Correspondent Banking Challenge in the Caribbean Region

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Introduction

Despite significant progress in addressing money laundering and terrorist financing risks, the Caribbean region continues to face challenges in correspondent banking. The phenomenon of de-risking, where banks terminate relationships with smaller counterparties due to perceived risk, has resulted in a decline in correspondent banking services.

Regional Progress

Most Caribbean jurisdictions have received satisfactory ratings from bodies such as the Caribbean Financial Action Task Force (CFATF). The region’s progress in addressing deficiencies in their anti-money laundering and combating the financing of terrorism (AML/CFT) frameworks has been recognized. However, de-risking remains a significant concern, with many institutions operating with limited or no correspondent banking relationships.

Realistic Options

In response to the challenge, some have suggested establishing a bank in the United States. While this may be considered a novel idea, it is a far-fetched solution given the complexity of seeking approval for a federal or state charter. More realistic options include mergers between institutions, which could help address transaction volume concerns.

Cryptocurrencies and Digital Currencies

The rapid growth of e-commerce globally has raised questions about the potential role of cryptocurrencies and digital currencies in addressing the correspondent banking challenge. The Bank of Jamaica has approved certain electronic payment platforms, while Barbados-based fintech firm Bitt Inc is a notable example of a company exploring this space.

Regulatory Frameworks

While cryptocurrencies may offer an alternative payment mechanism, there are risks associated with money laundering, terrorist financing, tax evasion, and fraud. Therefore, jurisdictions must develop and implement licensing, regulatory, and supervisory frameworks to mitigate these risks.

Ongoing Challenges

At the macro level, the region’s financial stability is threatened by de-risking. To address this challenge, the regulatory and supervisory framework must remain dynamic, with ongoing adoption of best practices and standards recommended by the international community. At the institutional level, business survival requires enhancements to AML/CFT risk management frameworks and general management of operational and regulatory risks.

Conclusion

In conclusion, de-risking remains a significant challenge for the Caribbean region. To mitigate this phenomenon, all stakeholders must be proactive in their approach. The region’s financial stability depends on it.