When Banks Leave: The Impacts of De-Risking on the Caribbean and Strategies for... (EventID=115101)

Video Description

Connect with the House Financial Services Committee Get the latest news: https://financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinancialCmte Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Wednesday, September 14, 2022, at 10:00 a.m. (ET) full Committee Chairwoman Waters and Ranking Member McHenry will host a virtual hearing entitled, “When Banks Leave: The Impacts of De-Risking on the Caribbean and Strategies for Ensuring Financial Access." ___________________________________ Witness for this one-panel hearing will be: First Panel: • The Hon. Mia Amor Mottley, K.C., M.P., Prime Minister of Barbados; Minister of Finance, Economic Affairs and Investment; Minister of National Security and the Public Service (with responsibility for Culture and CARICOM Matters) Second Panel: • Ms. Wendy Delmar, CEO, Caribbean Association of Banks • Mr. Wazim Mohamed Mowla, Assistant Director and Lead of the Caribbean Initiative, Adrienne Arsht Latin America Center, Atlantic Council • Mr. I. Wayne Shah, Senior Vice President, Financial Institutions – Head of Caribbean Region, Wells Fargo Bank, N.A., and Executive Director, Financial & International Business Association (FIBA) • Mr. Amit Sharma, CEO, Founder, and Director, FinClusive • Ms. Liat Shetret, Director of Global Policy and Regulation, Elliptic Background Access to financial services, such as receiving or sending funds, is critical for individuals and businesses to thrive in an economy and for nations to grow and remain resilient in the face of short-and long-term challenges. Globally, much of this financial access occurs through correspondent banking relationships (CBRs), which are “agreements or contractual relationships between banks to provide payment services for each other.” CBRs are often used for cross-border payments, such as “wire transfers, trade finance, cash and treasury management, check clearing and collection, securities and foreign exchange purchases, and participation in large loans,” where two financial institutions (“respondent banks”) are customers of a third party, a separate FI known as a “correspondent bank,” that serves as the conduit for their transactions. It is through these CBRs that international trade, immigrant remittances, and humanitarian aid flow. Further, most payment solutions that do not involve a traditional bank account (such as a money service business [MSB] like Western Union or MoneyGram) rely on CBRs for the actual transfer of funds. Because of the broad international reach required to provide CBR services, correspondent banks tend to be the largest institutions in the industry. While this is a global concern, the steadily reduced access to financial services in the Caribbean region, which is comprised of 13 sovereign states and nearly two dozen non-sovereign territories, affects the prosperity and security of its people, countries, and the wider region, including the U.S. This hearing continues the efforts of the Committee to elevate this issue, bring together stakeholders, and identify solutions for the region and the United States. Correspondent Banking Relationships and De-Risking “De-risking” means “actions taken by a financial institution to terminate, fail to initiate, or restrict a business relationship with a customer, or a category of customers, rather than manage the risk associated with that relationship consistent with risk-based supervisory or regulatory requirements, due to drivers such as profitability, reputational risk, lower risk appetites of banks, regulatory burdens or unclear expectations, and sanctions regimes.”6 De-risking occurs when financial access is cut off indiscriminately, often to all of those in a community, without full-fledged evaluation of risk. Over the last decade, money transfer operators, small and medium domestic banks, small and medium exporters, and others have been de-risked because they are perceived, accurately or not, as high risk for financial crime. The trend, especially from the perspective of the de-risking institution, has also been attributed to the rising costs associated with anti-money laundering/countering the financing of terrorism (AML/CFT) and sanctions compliance, as well as uncertainty about the extent to which FIs should engage in legal and regulatory-mandated customer due diligence (CDD) in order to avoid regulatory reprisals. Other factors that figure prominently include profitability from the CBR services, an FI’s reputational risk due to association with a particular customer or industry, reputational risk from failure to detect financial crime, and fear of significant legal and monetary penalties as a result of such failure. Cyber risks and compliance with the U.S. Foreign Account Tax Compliance Act (FATCA) have also contributed to the de-risking of CBRs. ... https://financialservices.house.gov/events/eventsingle.aspx?EventID=409761