Prime Minister Joseph Muscat and Finance Minister Edward Scicluna are to go to the US in the coming weeks in an attempt to encourage banks there to offer correspondent banking services to local operators.
Speaking at the launch of the Malta Stock Exchange’s strategic plan for capital markets, Dr Muscat said they would be meeting top level representatives from various banks to ensure that the services now in force are not withdrawn.
Correspondent banks have been scaling back their services in an attempt to cut down on the huge compliance costs and risks resulting from their dealings with banks in other jurisdictions. However, in recent years, it became easier to prevent the chance of a misstep by severing services than to manage the risk of being inadvertently embroiled in money laundering or terrorist financing. As a result, they have terminated business relationships with entire regions or classes of customers.
“This so-called ‘de-risking’ practice has negatively impacted correspondent banking. De-risking is not in line with the Recommendations of the Financial Action Task Force and is a serious concern to the international community… De-risking can result in financial exclusion, less transparency and greater exposure to money laundering and terrorist financing risks,” the FATF stressed.
In June 2015, the FATF clarified the application of the risk-based approach to correspondent banking relationships but the financial sector sought further clarification on regulatory expectations. As a result, it clarified that correspondent financial institutions are not required to conduct customer due diligence “on each individual customer of their respondent institutions’ customers”.
The Prime Minister said that the government had been working on this problem for some months, with input from the Central Bank of Malta and the Malta Financial Services Authority.
“I know that this is not a headline-grabbing subject,” he said, “but I do know that it is crucial for the future of our economy. I want to reassure the sector that we are working on this at the political level.”
Bank of Valletta relies on a network of correspondent banks for its international transactions, one of which is Deutsche Bank. CEO Mario Mallia acknowledged that this problem was being felt worldwide but added that international organisations like the IMF and the Basel committee were concerned.
“International awareness of this problem is mounting and organisations are realising that regulation has to be realistic and proportional. I know that there are moves to make regulation more equitable and I believe that the tide is turning…,” he said.
“Obviously, smaller countries get hit hardest as they do not generate enough volumes to justify the increasing compliance costs. So countries like Malta are definitely at a disadvantage.
“However, we cannot be complacent. I talk to our correspondent banks regularly and they have no problems with Malta or with BOV. We are trying to diversify our sources and initiatives at the political level – this has to be done through the international regulatory bodies – can help a great deal.
“If Malta were to be cut out of the networks, it would be a huge problem! How else could you make payments or receive funds from abroad? But we are not even close to being at that stage. We are not in a situation where we are struggling to find correspondent banks. In fact, we were at the Sibos conference in Geneva in September where we made contact with a number of banks who are interested in establishing a correspondent relationship,” he reassured.