Second Joint Arab Monetary Fund (AMF) – International Monetary Fund (IMF) High-Level Workshop on the Withdrawal of Correspondent Banking Relationships – Working Towards Solutions In Collaboration with the FSB and the World Bank Group
The Arab Monetary Fund (AMF) and the International Monetary Fund (IMF) organized in collaboration with the Financial Stability Board (FSB) and the World Bank a second High-Level Workshop on the Withdrawal of Correspondent Banking Relationships (CBRs) in the Arab region. The Workshop was held in Abu Dhabi on September 18, 2017 and provided a forum for Arab and international regulators and concerned financial institutions to discuss recent CBRs withdrawal trends and share their experiences in developing and implementing solutions to address CBRs pressures. Participants included Central Banks’ Governors from Arab countries, officials from the U.S., MENAFATF, representatives of regional and international banks, money transfer operators, and senior officials from the AMF, IMF, World Bank, and FSB.
Concerns over pullback by global banks from correspondent banking remain significant in the Arab region. Indeed, in today’s highly interconnected economic world, correspondent banking plays an important role in supporting economic growth and promoting financial inclusion. While the work to understand the full extent of these developments has been further advanced, it has become clear that the factors behind this phenomenon are multiple, including reduced risk appetite, enhanced implementation of the AML/CFT standards—and in particular “know-your-customer” (KYC) requirements—and other global regulatory standards, economic and trade sanctions, leading to an increase in compliance costs.
To address some of these concerns, there have been intensified efforts by international standard setters such as the Financial Action Task Force and Basel Committee on Banking Supervision to clarify international standards, including with respect to the scope of customer due diligence measures required of banks. Jurisdictions which are home to global correspondent banks have also taken initiatives to clarify their regulatory expectations and help banks to adopt a more effective, risk-based and outcomes-focused approach to mitigating financial crime risks. At the same time, authorities in the Arab region have taken steps to ensure their systems and procedures are in line with the relevant standards, including with the assistance of the AMF and IMF. Many of them have upgraded their supervisory and regulatory frameworks, including on AML-CFT, and adopted Risk Based Approaches (RBA), in response to the revised FATF recommendations. Arab regulators and the Arab Monetary Fund have also engaged in more outreach on these issues.
Participants welcomed these developments. They also discussed the need for a deeper understanding of country and regional context and called for more effective implementation of international standards across jurisdictions and financial institutions and service providers.
Participants also discussed the feasibility and effectiveness of various other possible solutions. These included industry initiatives aimed at addressing compliance costs and profitability considerations; such as enhancing economies of scale by consolidating transactions flows; adjusting pricing or bundling services to increase correspondent banks’ profitability; or reducing costs by standardizing customers’ information. Participants noted that Fintech solutions and private sector-driven innovation could be important to address the CBRs issues in the Arab region, including the use of KYC utilities. A number of industry initiatives to address banks’ ability to assess and manage CBR risks were also discussed. Regulators in the Arab region welcomed such initiatives and are willing to work with the private sector to assess the regulatory implications. Finally, there was support for a number of potential public support initiatives, including establishing a regional payments arrangement, such as the Arab Regional Payment System (ARPS), a central settlement platform currently under establishment in compliance with relevant international standards, which could potentially enhance the transparency of cross-border payments and help facilitate remittances.
In a closed-door meeting between regulators, participants highlighted the need for the AMF, the IMF, and the World Bank to continue engaging with various stakeholders, monitor global trends in the withdrawal of CBRs, including experiences with implementation of the various potential solutions discussed during the workshop, and advise their membership on policies to help tackle related adverse impacts. To improve the supervisors monitoring of CBR trends and risks, the IMF is developing a comprehensive data monitoring framework. Participants welcomed the idea of a follow-up survey in the region focused on the effectiveness of emerging solutions and covering both regulators and private sector entities. They supported ongoing efforts to enhance dialogue between regulators in home and host jurisdictions and between market participants, including through regular workshops involving all stakeholders. They also encouraged further capacity building / training activities.