Disclaimer: The views and opinions expressed by the author(s) do not represent the official position of Barbados TODAY.
By Michael A. Callender
Congresswoman Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services, recently convened a full committee hearing of the U S Congress in September entitled, “When Banks Leave: The Impacts of De-Risking on the Caribbean and Strategies for Ensuring Financial Access.”
The hearing kicked off with a historic testimony from Barbados’ Prime Minister, Mia Amor Mottley, on the harmful effects of de-risking and important solutions to consider. Prime Minister Mottley’s testimony in front of the House Financial Services Committee marked the first time in nearly 40 years that a Prime Minister had testified before Congress, and it underscores the urgency the Committee, under the leadership of Chairwoman Waters, is approaching this situation.
The hearing in the US Congress was a follow-up to the roundtable discussion organized by Chairwoman Waters and Prime Minister Mottley earlier this year in Barbados aimed at identifying solutions to combat de-risking in the Caribbean.
The US State Department defines De-risking as the “phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk. “
It further states that their Bureau of Finance and Business Affairs monitors reports of de-risking and its drivers, including reports related to the termination of correspondent banking relationships and the closure of accounts of humanitarian assistance groups, money service businesses, and foreign missions in the United States among others, and continue by saying “we seek to promote financial inclusion and transparency while ensuring that the U.S. financial system is protected from money laundering and terrorism finance.”
That’s a mouthful indeed. De-risking poses an existential threat to a country, especially the small state economies which are targeted the most because they are susceptible to certain social and economic vulnerabilities that they may not have control over. These countries, and businesses in the country, need to have an existing relationship with financial institutions through correspondence banking to access payment rails and facilitate cross-border financial transactions.
Interestingly, while this battle is being fought in our backyard the European Banking Association (EBA) has raised its own concerns about the use of de-risking measures in the European Union (EU) and has issued a set of new guidelines on the impact and scale of de-risking in the EU.
The EBA has sent a warning to financial institutions on the unintended consequences of de-risking and reminded them that their increased use of de-risking could be an indicator their .anti-money laundering policies and combatting the financing of terrorism measures are not effective.
The EBA found that de-risking occurs across the EU and affects different types of customers or
potential customers of institutions, including specific segments of the financial sector such as
respondent banks, payment institutions (PIs) and electronic money institutions (EMIs), as well
as certain categories of individuals or entities that can be associated with higher ML/TF risks, for
example asylum seekers from high money laundering/terrorism funding high risk jurisdictions or not-for-profit organizations (NPOs).
While the impact and scale of de-risking within different categories of customers vary, de-risking can lead to adverse economic outcomes or amount to financial exclusion. Financial exclusion is of concern, as access to at least basic financial products and services is a prerequisite for participation in modern economic and social life.
EBA reached out to relevant competent authorities across the European Union as well as to external stakeholders. The EBA findings suggest that de-risking has a detrimental impact on the achievement of objectives of European Union, in particular in relation to fighting financial crime effectively and promoting financial inclusion, competition and stability in the single market.
Who said our voices are not heard!
Michael A. Callender is a commentator on matters of social interest.
