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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
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.
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
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.
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.
Oneway inwhich IFCs can
ensure their sustainability
amid these challenges is
through the establishment
of a secretariat that
bolsters their capacity to
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.
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.
“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
Jovan Reid is a specialist in public policy analysis and media advocacy.
OUR COMPETITIVE ADVANTAGE
www.carib-export.com71