Challenges in Correspondent Banking in the Small States of the Pacific

IMF Working Papers, April 7, 2017

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Challenges in Correspondent Banking in the Small States of the Pacific

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Bibliographic details

• Authors: Jihad Alwazir, Fazurin Jamaludin, Dongyeol Lee, Niamh Sheridan, Patrizia Tumbarello
• Published: April 7, 2017
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781475593471.001

Summary

• Access to financial services in the small states of the Pacific is being eroded.
• Weaknesses in Anti-Money Laundering and Combating the Financing of Terrorism compliance in the context of high levels of remittances are contributing to banks’ decisions to withdraw corresponding banking relationships and close bank accounts of money transfer operators.
• The paper gathers evidence on these developments in the small states of the Pacific, discusses the main drivers, and the potentially negative impact on the financial sector and macroeconomy.
• The paper identifies the collective efforts needed to address the consequences of withdrawal of corresponding banking relationships and outlines policy measures to help the affected countries mitigate the impact.

Main drivers and evidence

• Weaknesses in AML/CFT compliance amid high remittance volumes.
• Decisions by banks to withdraw corresponding banking relationships.
• Closure of bank accounts of money transfer operators (MTO bank accounts).
• The role of due diligence and KYC in correspondent/respondent banking relationships.

Potential negative impacts

• Erosion of access to financial services for remittance recipients and the broader population.
• Adverse effects on the financial sector and macroeconomy in the small states of the Pacific.
• Disruption to the remittance sector and channels for cross-border payments.

Collective efforts and policy measures

• Identification of collective efforts needed to address consequences of withdrawal of corresponding banking relationships.
• Outline of policy measures to help affected countries mitigate the impact (policy measures and collective actions are discussed in the paper).

Content in this bundle

• Challenges in Correspondent Banking in the Small States of the Pacific, WP/17/90, April 2017
  • Challenges in Correspondent Banking in the Small States of the Pacific, WP/17/90, April 2017 (Markdown version)
  • Challenges in Correspondent Banking in the Small States of the Pacific, WP/17/90, April 2017 (PDF)