One year ago, when Finance Minister Winston Jordan presented the 2017 Budget, he expatiated at length on the threat “derisking” by overseas correspondent banks posed to the financial viability of the Guyanese economy. He was confirming what the World Bank had announced two months earlier: “Global financial institutions are increasingly terminating or restricting business relationships with remittance companies and smaller local banks in certain regions of the world – a practice that is called “de-risking.”
The year before, the International Financial Institution (IFI) had conducted two surveys which showed: “Smaller countries with limited financial markets are particularly vulnerable to de-risking practices, and we are seeing evidence of this, notably in the Caribbean region. Factors driving derisking tend to be a combination of cost/benefit considerations and concerns about AML/CFT risks. That is particularly acute for clients that generate low volumes, but present significant AML/CFT risks.”
Finance Minister Jordan had assured, at that time in Dec 2016, that Guyana, in partnership with other Caribbean economies and IFI’s such as the International Monetary Fund (IMF) and World Bank, was working to address the threat posed by de-risking. For instance, he mentioned Guyana’s “enhanced compliance” with the implementation of recommendations by the Financial Action Task Force (FATF) and the Financial Stability Board (FSB). He noted that the issue of de-risking remained under the “watchful eye” of the Bank of Guyana and the Ministry of Finance, and that locally-owned banks has already lost in the aggregate, approximately 37 per cent of correspondent relationships by the end of June 2015.
But in his Budget speech this year, Minister Jordan painted an even bleaker picture on the threat posed by derisking. He claimed that at the end of October 2017, the locally owned banks that were unable to facilitate third-party foreign currency cheques had almost doubled to “more than two-thirds”. Again, he said only one bank has been executing wire transfers. The situation, he noted, had affected the entire Caribbean, and they were doing all in their power to be guided by the International Monetary Fund (IMF) in this area.
But back in 2016, the World Bank had promised they were “ready to work with all developing countries on this critical issue. As part of our work on Universal Financial Access, we are currently providing technical and financial support to national authorities to mitigate risks in the financial sector without harming financial inclusion efforts.”
They also promised, “In order to ensure that policies and regulations to mitigate risks do not unnecessarily restrict access to financial services, we offer support to national authorities to pursue a wide range of priorities: We help them improve systems for providing and verifying customers’ identity, including through digital ID systems. Our Identification for Development (ID4D) initiative is working actively on this issue. We help them improve their supervisory and monitoring capacity, including through digital technologies and data analysis. We help them introduce risk-based, tiered “Know-Your-Customer” requirements. Digital technology also offers ways to mitigate de-risking pressures, when complemented with reforms and increased supervisory capacity. The G20 High-Level Principles for Digital Financial Inclusion include suggested actions to help avoid negative impacts on financial inclusion caused by de-risking practices. We actively support countries’ implementation of these actions.”
Minister Jordan must report to the nation which of these measures – especially the ones involving digitisation – were undertaken by his Ministry and the Bank of Guyana, and not simply regurgitate the old complaints. We are not suggesting that there is not an inbuilt bias against small economies like Guyana, but with all the measures undertaken after the passage of the AML/CTF Act, in conjunction with the anticipated oil revenues starting to flow from 2020, it is more likely that the overseas correspondent banks would take another look at our local banks.
Towards this end, maybe the Government should mandate that revenues from oil to Exxon and its partners be intermediated through our local banking industry. That should have the foreign correspondent banks take another look at their “derisking” moves against Guyana.
