively to be countered,” he said in remarks during a roundtable discussion on Correspondent Banking at the Jamaica Pegasus Hotel this morning.
Arthur, who is a respected economist, further warned that “derisking” which is at the centre of the correspondent banking issue, could serve to delink Caribbean economies from access to global finance at a juncture where they need to increase the ratio of capital inflows to Gross Domestic Product (GDP).
He said it could increase the cost of access to such finance and force economic agents in the region to resort to illicit means, further damaging the image of the region.
“It can also do untold damage to the financial sector in the Caribbean,” Arthur added, while pointing out that the Caribbean’s financial sector was characterized by shallow banking systems, undeveloped and highly concentrated financial markets and domestic currencies that were not internationally traded.
Therefore, he said, the region was “predisposed to having derisking take on a dimension that does not obtain elsewhere and which is more severe than in our jurisdictions”.
Describing the global initiative as “the most recent, but perhaps the potentially most devastating threat to the stable and successful development of the region”, the former prime minister called on the region not to allow itself to become the real but unintended victim.
He said although the Caribbean could not escape from this global initiative, “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”.
In this regard, Arthur noted that the guidelines promulgated by the Financial Action Task Force (FATF) required entities to adopt a risk-based approach whereby financial institutions only terminate customer relationships on a case-by-case basis in instances where money laundering and terrorist financing risk could not be mitigated.
He further warned that “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,” emphasizing that “the global rules must be made to apply.
Arthur also said there was merit in the region taking a stand in support of a revision of the new stringent liquidity coverage ratios that are part of the Basel III financial requirements.
“Basel III has in fact redefined and reduced the value of correspondent banking balances, and this has brought new adverse dynamics to the economics of the business as it has led to a situation where compliance costs and risks outweigh returns to the enterprises involved,” Arthur said, adding: “It is true, of this matter, as of every other facet of life, that indignation without follow-through is just another way of killing time.”
Arthur, who has been a foremost proponent of the Caribbean Community (CARICOM) Single Market and Economy (CSME), also called for a “well-coordinated regional effort” to combat the issue and for the region to ensure that its financial house is in order as far as the rules, standards and enforcement mechanisms in the fight against financial crimes and terrorism are concerned.