Caribbean Export OUTLOOK 2016 - 2017

OUR COMPETITIVE ADVANTAGE

“The Secretariat proposed by Caribbean Export is important because the problem is that we have a number of states who are behaving as if they are together and coordinated, but technically the mechanisms and infrastructure for sharing information rapidly does not exist.” — Francoise Hendy

An economic tipping point Caribbean IFCs, due to geographic and political proximity, have cause to be jointly concerned about regional compliance, given that the viral nature of reputational damagemeans that the entire region is often tainted by one or a few of its blacklisted

Amid domestic challenges, such as the provision of social services on increasingly stretchednational budgets, governments are faced with answering difficult questions on whether they can afford to maintain the profile needed for their countries to be successful IFCs, or whether they can afford to navigate the risks of non- compliance.

as opposed to their competing Western financial centres, highlights risks to correspondent banking, threats to Caribbean exports, and disincentives to foreigninvestment,ifCaribbeanIFCsfailtocomply with financial regulations.

The insertion of the G20 into the international a g e n d a o n compliancethrough theOECDhas seen compliance evolve from bilateral agreements to

Experts have questioned whether the costs of compliance for small IFCs outweigh the benefits, and whether it may be better for small Caribbean IFCs to transition out of the financial services sector altogether.

Oneway inwhich IFCs can ensure their sustainability amid these challenges is through the establishment of a secretariat that bolsters their capacity to

constituents. Investors in blacklisted territories will not benefit frominvestment reinsurance from multilateral investment guarantees, for example, and they may avoid such IFCs to minimise their risk. And because Caribbean territories are largely dependent on transactions in the US, every transaction done by Caribbean IFCS that involve a US dollar must be routed through a US correspondent bank – a bank whose confidence can be affected by such blacklistings. Experts have cautioned that amid these challenges, Caribbean IFCs are quickly approaching a threshold where it will not be economically feasible to support the intangible infrastructure that has to attend international business and financial services, given that compliance requires the buildout of substantial local capacity.

meet compliance requirements. Advocated by Caribbean Export, the secretariat would also sensitiseCaribbean IFCs on the global compliance regime, functioning as a central coordinating body in the region for information sharing, funding, research and strategy development on behalf of its member countries. Given the current state of flux inCaribbean IFCs, the importance of such a central coordinating body for a regional entity like CARIFORUM cannot be understated. Increasingly, consensus is building that amid the immense challenges facing the region in the context of the global compliance regime, the ability of the Caribbean to maintain its international financial services sector will fall largely on how well the region is able to meet its challenges, together.

multilateral conventions, which now require – as an example – daily, automatic information exchange on local transactions, and substantial infrastructural costs for technology, compliance personnel and the design of legal frameworks to accommodate new compliance rules. Information technology costs alone to meet compliance requirements have been estimated to be between US$600,000 to US$6 million, as there is no set timetable for the rollout of future compliance obligations. “The thing with compliance is that it is not one- off. You don’t take a pill and it’s done. It grows, it’s like a mushroom effect,” Hendy cautioned, adding that the economic consequences of a G20 blacklisting for non-compliance are significant.

Jovan Reid is a specialist in public policy analysis and media advocacy.

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