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Featured Address opening ceremony CAB conference by His Excellency the Governor

The 46th Annual Caribbean Association of Banks Conference

Forces Shaping Caribbean Banking
By drs. Eugene B. Holiday
Governor of Sint Maarten

October 30, 2019 on Sint Maarten

Distinguished delegates, ladies and gentlemen
A pleasant good evening to you,
I am, also on behalf of the Government and people of Sint Maarten, pleased to welcome this distinguished gathering for the forty-sixth annual Conference of the Caribbean Association of Banks.
I wish, in particular, to extend a special welcome to your Chairman, Mr. Dalton Lee as well as to your CEO Ms. Wendy Delmar.
To all our guest from abroad who are visiting for the first time or who have been here before, I bid you welcome and invite you to enjoy the warm Caribbean Hospitality of our friendly island.
Considering the conference theme: Shaping A New Era in Caribbean Banking, and the significant role banking plays in Caribbean development, I was pleased to accept the invitation from Ms. Delmar to address you this evening.
Connected by the waters of the Caribbean Sea, our people and economies share a high dependency on trade as a common feature. Generally speaking, our economies export a single or a limited number of primary products and/or services to generate the foreign exchange necessary to meet local demand for critical imports. In the case of Sint Maarten, we – like many of our sister Caribbean countries – depend almost entirely on the export of tourism services.
This heavy export/import orientation of our economies makes the financial services infrastructure that facilitates it, vital to the sustainability of our economies and the survival of our people. What happens in our banks therefore has implications for what happens in our workplaces and in our homes.
Building on the theme of this conference I shall therefore share some thoughts with you on the main forces shaping Caribbean banking. These are: the withdrawal of correspondent banking relationships, the pace of innovation and the increase in financial technology companies.
The conference theme; ‘shaping a new era in Caribbean banking’, suggest that our region’s banking sector is in transition. A brief review of the makeup and services shows that our financial system has, with the banking sector as the dominant element, become increasingly technologically sophisticated.  The sector provides most, if not all, of the services provided by banks in developed countries. The Caribbean banking sector is well integrated into the international financial system through correspondent banking in the case of locally owned banks and through head offices in the case of foreign banks operating in the region . In the case of Sint Maarten, the banking sector is comprised of locally, as well as regionally  and Canadian  owned banks .

Considering the conference theme from a public policy perspective, it is essential to note that the financial system is widely considered to be the heart in the functioning of any economy. Most - if not all - of us depend on financial institutions for handling our savings, for making payments, and for making investments. Our ability to do so is so common that we take the payment system operated by the banking sector for granted. Noteworthy in this regard are international payments’ services, such as, credit card settlements, wire transfers, and access to foreign exchange. Without such everyday bank services, it would be very cumbersome if not impossible for wholesalers to pay to import food or for tourists to pay at hotels or for the Caribbean Association of Banks to organize this conference.  A vital element in the provision of these services is the access of Caribbean banks to global correspondent banking relations. This is emphasized in a 2018 study of the World Bank Group which states: “To move funds internationally, banks rely on correspondent banking relationships (CBRs), roughly defined as the provision of banking services by one bank (the correspondent) to another bank (the respondent). CBRs are essential to international payments and provide an essential nexus between local economies and jurisdictions and the international financial system. They underpin international trade, remittances, and humanitarian financial flows among countries and are therefore particularly relevant to developing countries to support economic growth and development.”
It is common knowledge that in recent years there have been withdrawals of correspondent banking relationships from Caribbean banks as wells as global banks from the region, widely referred to as de-risking. Banks pulling out of the region include the Bank of America, Scotiabank, Royal Bank of Canada, and CIBC . Banks from the Netherlands, Germany and the United Kingdom also restricted their Correspondent Banking Relations with Caribbean jurisdictions .
The cause for de-risking from the perspective of correspondent banks and the regulators in their countries lie in their assessment of the Caribbean as high risk. This assessment is related to their concerns:
- regarding regulatory requirements for anti-money laundering and combating the financing of terrorism,
- regarding know-your-costumer policies; and
- regarding compliance.
Several regional leaders have warned about the devastating impact which this development will have and is having on the region’s economies if not addressed. The decisions of global correspondent banks to terminate relations with regional banks and/or jurisdictions is a key challenge and force shaping Caribbean banking.

With the pace of innovation, Caribbean banks are at the same time faced with the challenge of keeping up with the demand to provide faster and easier to access technology-based services in the digital age. This is particularly critical given the global nature of the financial system. The need to invest in new technology to keep pace with innovations and the global trends in financial services call for significant capital investments and comes with the additional obligation to secure the system from Cyberattacks and illicit use.

Moreover, there where de-risking is affecting the access of Caribbean Banks to the international payments system, financial technology companies, also referred to as Fintechs, are providing an additional challenge for Caribbean banks. There where Fintechs initially provided technology to support the back-end systems of banks and other financial systems, they are now providing financial services. Today Fintechs have expanded to provide various financial services, such as:
1. Mobile payments;
2. Online lending;
3. Credit Card issuance;
4. Blockchain-based global settlements network; and
5. Crowdfunding platforms that allow internet and app users to send or receive money from others on the platform.

The challenges of de-risking, of the pace of innovations and of Fintechs, along with related increased compliance and cybersecurity costs are important forces shaping Caribbean banking. They are in effect changing the operating environment of banks and other financial institutions. Considering the important role banks play in the socio-economic development of the region’s economies, it is imperative for the regions’ banks and governments to continue to seek effective solutions to these challenges in the interest of the public.
I will therefore leave you with a few closing remarks for your consideration during your discussions in the coming two days.
First, from a public policy perspective, it is imperative that governments continue to take urgent measures to address real or perceived gaps regarding compliance with Financial Action Task Force standards regarding money laundering and financing of terrorism.
Second, the public must at the same time be made aware of the implications of the de-risking challenge, this to increase greater awareness and responsiveness. This should be aimed at improving the quality of customer information files as part of the know-your-customer obligations of banks. Implementing a technology-based compliance reporting system, as part of the online banking platforms of banks, can come a long way in reducing compliance cost and therefore the cost to the customers and Caribbean economies.
And third, as we transition to greater financial technology-based services in the Caribbean as a result of the rise of Fintechs, we must draw from the lessons of de-risking. Investing in robust and secure digital infrastructure ought to be a priority in the region. It is thus essential that we work with the international community to implement the required safeguards to secure the integrity of the system. The Caribbean Association of Banks’ work on issues impacting the financial services community can be instrumental in that regard.
Ladies and gentlemen,
Considering these and other points on your agenda, I wish you Mr. Lee and Ms. Delmar and all the delegates a fruitful and enjoyable conference as you discuss and review the issues shaping Caribbean banking. Issues which are vital to the balanced and sustainable development of our countries.
And as you do so I hope that you will find some time to use the payments systems available to you, to enjoy our friendly island.
With that I congratulate you with the start of the forty-sixth annual conference of the Caribbean Association of Banks and I wish you success in your deliberations.

Thank you.