AMF/IMF High-Level Workshop On The Withdrawal of Correspondent Banking Relationships – Working Towards Solutions | world's solutions

AMF/IMF High-Level Workshop On The Withdrawal of Correspondent Banking Relationships – Working Towards Solutions

AMF/IMF High-Level Workshop On The Withdrawal of Correspondent Banking Relationships – Working Towards Solutions

AMF/IMF High-Level Workshop On

The Withdrawal of Correspondent Banking Relationships – Working Towards Solutions

In Collaboration with the FSB and the World Bank Group

Opening Remarks by

 Abdulrahman A. Al Hamidy

Director General Chairman of the Board

Arab Monetary Fund

18 September 2017

Your Excellencies,

Ladies and Gentlemen,

It gives me a great pleasure to welcome you all in Abu Dhabi and thank you for taking time to join us for this important high-level workshop to address one of the significant issues facing Arab countries, related to the withdrawal of Correspondent Banking Relationships.

Let me first express my thanks to Mr. Jihad Azour, Director of the Middle East and Central Asia Department at the IMF and his colleagues for their cooperation in organizing this workshop. Also, I would like to extend our sincere appreciation to our partners in this event, namely The Financial Stability Board (FSB) and the World Bank (WB) for their valuable support.

I am very glad to see this wonderful gathering of decision-makers from different regional and international Central Banks, Financial Institutions and relevant entities and bodies, as well as prominent experts, attending our follow-up workshop to further advance the discussions on solutions to Withdrawals of Correspondent Banking Relationships (CBR) in the Arab region, aiming to give an opportunity for correspondent and respondent banks and host country regulators to share their experiences in addressing (CBR) pressures and discuss the feasibility of contemplated industry-led national and regional solutions.

Your Excellencies,

Ladies and gentlemen,

As you all know, correspondent banking relationships (CBRs) play an essential role in economies around the world, enabling local banks to access overseas products and carry out cross-border transactions. However, over the past few years, correspondent banks have chosen to restrict or terminate their relationships with local banks in different markets. Regardless of the reasons, it is indisputable that many banks around the world have seen their CBRs terminated, leading to considerable challenges for banks and their customers.

Indeed, cross-border transactions have been under threat in recent years, since international correspondent banks are increasingly being subject to sizeable fines by regulators, with the objective to encourage compliance. Moreover, Banks may choose to restrict or rationalize their CBRs for many reasons. Guidance published by FATF in October 2016, cited supervisory penalties, changes in banks’ financial risk appetites, and anti-money laundering (AML) compliance costs as key drivers of withdrawal of Correspondent Banking Relationships. Meanwhile, low interest rates have led to decrease profit margins in correspondent banking, meaning that some banks may welcome the opportunity to exit a line of business, which is now less lucrative than in the past.

Your Excellencies,

Ladies and gentlemen,

The concerns over de-risking pullback by global banks are growing worldwide, including in the Arab region. While banks around the world have been affected by the practice of terminating correspondent banking relationships, the impact has been notable in the Arab region. Indeed, according to AMF-IMF-WBG report published in September 2016, 39 percent of the local/regional banks surveyed reported a significant decline in the scale and breathe of their correspondent banking relationships.

Moreover, the report noted that the decline in CBRs, experienced by banks in the Arab region has significantly affected banks’ ability to service certain client segments and provide certain products, as well as to conduct foreign currency denominated capital and current account transactions.

In addition, the report pointed out that financial products and services most often affected by restrictions and/or termination of Correspondent Banking Relationships (CBRs) are those associated to trade finance, letters of credit and documentary collections (58 percent) followed by international wire transfers and clearing and settlement (55 percent), check clearing (49 percent), and foreign exchange services (43 percent), among others.

Given the significant role the foreign correspondent relations play in cross-border payments across Arab countries, any large-scale withdrawal could potentially carry serious and unintended consequences by excluding or limiting access to international finance of transactions, sectors, and customers that are not the targets of the regulatory and enforcement actions, such as low-income population. Such de-risking from international finance has in turn negative implications for the Arab countries, where banks have cut back services for clients perceived to be “high risk” and not generating sufficient volumes of transactions to overcome compliance costs.

Your Excellencies,

Ladies and gentlemen,

Having outlined the above, it is worth mentioning that important efforts have been made by the authorities in the region, long before the adoption of the 2012 FATF recommendations, to develop policies, procedures and regulations to combat money laundering and terrorism financing, particularly with the establishment, 13 years ago, of the MENAFATF. This effort aimed toward building trust and make financial markets in the Arab region more attractive to global banks. Within this context, regulatory authorities in the region have undertook effective steps to ensure their systems and procedures are in line with the relevant standards and many Arab countries have adopted a Risk-Based Approach (RBA) in their AML/CFT frameworks, in compliance with the revised FATF recommendations.

You would agree with me that the Arab countries have been undertaking all these efforts with dedication and determination, as it is well acknowledgeable that our region is one of the most impacted region by scourge of terrorism than any other regions in the world.

Moreover, the ongoing Arab Regional Payment System (ARPS), as a central platform, can enhance the transparency of cross-border payments and streamlines remittances and enhances Central Banks oversight while ensuring more compliance (e.g., Know Your Customers, AML/CFT, and sanctions screening) are in place. In addition, ARPS can facilitate the application of updated compliance requirements by regional banks utilizing it to complete their intra-Arab cross-border payments, including in non-Arab currencies.

In the framework of these efforts, the Arab Monetary Fund (AMF), as part of its mandate to promote macroeconomic and financial sector stability, have been monitoring global trends in the withdrawal of correspondent banking relationships (CBRs) and advising its membership on policies to help tackle related adverse impacts. To achieve these objectives, the AMF have been collaborating with the IMF and other global and regional partners.

Moreover, the AMF, in its role of technical secretariat of the Council of Arab Central Banks and Monetary Agencies Governors and its subcommittees, is playing an important role in enhancing coordination and cooperation among the senior policy-makers in the region, particularly in the context of the Arab Committee on Banking Supervision (ACBS) and Financial Stability Task Force (FSTF), where a Working Paper has been produced on Financial Inclusion and Financial Stability, tackling appropriate ways for the Arab region in balancing between safeguarding financial systems and complying with best standards of AMF/CFT and achieving financial inclusion objectives.

All these efforts are coupled with the continuous engagement of the AMF in providing training and capacity building programs in the area of anti-money laundering and combating financing of terrorism for the benefit of Arab Central Banks and relevant Ministries’ staff.

Your Excellencies,

Ladies and gentlemen,

We all hope that the global banking crisis has served as something of a wake-up call for the banking community regarding what a good banker’s core values should be and correspondants banking relationship has long held as core values: understand your risks, be transparent with your customers, and focus on long-term value rather than only short-term profits.

Let me conclude by wishing all the success for this event and having an open dialogue between all the stakeholders, benefiting from the valuable participation of this wonderful gathering of decision-makers and experts.

Once again, I would like to thank the IMF, FSB and World Bank for their cooperation organizing this workshop and express my sincere gratitude for all of you for taking the time to join us.

Finally, I would like also to leverage this opportunity to express our sincere thanks to all authorities in our host country UAE, for their continuous support to the AMF, in all its endeavors.

Thank you.

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