Financial Crime World

Montserrat’s Financial Sector: A Review of the Island’s Offshore Banking and Regulatory Framework

Overview

A recent report by the Eastern Caribbean Central Bank (ECCB) has revealed a decline in Montserrat’s financial sector, highlighting challenges faced by the island’s offshore banks and regulatory framework.

The State of Montserrat’s Financial Sector

  • Total deposits for the domestic banking sector stood at around EC $130 million as of 2001.
  • Offshore banks, owned and controlled by interests in Latin America, reported total deposits and assets of US$870.6 million and US$995.7 million respectively as of June 30, 2002.

Challenges Faced by the Financial Sector

  • Lack of meaningful physical presence on the island, with none of the offshore banks having a significant presence locally.
  • No licensed trust companies operating in the domestic market.
  • Only seven foreign insurance companies operating in the domestic market.

Regulatory Framework

The regulatory framework for the financial sector is overseen by the Financial Services Commission (FSC), which has:

  • One full-time supervisor and an administrative assistant on its staff.
  • Signed a Memorandum of Understanding (MOU) with the ECCB to strengthen offshore supervision.

However, the report urges authorities to remove restrictions on access to customer information contained in three of the MOUs with overseas regulators.

Anti-Money Laundering and Combating Financing of Terrorism

  • A comprehensive legal and regulatory framework is in place for anti-money laundering (AML) and combating financing of terrorism (CFT).
  • More intensified efforts are required to implement AML/CFT measures, particularly in the offshore banking sector.

Recommendations

The report concludes that Montserrat’s authorities should take steps to:

  • Strengthen offshore supervision.
  • Implement AML/CFT measures more effectively.
  • Review the reasons for the absence of suspicious transaction reports (STRs) submitted by offshore banks.

International Cooperation and Standards

In 1999, the UK Government’s White Paper on “Partnership for Progress and Prosperity: Britain and the Overseas Territories” recognized the importance of maintaining a reputation for honest administration and probity in the financial services sector. In response, KPMG was appointed to review the Overseas Territories’ performance against international standards and good practice.

Conclusion

Montserrat’s authorities must take action to address the challenges faced by the island’s financial sector, including strengthening offshore supervision, implementing AML/CFT measures more effectively, and reviewing the reasons for the absence of STRs submitted by offshore banks.