This report draws together work undertaken by the Commonwealth Secretariat on de-risking in the Commonwealth. It seeks to complement and enhance previous research undertaken by international organisations, such as the Financial Stability Board, the Financial Action Task Force and the World Bank, and by research institutes, such as the Center for Global Development.
This report aims to improve understanding on the issues surrounding de-risking and, more importantly, to identify a number of practical solutions to the de-banking of legitimate banks, businesses and individuals.
Between September and December 2015, the Secretariat conducted a large-scale survey on de-risking among its membership. The survey revealed that the area of greatest concern for member governments in relation to AML/CFT regulations was the loss of correspondent banking relationships (CBRs). While the reasons for CBR closures varied, the majority of Commonwealth developing countries identified decreased profitability resulting from the increased monitoring and compliance costs of AML/CFT regulations as a key driver of de-risking. The survey also highlighted some regional trends. Caribbean and Pacific members, already reliant on a very limited number of banking relationships, identified further CBR losses as posing the most significant risks to their countries. For members in Africa, concerns were greatest around the impact of AML/CFT regulations on remittance transfers. South Asian members identified high levels of financial exclusion and the prevalence of informal flows as major concerns.
To address the wider issues of de-risking, this report presents a number of potential solutions to tackle the unintended consequences of AML/CFT regulations, namely:
In addition to these solutions a number of initiatives proposed, or being actively pursued, by members to address de-risking are discussed.