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CaPRI concerned about financial burden of correspondent banking regulations

Published:Sunday | January 17, 2016 | 12:00 AM

The Caribbean Policy Research Institute (CaPRI) has raised concerns about what it says are the increased compliance costs of correspondent banking regulations.

Co-executive director of CaPRI, Dr Damien King, has argued that Caribbean countries are among those facing the most severe consequences from increased regulation being implemented by the United States to tackle money laundering and the financing of terrorism.

"The increased regulatory burden on financial institutions has increased the compliance cost of carrying out transactions and the response by the institutions is to end 'correspondent banking relationships' with other institutions for which the small volume of transactions does not justify the increased compliance cost," he said.




King raised concerns that smaller countries are the ones most seriously affected by this "de-risking" process, as they generate a smaller volume of business, and are thus less likely to cover the increased cost of doing business with their counterparts in Jamaica.

One direct example of the impact of this "de-risking" was the tripling of cambio closures in 2014, after some local banks, under threat from their overseas counterparts, closed the accounts of cambio operations.

Without banking services, many cambios have ceased operating.

Correspondent banking relations can also impact the processing of transactions involving the provision of cash, cheques, and money orders, as well as credit and debit cards by one bank on behalf of another.

The Cayman-based money-transfer services of the Jamaica National Building Society (JNBS) were last year under threat of being shuttered after its correspondent bank, the Cayman National Bank (CNB), issued a notice that it would close the accounts of JN Money Services, the subsidiary through which JNBS offers remittance services.

Western Union, the global leader in remittances, had its Cayman outlets shuttered on July 17 when the near-20-year-old franchise operated by Fidelity Bank and Trust International pulled from the market.

Financial experts have noted that the changes in the Cayman remittance industry have been triggered by correspondent banking regulations enforcement by the United States.

According to King, the implications of correspondent banking regulations are severe.

"Even someone who works as a receptionist at a company which imports raw materials will be affected by the diminished capacity of that company to access trade credit," the CaPRI co-executive director said.

The University of the West Indies-based think tank will host a forum tomorrow to discuss how the tough global banking regulations have eroded options for Jamaicans and those in the wider Caribbean to conduct international financial transactions.