Impact of correspondent bank de-risking on money service businesses in Jamaica
| DOI | https://doi.org/10.1108/JFRC-12-2018-0159 |
| Pages | 479-493 |
| Published date | 26 July 2019 |
| Date | 26 July 2019 |
| Author | Leo-Rey Gordon |
Impact of correspondent bank
de-risking on money service
businesses in Jamaica
Leo-Rey Gordon
Department of Financial Stability, Bank of Jamaica, Kingston, Jamaica
Abstract
Purpose –The paper aims to provide neededquantitative assessments of the impact of the withdrawal of
correspondent banking to small emerging economies. It serves to identify the extent to which global anti-
money laundering and combatting the financing ofterrorism (AML/CFT) standards have influenced global
banks’decision to withdraw correspondent banking from some jurisdictions and the subsequent economic
spillovereffects on other non-bank financial entities.
Design/methodology/approach –Separate semi-structured surveys are issued to banks and money
services businesses in Jamaica. Analysisof the responses identify the initial impact of de-risking on banks
and the subsequentspillover effect on the other aspects of the financial system.
Findings –Results show significant spillover effects on money services businesses in their ability to
transact in foreign currency with local commercial banks. Further, the scale of this impact is greater and
costlierfor smaller entities.
Research limitations/implications –The economic consequencesof the direct and indirect impact of
correspondent bank de-risking are increased concentration risks and the potential expansion of shadow
financialactivity.
Practical implications –Tighter AML/CFT standards coupled with action of over-compliance has
created unintended consequences for small developing countries across the globe. In Jamaica, commercial
banks have either lost correspondent relationships or have had restrictions placed on the types of services
available. It creates risks to economic growth and development through the hindrance of access to
internationalfinancial markets for payments, tradeand commerce.
Originality/value –This study is the first among researchon the issue of correspondent bank de-risking
to provide quantitativeassessments of the impact on local financialsystems.
Keywords Caribbean, Emerging markets, Financial inclusion, Anti-money laundering,
Regulatory compliance, Banking system
Paper type Research paper
1. Introduction
Banks in Jamaica began receiving notification of terminations and restrictions on
correspondent banking servicesfrom as early as 2012. By the summer of 2015, a wave of an
indiscriminate withdrawalor restriction of correspondent banking services by global banks
had spread across the Caribbean and much of the globe. This broad-based termination or
restriction of banking relationships with clients or categories of clientsto avoid, rather than
manage risks, has sincebeen termed correspondent bank de-risking.
The motivating factorsvaried across the globe, but in the case of Jamaica, notifications to
local banks by their international correspondent banks included specifically that banking
conducted on behalf of foreign exchange traders (cambios) would not be permitted. These
notifications were not limitedin origin to international banks of any one jurisdiction, and its
sustained spread createdrising fears of a complete shutdown of the money services business
Money service
businesses
479
Received20 December 2018
Revised13 April 2019
Accepted17 May 2019
Journalof Financial Regulation
andCompliance
Vol.27 No. 4, 2019
pp. 479-493
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-12-2018-0159
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