Post on 28-Feb-2020
INTERNATIONAL MONETARY FUND 1
Correspondent Banking RelationshipsOCTOBER 23, 2018
Ananthakrishnan Prasad
Monetary and Capital Markets Department
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Outline
1
2
Overall Trends
Fund’s Multipronged Approach
3 Key Messages
4 The Way Forward
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What Have Been the Overall Trends?
❖ CBRs under pressure in several countries
❖ Limited direct impact because of alternative arrangements put in place
❖ High concentration in cross-border flows accentuating financial fragilities
❖ Could undermine long-term growth and financial inclusion prospects
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Highlights of the Fund’s Work
September 2017
Working Paper on CBRs in the Caribbean
April 2017
Board Paper on Recent Trends in
CBRsJune 2016
Staff Discussion Note on Withdrawal of
CBRs
October 2017
Working Paper on CBR
Monitoring Framework
February 2017
1st Caribbean Roundtable
November 2017
2nd Caribbean
Roundtable
February 2018
1st Pacific Roundtable
September 2017
2nd AMF-IMF
Workshop
October 2015
1st AMF-IMF Workshop
Regio
nal W
ork
Polic
y W
ork
April 2017
Working
Paper on
CBRs in the
Small States
of the Pacific
October 2015
FSB/IMF/WB 1st Roundtable
October 2016
FSB/IMF/WB
2nd Roundtable
IMF Conference
on CBRs
October 2017
SSA High Level Seminar
April 2018
CCA Roundtable
May 2018
SSA
Roundtable
October 2018
3rd Caribbean
Roundtable
March 2018
Update to the Board on CBRs
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Multipronged Approach
I. Monitor Trends
II. Monitor Risks & Drivers
III. Facilitate Dialogue
IV. Tailor Capacity
Development
V. Engage in cases
involving tail-risk scenarios
Not yet materialized
Fund’s Multipronged
Approach
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Fund’s Multipronged
Approach Multipronged Approach
I. Monitor Trends
II. Monitor Risks & Drivers
III. Facilitate Dialogue
IV. Tailor Capacity
Development
V. Engage in cases
involving tail-risk scenarios
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I. Monitoring Trends
The decline in CBRs, while stabilizing in some regions,
remains a concern
Recent Trends in CBR Withdrawal
-25%
-20%
-15%
-10%
-5%
0%
5%
Africa Americas(excl. NorthAmerica)
NorthAmerica
Asia Oceania Europe (excl.EasternEurope)
EasternEurope
Number of active counterparty countries by region(average percent change across region)
Jan. 2011 - Jun. 2017 Dec. 2016 - Jun. 2017
Source: FSB, SWIFT Watch, National Bank of Belgium.
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I. Monitoring Trends
… along with the concentration of active
correspondents.
Recent Trends in CBR Withdrawal
0.765
0.766
0.767
0.768
0.769
0.770
Jan
-12
Ma
r-1
2
Ma
y-1
2
Jul-
12
Se
p-1
2
No
v-1
2
Jan
-13
Ma
r-1
3
Ma
y-1
3
Jul-
13
Se
p-1
3
No
v-1
3
Jan
-14
Ma
r-1
4
Ma
y-1
4
Jul-
14
Se
p-1
4
No
v-1
4
Jan
-15
Ma
r-1
5
Ma
y-1
5
Jul-
15
Se
p-1
5
No
v-1
5
Jan
-16
Ma
r-1
6
Ma
y-1
6
Jul-
16
Se
p-1
6
No
v-1
6
Jan
-17
Ma
r-1
7
Ma
y-1
7
Concentration of active correspondents(GINI coefficient per corridor, 3mo. moving avg.)
Source: FSB, SWIFT Watch, National Bank of Belgium.
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9Source: Staff calculations based on FSB (2017), World Bank Remittances Prices Worldwide, World Bank Migration and Remittances Database.
The macroeconomic impact appears contained, but challenges remain
I. Monitoring Trends
Changes in the number of AC vs cost of remittances
(in percent, 2012-2016)
-100
-80
-60
-40
-20
0
20
40
60
80
100
-30 -20 -10 0 10 20 30
Change in c
ost of
rem
itta
nces
Change in number of active correspondents
While remittance costs seem negatively associated with
number of active correspondents…
… they have remained stable on a global level, but
remain a challenge in some regions.
0
2
4
6
8
10
12
Pacific (SmallStates)
East Asia &Pacific (excl.Small States)
Europe &Central Asia
Latin America &Caribbean
Middle East &North Africa
South Asia Sub-SaharanAfrica
Cost of remittances by destination region(in percent of amount sent)
2011 2012 2013 2014 2015 2016 2017
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10Source: FSB.
Remittances: Extent of the Problem
❖ Most jurisdictions say remittance firms are one of the sectors most affected by loss of correspondent banking
services.
❖ In developing countries, remittance flows are frequently a key source of funds for households and represent a
significant percentage of GDP
❖ Remittance flows to low- and middle-income countries are expected to increase by 4.8% in 2017 and 3.5% in 2018
to US$466 bn
❖ Sub-Saharan Africa, Europe and Central Asia, and Latin America and the Caribbean are likely to see the
strongest growth in remittance inflows
❖ Although remittance costs have declined over the past decade, the global average cost of sending US$200
remained at 7.2% in the third quarter of 2017 and is well above the United Nations’ Sustainable Development
Goal target of 3%.
❖ Loss of correspondent banking relationships poses a challenge to the provision and cost of remittance services
❖ Concentration leads to financial stability and financial inclusion concerns
❖ May drive flows underground, increasing AML/CFT risks
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Fund’s Multipronged
Approach Multipronged Approach
I. Monitor Trends
II. Monitor Risks & Drivers
III. Facilitate Dialogue
IV. Tailor Capacity
Development
V. Engage in cases
involving tail-risk scenarios
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II. Monitoring Risks & Drivers
CBR Pressures
Profitability
Capital
New
Cap
ita
l R
equ
ire
me
nts
Income
New
Liq
uid
ity
Requ
ire
me
nts
Po
st-
GF
C M
acro
-e
co
no
mic
Con
ditio
ns
CostIn
cre
asin
g C
om
plia
nce
R
equ
ire
me
nts
Risk Assessment
Risk Tolerance
La
ck o
f C
larity
an
d
Con
sis
ten
cy o
f R
egu
lato
ry E
xp
ecta
tio
ns
Hig
h P
rofile
En
forc
em
en
t A
ctio
ns
NP
As/D
PA
s/ C
on
se
nt
Ord
ers
Specific CBR Risk
Resp
on
de
nt B
an
k's
C
usto
me
r B
ase
an
d
Bu
sin
ess M
od
el
Co
mp
lian
ce
Fra
me
wo
rk
of R
esp
on
de
nt B
an
k,
inclu
din
g f
or A
ML
/CF
T
Ju
risd
iction
's R
isk
En
viro
nm
en
t, in
clu
din
g
ML
/TF
Ris
k
Ob
sta
cle
s to
Ris
k
Ma
na
ge
me
nt
Drivers of CBR pressures remain the same
Business relationship based on trust
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II. Monitoring Risks & Drivers
Drivers which have recently gained more attention
❖ Corruption
❖ Transparency - Beneficial Ownership
❖ New International & Bilateral
Sanctions
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14Source: FSB.
Remittances: Causes of the Problem
Reasons cited by banks for terminating services to remittance firms
❖ Profitability
❖ Perceived high risk of some remittance firms’ practices because of …
❖ Business models: large volumes of cash transactions; sending money to jurisdictions that are considered
high risk; principal-agent model
❖ Diversity of firms in size, sophistication, target markets, etc.
❖ Lack of confidence in the supervision of remittance firms
❖ Lack of compliance with international standards (FATF) in some jurisdictions
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II. Monitoring Risks & Drivers
The discussion of CBR issues in AIV reached a
peak in 2016
CBRs issues were discussed across all regions
Proportion of published Article IV Staff Reports which include references to CBR
AIV Staff Report Published with mention to CBR
AIV Staff Reports Published
2015 201
6
201
7
3%8%
31%
22%
2014
43%
19%
16%
12%
10%
Number of staff reports with reference to CBRs per Region (2014-2017)
WHD APD MCD AFR EUR
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❖ Staff continues to discuss CBR issues in Article IV
❖ Belize – holistic approach of issues – trends, risks and macrofinancial linkages
❖ Marshall islands – significant risks to issuance of sovereign digital currency
❖ Countries are using the IMF-developed monitoring framework to identify trends
❖ Cabo Verde, Seychelles, Jamaica, Belize
II. Monitoring Risks & Drivers
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Fund’s Multipronged
Approach Multipronged Approach
I. Monitor Trends
II. Monitor Risks & Drivers
III. Facilitate Dialogue
IV. Tailor Capacity
Development
V. Engage in cases
involving tail-risk scenarios
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III. Efforts to Facilitate Dialogue
Global partners…
G20 & G24
& FSRBs
…Regional partners… …Private sector…
Global Banks Domestic Banks
Money Service Businesses
…National authorities…
Across regions
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Monitoring based on SWIFT data
FSB survey of 345 banks
World Bank case studies
IMF monitoring framework
Data collection and
analysis
New FATF guidance
Revised BCBS guidance
Next – follow-up on national
application
Clarifying regulatory
expectations
Inventory of technical assistance
Workshop for TA providers
Capacity building by private sector
Capacity building
Know-Your-Customer (KYC) utilities –
clarified expectations and workshops
Use of the Legal Entity Identifier (LEI)
Information sharing initiatives – new FATF
guidance
Correct use of payment messages –
supervisory guidance and SWIFT guidelines
Technical solutions to
improve the efficiency of due
diligence
Source: FSB.
The FSB Action Plan
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❖ Promote dialogue and communication between the banking and remittance
sectors
❖ International standards and oversight of the remittance sector
❖ Use innovation in the remittance sector
❖ Remittance-related technical assistance
FSB Stocktake of Remittance Service Providers’ Access to Banking Services
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III. Efforts to Facilitate Dialogue
Fund’s Regional Initiatives
Caribbean Roundtables
Barbados, February 2017
Jamaica, November 2017
Bahamas, October 2018
Joint AMF-IMF
High-Level Workshops
UAE, October 2015
UAE, September 2017
Pacific Roundtables
Australia, February 2018
New Zealand, February 2018
Africa High Level Seminar
Washington D.C., October 2017
South Africa, May 2018
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III. Efforts to Facilitate Dialogue
Major/Good Progress in Implementing
Enhancing communication between banks, removing impediments to information sharing
Consolidating transaction traffic “down-streaming”
Strengthening capacity of respondent banks
Improving regulatory and supervisory frameworks, including for AML/CFT
Limited Progress in Implementation, so far
KYC utilities, LEI, digital identity
Fintech
Regional payment and clearance systems
Setting up of public banks
Outcome of regional initiatives highlighted the following measures to address CBR pressures
Measures identified by private sector
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SSA Seminar highlighted the following measures to address CBR pressures
Timeline Ongoing Short / medium term Long term
Enhancing outreach and communication between banks √
Technical assistance and training by global correspondent banks √
Removing information sharing barriers √
Consolidating transactional traffic √
Fintech √
New technologies (mobile payment platforms) √
Consolidating AML/CFT supervision and regulation √
Key Solutions
III. Efforts to Facilitate Dialogue
❖ Mobile payment platforms have been successful (MPESA).
❖ Cross-border payments between some countries in the region could ultimately be possible via-crypto currency links.
❖ Fintech / digital solutions have potential though most have yet to be developed and broadly implemented.
❖ Need for a level playing field and standardization of regulatory frameworks.
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Fund’s Multipronged
Approach Multipronged Approach
I. Enhance Data
Gathering
II. Monitor Risks & Drivers
III. Facilitate Dialogue
IV. Tailor Capacity
Development
V. Engage in cases
involving tail-risk scenarios
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IV. Tailoring Capacity Development
❖ Continued capacity development to strengthen AML/CFT
regimes and banking supervision (Seychelles)
❖ Tailored technical assistance to help address CBR
pressures (e.g., Angola, Belize, Guatemala, Jamaica,
Solomon Islands) and monitor trends (e.g., data monitoring
tool – Bahamas, Belize, Guyana, Cayman Islands )
❖ Develop regional responses in collaboration with regional
CD providers.
❖ Fund is collaborating with the FSB, including on CD
coordination
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Key Messages
❖ The current trends in CBRs suggest that the decline in CBRs continues, though it seems to have stabilized in
some of the countries that were badly affected (Belize).
❖ While financial fragilities remain in a limited number of countries, overall concentration is still high.
❖ Potential negative impact on financial inclusion and remittances requires continued attention.
❖ Drivers of CBR pressures remain the same (e.g. lack of clarity over regulatory expectations; weaknesses in
regulatory and supervisory frameworks, including for AML/CFT).
❖ In addition, some financial integrity issues (e.g. corruption, transparency, sanctions) have recently gained
more attention.
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Key Messages
❖ IMF staff have continued to:
❖ Monitor risks through AIV surveillance and FSAP.
❖ Provide CD, including to specifically address drivers of CBR pressure and help authorities
collect data and monitor CBR trends.
❖ Help identify solutions, some of which have been successfully implemented.
❖ e.g. enhanced communication between banks, strengthening respondent’s bank capacities, help
supervisors monitor trends, consolidation of transactional traffic.
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The Way Forward
❖ Continue implementing multipronged approach :
❖ Monitor risks
❖ Assess macro-criticality of this issue
❖ Provide targeted technical assistance & training
❖ Use Fund’s convening power
❖ Collaborate with other stakeholders on these issues
❖ Upcoming events:
❖ 3rd Caribbean roundtable (October 2018)
❖ 2nd Pacific roundtable (Feb. / March 2019)
Thank You