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IMF Works To Address Caribbean 'De-risking' Woes

by Mike Godfrey, Lowtax.net, Washington
31 October, 2016

The International Monetary Fund has set out the actions being taken and further possible options to address bank de-risking for Caribbean nations.

"De-risking" refers to the practice of international commercial banks to withdraw from correspondent banking relationships with territories considered to be higher risk. Caribbean territories have been impacted in particular. De-risking has involved the sale of subsidiaries, banks ceasing to provide some types of banking services, and the closure of client accounts.

While acknowledging there is "no quick fix" to the problem, the IMF said actions that could be taken include addressing the problem of economies of scale, mitigating cost and technical limitations, and improving information flows.

It has been said that doing business in the Caribbean is no longer financial sustainable, as the cost of complying with the increasing volume of financial regulations is outweighing the potential benefits of continuing existing relationships with the region.

The IMF said small Caribbean banks could bundle transactions and potentially create the economies of scale required for global banks to maintain banking services.

To mitigate cost and technical limitations, the IMF urged that technology be used to reduce compliance costs and strengthen "know-your-customer" frameworks. For example, one approach may be to take advantage of "know-your-customer" software utilities, which store customer due-diligence information in a single repository and allow easy access to bank customer information.

The IMF said steps should be taken to improve the information flow between correspondent banks and respondent banks, including removing legal and contractual obstacles to sharing information across institutions and borders, such as data privacy laws and diverging regulatory frameworks.

The IMF reiterated its commitment to helping the Caribbean region resolve its banking challenges and to identifying concrete policy options. The IMF said that it is in the process of preparing a paper on the issue.

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