Guyana is working closely with its regional and international partners in response to banking threats and the possibility of de-risking, Minister of Finance Winston Jordan said on Monday.
This issue was addressed during his presentation on the proposed 2017 national budget on Monday, where he addressed financial sector reform. Jordan said that like other Caribbean economies, Guyana faces a potentially damaging correspondent banking crisis.
The local banks and financial institutions of small Caribbean economies, he said, rely heavily on correspondent banking relationships with global banks to connect with the international financial network.
These relationships allow local residents to receive remittances from abroad, tourists to access cash from their home accounts, and facilitate the transfer of funds needed to support trade and investment in our region, he explained. He told the National Assembly that recently, concerns about meeting new, stricter rules related to Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) have led correspondent banks to terminate their relationships with their local partners, which is a practice termed “de-risking.” While this trend has affected countries around the globe, the small economies of the Caribbean have been hit especially hard, he stressed.
Jordan noted that while foreign-owned banks operating in Guyana have not been subject to de-risking, locally owned banks have been severely affected, “losing in the aggregate, approximately 37 percent of correspondent relationships by end-June 2016.”
He informed the House that thus far, only one bank has been able to establish new correspondent relationships to cover about 75 percent of those that were lost. “If this trend continues, financial transaction services may become costlier and more limited, and legitimate transactions may go underground, encouraging the use of cash and increasing other forms of informality at a time when we are attempting to deepen financial inclusion,” he said, while adding that the end result is likely “to undermine the efforts to supervise and regulate the financial sector and fight money laundering and combat the financing of terrorism.” According to Jordan, Guyana, in partnership with other Caribbean economies and international institutions such as the FSB, IMF, and World Bank, “is working to address the threat posed by derisking, through both advocacy and addressing the perceived risks that lead international banks to sever correspondent banking relationships.” Guyana, he noted, has enhanced compliance with the implementation of recommendations by FATF and the FSB.
“It is critical that international banks work with local banks to transfer practices that reduce risk, rather than severing relationships,” he added.