The Medicinal Cannabis (R)evolution

19

The loss of, or restrictions on correspondent banking could therefore have dire implications for the ECCU, through the reduction in foreign direct investment and international trade.

Over the last five years, commercial banks in all ECCU member countries have experienced some loss in correspondent banking relationships, with banks in the United States of America, Canada, United Kingdom and Europe. ECCU correspondent banking relationships are concentrated in the US, accounting for 32.0 per cent of total

De-risking “the phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk.”…FATF

correspondent banking relationships. The loss of correspondent banking relationships has been termed ‘de-risking’ . The Financial Action Task Force (FATF) 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.” For the period 2015 - 2018, ECCU commercial banks reported the loss of 15 correspondent banking relationships which were concentrated within the domestic banking sector. While the statistics are concerning, this phenomenon is not isolated to the ECCU region. The International Monetary Fund in its working paper titled “Loss of Correspondent Banking Relationships in the Caribbean: Trends, Impact and Policy Options ” (Alleyne et al., 2017), noted that the Caribbean region suffered significant losses in correspondent banking relationships. The World Bank survey (2015) reiterated this research and cited that Latin America and the Caribbean experienced greater losses to correspondent banking relationships globally. Further, where relationships were not lost, the cost of doing business increased significantly for most commercial banks. There has been much debate surrounding the motivation for de-risking in the Caribbean region. Some of the arguments put forward include, reduced profitability given the small scale of the Caribbean market, increasing compliance cost to ensure adherence with anti-money laundering and combating the financing of terrorism (AML/CFT) regulatory standards and the changing risk appetite of global banks.