IMF praises Eastern Caribbean for tackling correspondent banking issues
As the International Monetary Fund (IMF) wrapped up its annual meeting in Washington, DC, last weekend, managing director Christine Lagarde praised the Eastern Caribbean on its effort to address problems related to the withdrawal of international correspondent banks.
In her address at the 'High-Level Seminar on the Latest Trends in Correspondent Banking Relationships', she noted that this issue doesn't impact only governments and financial institutions negatively. It also affects the flow of remittances that individuals, especially people in remote and rural communities, depend on.
If left unaddressed this issue could among others have an effect on financial stability, inclusion and growth as well on development goals, the IMF chief warned.
She noted that one of the good examples is the bold steps taken by the Eastern Caribbean Currency Union (ECCU) to address the issue. Governments of this currency union have recently decided to consolidate their national anti-money laundering and combating the financing of terrorism (AML/ CFT) regulatory bodies into one regional operation under the responsibility of the Eastern Caribbean Central Bank (ECCB), Lagarde told the gathering of central bankers.
“That's a way to address the issue,” she said.
The challenge for many countries, according to Lagarde, “is not so much the legal framework, but actually the implementation of the AML/ CFT-frameworks”. Many IMF member states already have the legal frameworks in place, she said, but lack the technical capacity to enforce the measures.
Meanwhile, many banks in the affected countries have been upgrading their internal AML/CFT compliance frameworks. They strengthened their customer due diligence policies and have also upgraded the promptness and quality of their replies to requests for information from external authorities.
“These are all extremely positive steps, but they were often not enough to restore banking relations or even prevent the threat of further exits,” Lagarde noted.
She further added that some banks in the affected countries managed to find replacement banking relationships or made greater use of remaining ones, while others have found temporary arrangements to process international transactions with the help of some major credit card companies or by using alternative currencies. In both instances, however, the costs of such operations have significantly increased.
The IMF chief urged banking and government officials to keep the dialogue with the international banks and regulators open and exchange ideas on best practices how ultimately the problems related to correspondent banking relations could be resolved or clear up misperceptions, which are persistent in some cases.
During the panel discussion, the governor of the ECCB painted a stark picture of the negative impact the withdrawal of international banks has in the Caribbean. He noted that more and more it is becoming extremely difficult for governments, financial institutions, companies and individuals in some countries to execute international transactions.
Glenn Gersie, governor of the Central Bank of Suriname, said that if the problems are not resolved in a timely fashion this would result in “serious” problems for the economy of the region.
“It is a huge problem that if not addressed properly can create a lot of damage in developing countries,” Gersie said.
Christine Lagarde, IMF's managing director, during a seminar in Washington DC, where central bankers addressed the issue regarding the withdrawal of international correspondent banking relations, which is also having a negative impact on Caribbean countries.