account. This includes continuous risk assessments, communication with respondent banks and, sufficiency of time to establish alternative banking relationships, with a caveat that unless doing so would be contrary to law or pose an additional risk to the bank, national security, or reveal law enforcement activity. The FATF also issued clearer guidance in October 2016 on the provision of Correspondent Banking services.
While we commend these initiatives, we think that much more has to be achieved in order to mitigate the adverse impacts of the surging ad-lib derisking of banks globally. The CAB will continue to collaborate with stakeholders and redouble its efforts in the coming year, to seek a solution to the issue. We are pleased that we have been able to collaborate with a key bank which has provided alternate arrangements with a number of our members.
Compliance: Compliance with the ever-changing regulatory framework has become a blueprint for survival for financial institutions. In the aftershock of the Great Financial Crisis( GFC), we saw the evolution of myriad regulations such as: AML, CTF, FATCA, US Dodd- Frank Act, CRS and the BASEL Accords, all aimed at promoting better risk management and a more robust financial system that underpins strong and sustainable economic growth. We have also seen greater regulatory enforcement, with international banks being fined in excess of $ 161 billion between 2007 and 2015. Consequently, banks have been obliged to pay greater attention to compliance.
In the case of AML / CTF the range of regulations is growing and changing continuously, and the banks feel inundated by these regulations. The institutional efforts to sustain the compliance with all these regulations is a mammoth task, especially considering the limited capacity of the smaller Caribbean banks whose processes are still semi-automated. Many are unable to afford the expensive and complex online systems to enable them to effectively and efficiently manage their risks. For example, the annual cost for an average size bank to implement and manage an online system can range from US $ 400 to US $ 1 million annually, including software licenses and staff for the compliance unit. Consequently, the CAB believes that the time has come for Caribbean banks to seriously consider the creation of regional hubs to conduct AML / CTF monitoring as a cost effective measure.
The international drive for greater tax transparency and accountability has given rise to regulations such as the US Foreign Account Tax Compliance Act( FATCA) and the OECD Common Reporting Standards( CRS). Caribbean institutions have expended significant financial and human resources to develop the necessary infrastructure to comply, as non-compliance could result in heavy consequences, such as 30 % withholding( FATCA) and, blacklisting of countries, which they can ill afford. It is noteworthy that lack of compliance with these regulations can exacerbate the derisking situation by correspondent banks.
We are pleased that our Members have all developed the necessary structures to accommodate FATCA reporting but unfortunately as at
October 2016 only eleven( 11) Caribbean territories have agreements in force with the USA. We continue to urge the remaining governments to expedite the process. In addition to FATCA, our members have been preparing for CRS reporting and, the CAB has provided clarity on the requirements via webinar training. Some of our members’ jurisdictions are in train to commence early reporting in January 2017, and others have begun preparations to begin reporting in 2018.
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CAB believes that the time The has come for Caribbean banks
to seriously consider the creation of regional hubs to conduct AML / CTF monitoring as a cost effective measure.
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Letters of Credit: BASEL III has introduced more stringent requirements regarding the amount and quality of capital that banks must hold as well as new ratios for managing liquidity risk. The capital calculation models are quite complex, and the majority of jurisdictions in the Caribbean are still struggling to implement Basel II.
Another major consequence of Basel III is the refusal of Correspondent Banks to confirm Letters of Credit( LCs) for some Caribbean banks because of the capital requirement for Correspondent Banks. Regrettably, the majority of lines of credit specifically for the issuance of LCs, have been cancelled by correspondent banks despite the respondent banks’ best efforts to retain them by offering cash security. This is a major challenge for banks in the Caribbean, whose customers have long-standing trading arrangements with the US. I must point out that some of these LCs are being established for respective regional Governments.
Notwithstanding BASEL III’ s complexities, Caribbean regulators should not lose sight of the importance of keeping up with all new regulations, in order to remain compliant and competitive, in the global regulatory environment. We trust that the panel discussion on Basel II & III at the conference will provide valuable information and direction to participants.
The US Dodd-Frank Act broadened the scope of regulatory oversight and increased transparency and accountability, forever changing the compliance landscape. In general, the Dodd Frank Act mostly impacts US-headquartered financial institutions or non-US headquartered financial institutions with a physical US presence. However, there may be some additional implications for non-US financial institutions that are seen to have“ significant activity” with US clients or assets. For example, if any Caribbean financial institution acts as an investment advisor / fund manager to US clients, they may be required to register
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