AFI and the G-24 discussed how to address and stem the tide of de-risking at a special roundtable gathering during the 2015 IMF-World Bank Annual Meetings held last week in Lima. It was attended by more than 20 central bank governors and finance ministers from the G-24 and AFI Network, along with various high-level international organizations such as the Financial Stability Board (FSB) and the World Bank Group (WBG), and continued to build on the successful platform of the G-24-AFI roundtable events which take place each year in Washington D.C. ahead of the Spring Meetings of the IMF and World Bank.

Participants explored the highly-important subject about how to confront the impact of banks withdrawing services from developing nations because, as outlined by Daniel Schydlowsky, Chair of the AFI Steering Committee and Superintendent at the Superintendencia de Banca, Seguros y AFP (SBS) Peru, “de-risking threatens to undo much of what we have accomplished over the last few years…(and) we have to deal with what has happened and as well as deal with what is going to happen in the future.”

Benno Ndulu, Governor at the Bank of Tanzania (BOT), opened the roundtable with a presentation that outlined the interim findings from the G-24-AFI qualitative study on de-risking—which started in August—that has involved interviews with G-24 and AFI member institutions from 17 affected countries, in addition to the private sector and other stakeholders, in an effort to understand the impacts of de-risking and stimulate thought leadership on potential solutions to overcome this challenge. The study’s main points related to the impact of de-risking include:

• The scale of de-risking varies considerably between remittance corridors, jurisdictions, and local circumstances, and therefore specific corridor-by-corridor approaches rather than blanket solutions are likely to be required;
• This is not exclusively a global bank phenomenon but also an issue at the national level, with some de-risking underway by national banks;
• Drivers of de-risking include the regulatory environment, overly stringent AML/CFT requirements, and a reduced risk appetite by banks for higher risk situations; and
• De-risking could add to overall AML/CFT risk, particularly by driving consumers to informal providers in the remittance space.

As outlined by Governor Ndulu, the study also offers proposals for how to address the tide of de-risking, including through capturing the potential of technologies to assist compliance, and supporting countries in the development of national risk assessments. An important part of the solution will also rely on sound implementation of robust and proportionate AML/CFT regimes across developing countries, as emphasized in a panel discussion at the roundtable featuring the successful examples of Malaysia, Paraguay and West Africa.

The G-24 and AFI study was welcomed at the roundtable by representatives from the FSB and the World Bank Group as a valuable contribution to determining how to address the issue at the global level. As stated by Mr. Rupert Thorne, Deputy Secretary-General of the FSB, “we really value this dialogue, this topic is one where it is most important to have a consultative group and the work of the G-24 and AFI is a very valuable complement to our quantitative analysis.”

In the ensuring discussion, additional members voiced their support for the study and emphasized the importance of the topic. As Governor Brian Wynter of the Bank of Jamaica (BOJ) stated, “We face the very real prospect of losing something that it took us very considerable effort to obtain…the threat this represents is real and not only damaging to our system but threatens the credibility of AML/CFT reforms.” Meanwhile. Abdelrahman Hassan Abdelrahman Hashim, Governor at the Central Bank of Sudan (CBOS), raised the point that the consequences of accelerated de-risking would be an uncontrolled growth of the shadow banking sector. Urgency was therefore required, as highlighted by Jwala Rambarran, Governor at the Central Bank of Trinidad and Tobago (CBTT), in summarizing the discussions: “Central banks as regulators have to be proactive especially in terms of the guidance we give financial institutions…when de-risking happens to us, we have to move quickly to stem the tide.”

Participants at the roundtable agreed upon a number of next steps with the aim of promoting ‘re-risking’ by banks. To start, the G-24 and AFI will convene a focus group of the most impacted countries in the networks to brainstorm solutions with a special report to be published later in 2015. Secondly, the G-24 and AFI will continue to provide a platform for all key parties, including the private sector and advanced country regulators, to come together in dialogue on the issues raised by various studies currently underway by other international organizations. And finally, as emphasized by AFI Executive Director Alfred Hannig, in 2016 the AFI Network will introduce additional capacity building services to support the implementation of robust and proportionate AML/CFT regimes across the membership.