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Arab Monetary Fund – International Monetary Fund High-Level Workshop
on De-risking—Correspondent Bank Relationships and Beyond
In Collaboration with FSB and World Bank
October 27, 2015, Abu Dhabi
The Arab Monetary Fund (AMF) and the International Monetary Fund organized in collaboration with the Financial Stability Board (FSB) and the World Bank a High-Level Workshop on De-risking—Correspondent Bank Relationships and Beyond in Abu Dhabi on October 27, 2015. The workshop provided a forum for Arab and international regulators, as well as banks concerned, to discuss the impact of de-risking and financial exclusion on the Arab region and explore possible solutions. Participants included central bank governors from the Arab countries, officials from the U.S., U.K., the Financial Action Task Force (FATF), the Basel Committee on Banking Supervision, the MENA FATF, representatives of regional and international banks and senior officials from the AMF, IMF, World Bank, and FSB.
Concerns over de-risking pullback by global banks are growing worldwide, including in the Arab region.Several global banks have reportedly scaled back or terminated (de-risked) their foreign correspondent relations and reduced their trade financing activities in certain regions. Work is ongoing to understand the full extent of these developments, whose drivers may include reduced risk appetite, enhanced implementation of the AML/CFT standard (and in particular knowing your customer requirements) and other global regulatory standards, economic and trade sanctions, and increased compliance costs.
Given the significant role these banks play in the global trade and settlement system, 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 measures. Such de-risking from international finance could in turn have negative implications for affected countries’ financial inclusion, trade finance (especially for SMEs)and thus growth and employment prospects. There could also be an increase in demand for unregulated (underground) financial transactions.
Against this backdrop the workshop discussed the significance of this issue for the Arab region. Discussions covered obstacles to global bankingand remittance operationsin the region, and measures to improve correspondent banks’risk perceptions in the region and to help remitters identify and manage risks. Participants agreed on the importance of establishing and effectively implementingrobust regulatory and supervisory frameworks, including with regard to AML/CFT issues in line with a risk based approach. Also, better coordination amongst home and host regulators was much needed; in particular, such coordination might have given respondent banks more time to upgrade their IT infrastructure to respond to the additional requirements from the U.S. authorities. Therefore, participants stressed the importance of continuing the dialogue among regulators, financial institutions and other stakeholders, including in the margins of the IMF/World Bank spring and annual meetings.
In a closeddoor meeting with regulators, participants suggested a follow-up meeting next year, possibly in the context of a MENA FSB meeting. They highlighted the need for additional surveys in the region to get a better understanding of the effects of de-risking and continue to work on solutions for any unintended consequences. The AMF will take the lead on a new survey and coordinate with relevant stakeholders; the survey would be distributed by central banks to increase the response rate.