Caribbean Association of Banks Conference November 2015 Saint Kitts and Nevis Correspondent Banking
Chris Raymond Advisors Inc.
The Past • Good old days….Overseas Correspondent Bankers visited local banks in abundance to solicit accounts only to be told …..we have enough accounts……some said …..if you lower the price….It became a COMMODITY • All a bank needed to open an account was an account number NO documentation……except just before 911 came Patriot Act form….
The Past
• In the past, Correspondent Banking was a booming business in terms of over 15 banks from the USA calling in this region……now I think there are about 3.
The Present • Banks overseas are being required to perform a large amount of Compliance on the local correspondent bank…documentation is now abundant..Regulations have got Tougher • Correspondent Banking is viewed by some as the gateway to Money Laundering and Terrorist Financing. • This resulted in several things..High Cost of doing business is a major factor……banks started to EXIT the business……hence about 3 at present.
The Present • In addition to cost banks started looking at Perceived Country Risk…..in some cases while the banks were acceptable the Country Risk resulted in banks being asked to close their accounts…..in addition banks set revenue minimums in many cases smaller banks did not have the volume of business to generate revenue requirements…..in some cases banks required a minimum asset size ….many local banks could not meet that requirement.
The Present • This also created Higher Cost for the local banks to Comply….many such cost included having third party audits……internal system changes to monitor client activity etc • Implementation of KYC/AML/EDD programs are a must and come with high cost. This is now a culture which starts at the top. • Training and Testing of every member of staff.
The Present • Then other issues arose such as the type of business the local banks were doing for their clients……High Risk businesses such as MSB or Casa de Cambio …..this resulted in local banks so as not to loose their account asking some clients to close their accounts…..the pressure continued as banks also looked into board members and their origin and their line of business….. these are some reasons…… banks are being asked to close their accounts.
The Present • We must demonstrate a strong AML Compliance program. • Follow the FATF updated recommendations. • We must know our clients customer base. • We must risk rate each and every client. • Follow the Wolfsberg Anti-Money Laundering principles for Correspondent Banking.
The Present • This now results in the Relationship Bankers not calling on banks to solicit accounts but rather the other way around where the local banks are now calling the Foreign Correspondent Bank requesting an account…. • Is it going to get easier NO……..
The Present • Perception can be good but it is also can be a very BAD thing. • The Caribbean region has been unfairly targeted as High Risk and has been also mentioned as a Black listed region in the EU report in June 2015 as non co-operative jurisdictions. Let it be known that several countries and banks in this region have not only met all financial requirements such as FATF but in most cases have EXCEEDED these requirements.
The Present • The Honorable Prime Minister of Antigua recently met with President Obama in Jamaica and brought the urgency of this matter to his attention. In addition the PM also mentioned this in his speech at the United Nations General Assembly. Correspondent banking relationships is the life line of our banks. I am sure member banks received copies of the PM meeting with the President and also a copy of his address to the UNGA.
Future /Considerations • Banks may have to look at possibly merging. • The region should make representation to The Federal Reserve Bank requesting that they consider offering International Correspondent Banking Services. • The PM has done the correct thing. Now there needs to be follow up with Congress, The Senate and The Federal Reserve by our Central Bank Governors and also Ministers of Finance in the various Caribbean countries.
• The overseas correspondent banks are being constantly required to do more monitoring and reporting at a very high cost. • For this reason I do not expect to see new players in the market. • Fines being imposed are now in the Billions NOT Millions • Representation must be made at high levels as previously mentioned. Next year is an election year in the USA so things will be slow but we MUST ACT NOW.
