Cook Islands Grapples with Banking Compliance Issues Amidst Decline of Correspondent Banking Relationships
Introduction
The Cook Islands has joined other Pacific Island countries (PICs) in expressing concerns over the decline of correspondent banking relationships (CBRs), which is affecting their ability to access global financial services and participate in international trade. The issue was highlighted at the recent Pacific Banking Forum, co-hosted by the Australian and US Governments.
Impact on Financial System
Cook Islands Prime Minister Mark Brown emphasized the impact of CBRs on his country’s financial system. He noted that the decline of correspondent banking relationships is affecting local banks’ ability to connect with International Financial Institutions (IFIs) and access cross-border payment services. The decline of CBRs has led to high reporting obligations on banks, making it difficult for them to comply with anti-money laundering and counter-terrorism financing regulations.
Challenges Faced by Banks
Brown highlighted the challenges faced by banks in the Pacific region, including:
- Low volumes of business compared to global transactions
- Difficulty generating revenue or profit from small transaction volumes
- High compliance costs and reporting obligations
These challenges have led many banks to withdraw their correspondent banking services, leaving local banks without access to international financial institutions.
Impact on Cook Islanders
Sonny Williams, Assistant to the Prime Minister, highlighted the impact of de-risking on Cook Islanders. He noted that if the banking system is cut off, it would be difficult for many Cook Islanders who rely on:
- Sending money overseas
- Purchasing items online
- Maintaining financial connections with the rest of the world
Strengthening Correspondent Banking Relationships
Tony Fe’ao, CEO of the Financial Services Development Authority, emphasized the importance of adherence to global compliance and best practices in strengthening CBRs. He noted that the Cook Islands has a robust regulatory and compliance regime, recognized globally for its anti-money laundering and counter-terrorism financing requirements.
Collaboration to Strengthen CBRs
The Forum concluded with all parties agreeing to collaborate to strengthen CBRs in the Pacific region. The joint efforts among stakeholders are essential to ensure that PICs have sustainable access to participation and inclusion in the global economy.
Key Takeaways
- The decline of correspondent banking relationships is affecting the ability of Cook Islands’ banks to connect with international financial institutions.
- High compliance costs and reporting obligations are contributing to the withdrawal of correspondent banking services.
- Strengthening CBRs requires adherence to global compliance and best practices, as well as upgrading banking infrastructure to modern systems.
- Collaboration among stakeholders is essential to ensure that Pacific Island countries have sustainable access to participation and inclusion in the global economy.