Commonwealth warns members of risk of isolation from global financial system

The Commonwealth Secretariat on Wednesday published a report warning that many of its member countries faced being cut-off from the global financial system.

Entitled "Disconnecting from Global Finance Report," the document highlights the deteriorating number of Correspondent Banking Relationships (CBRs) -- partnership arrangements between small local banks and major international banks -- and offers solutions to address the issue.

"Our research shows a really worrying rise in CBR closures, doubling year-on-year since 2013. This is particularly detrimental to the vulnerable economies and small states of the Commonwealth, who risk becoming marginalised from the global finance system, curtailing their access to essential cross-border financial services such as trade finance and remittances," Commonwealth expert Sam Attridge said.

The report proposes measures such as best practice standards for money service businesses to boost their legitimacy and reputation, and improving guidance and risk-tolerance standards for banks, balancing the need to prevent illegal activity with ensuring smaller institutions in developing countries are not excluded from the global financial system.

It also proposes building capacity for financial regulators in developing countries and ensuring they are part of global conversations on the setting of these standards and policies.

"If de-risking continues unabated", warns Commonwealth Deputy Secretary-General Deodat Maharaj, "many Commonwealth countries could face being largely cut-off from the global financial system."

Some 31 of the 53 Commonwealth countries surveyed in the report described the loss of correspondent banking as one of their top concerns, Maharaj said, adding that the issue also topped the agenda at the Caribbean Community Heads of Government summit last month, because the implications for money transfers, trade and economic development "are really worrying."

"We are already seeing a dramatic rise in the cost of sending money from country to country. These remittances are a lifeline for many families and member countries' economies, but transaction fees have risen to 12 or 13 percent of the amount transferred in many countries," he said. Endit