The recent visit to the US by the Prime Minister and Finance Minister in an attempt to secure correspondent banking services for local banks has been described as a “success” by the latter, although no details were given.
“Minister Scicluna considers that the visit to which you refer was a success, in each and every aspect, not just regarding correspondent banking. Since all discussions are of a commercial nature, details cannot be divulged at present, but will be made public in due course,” a ministry spokesman said.
The Office of the Prime Minister did not acknowledge the questions sent.
The relationship depends very much on Deutsche Bank’s future
Correspondent banking is the lifeblood of the banking system, enabling crossborder transactions for multiple currencies. However, the increasingly onerous regulatory environment has made several correspondent banks rethink the provision of services as the risk and additional compliance required was making the whole system unfeasible. However, as correspondent banks pulled out of smaller countries, the situation became so critical that the Financial Action Task Force (FATF) issued guidelines in June 2015, clarifying the application of the risk-based approach to correspondent banking relationships, and confirming that they were not required to conduct customer due diligence “on each individual customer of their respondent institutions’ customers”.
Sources said that HSBC Malta was covered by the group’s own correspondent banking but that this service could not be extended to third parties. Most other banks in Malta originally had more than one correspondent bank but since the amount traded in dollars is only $50 billion a year, many of the providers found that the fees collected did not justify this risk once the regulatory environment tightened.
The solution was for each bank to reduce the number of correspondent banks it used, but this left them with “all their eggs in one basket”, the sources explained, referring in particular to Bank of Valletta which now depends heavily on Deutsche Bank.
This means the relationship depends very much on Deutsche Bank’s future and on whether it decides to pull out of the US, where it is in the midst of negotiations with the US Department of Justice over a settlement for its alleged mis-selling of toxic mortgage securities.
However, as Edward Rizzo commented (see pages 18 and 19), speculation that the President-elect could ease regulation on banks sent bank shares soaring: Deutsche Bank was among the best performers last week with a share price rise of 20 per cent.
The sources said that it was good news that the Finance Minister was optimistic that a solution was in the offing, but warned: “We will be lucky to get one bank committed to working with Malta. There is not really going to be any alternative to having all your eggs in one basket.”