With the US presidential election now decided, Financial Services Minister Wayne Panton and representatives from the Ministry of Financial Services and the Cayman Islands Monetary Authority continue to engage key US lawmakers, regulators and stakeholders about bank de-risking from the Caribbean perspective – an issue that the Minister said is important to every Cayman resident.

‘Our issues with local money services businesses (MSBs), which Cayman’s Government and the private sector worked together last year to resolve, were linked to de-risking’, Minister Panton said. ‘And this issue didn’t just affect persons who send remittances from Cayman to their families and friends in their home countries. It affected banking services across the board, for all of us’.

Understanding that changes in lawmakers and influential department staff positions could occur following the US elections, initial meetings held by the Ministry delegation in Washington, DC, in mid-September were therefore focused mainly on persons whose roles and / or influence would be likely unaffected by the elections outcomes.

‘We appreciated their strong interest in hearing how Cayman, as a well-regulated international financial centre, was affected’, Minister Panton said. ‘We are planning further visits in the coming months to continue these discussions, and we look forward to working with US leaders to strengthen our collaboration’.

The delegation met with representatives of the US Department of Treasury; the US Department of State; the World Bank; the Hon. Jeb Hensarling, a Republican Member of the House of Representatives who chairs the House Financial Services Committee; senior staff for the Hon. Gregory Meeks, a Democrat Member of the House of Representatives who sits on the House Committee on Foreign Affairs and the House Committee on Financial Services; and senior staff for the Hon. Alcee Hastings, a Democrat Member of the House of Representatives who sits on the Congressional Caucus on the Caribbean.

‘As we told our experiences, we were particularly heartened to learn that the lawmakers we met – some of whom have constituents from the Caribbean who use MSBs – agree that de-risking is affecting a significant group of persons whom it was never intended to affect’, Minister Panton said.

While Cayman was able to manage its MSBs situation, global bodies including the OECD, the Financial Action Task Force and the World Bank are grappling with the domino economic effects of de-risking. For instance, at the request of the G20 and the Financial Stability Board, the World Bank is currently fact-finding on de-risking in order to resolve the unintended consequences.

Cayman’s delegation for the mid-September DC visit included Department of Financial Services Director Michelle Bahadur and Senior Legislative Policy Advisor André Ebanks; and Cayman Islands Monetary Authority Managing Director Cindy Scotland and Deputy Managing Director (Supervision) Anna McLean.

Explaining De-risking

Explaining the concept of de-risking, Financial Services Minister Wayne Panton said:

§ The first point to understand is that global regulators have developed guidelines for banks that are intended to fight money laundering and terrorist financing. These guidelines require banks to identify, assess and understand their risks, by knowing who their clients are.

§ While the international banks believe the language of the guidelines is appropriate, they are concerned about the levels of fines that regulators may levy if a breach of the guidelines is detected. The second point, then, is that rather than working to reduce the risk, some banks have moved to eliminate the risk completely by terminating certain types of banking business altogether.

However, by trying to eliminate risk rather than assessing and mitigating it, they are also cutting off lines of business that were not intended to be captured by the regulation, such as the MSBs, whose business by its nature does not appeal to money launderers and terrorist financiers because the monetary value of the transactions are so small.

§ What’s happened, then, is the third point which people in Cayman experienced – by ‘de-risking’, the international banks are hindering law-abiding individuals from conducting daily, necessary financial transactions, such as wiring money home to families. Persons then may turn to alternative means of money transfer, which have greater associated risks.