FINANCE, FINTECH, AND THE FUTURE OF BANKING IN THE CARIBBEAN BASIN

October 5, 2016 - Hall of the Americas, OAS Main Building

Governors

Ambassadors

Other invited guests

Good afternoon,

Let me begin by applauding the organizers of this two-day conference on Finance, Fintech and the Future of Banking in the Caribbean Basin. The broad range of topics to be covered over these two days and the high caliber of speakers both from the Caribbean Region as well as from the international financial institutions is a great testament to the importance of such an event at this particular juncture. The OAS is delighted to be associated with the Caribbean Central America Action (CCAA) in hosting this event in what is your home, our home, the Hall of the Americas.

Perhaps the first issue to address is why the OAS is even involved in these discussions on finance and banking in the Caribbean Basin. As most of you already know the work of the OAS falls under four (4) pillars – Democracy, Human Rights, Multidimensional Security and Integral Development.  In the context of the countries of the Caribbean, the development pillar is arguably the most critical of these. Moreover, the issue of the future of banking in the Caribbean does have important implications for our work in support of development in the region.  While our work is not directly in the area of finance per se, and other institutions are better placed to do this, the OAS still has a role to play.

One of the critical issues being addressed at this conference is that of de-risking and correspondent banking. We recognize that this is primarily a private sector matter. However, the OAS provides an important platform for member states to address issues of importance and while we do not have a prescription for resolving the issue. This is clearly a matter that is affecting many of our member states.

In my brief remarks this afternoon I wish to speak essentially about three areas of the Organization’s work that are related to some of the issues being addressed during this conference. These are:  
Migration and remittance flows;
Financial inclusion as a catalyst for growth;
Cyber Security and Anti-money Laundering and;
The work of our Permanent Council in addressing the issue of de-risking and correspondent banking

Migration and Remittance Flows

On the issue of migration and remittance flows, the OAS together with the Organization for Economic Cooperation and Development (OECD) launched the Continuous Reporting System on International Migration in the Americas (SICREMI) in an effort to better inform policy discussions on migration issues affecting our countries. The 2015 edition of this publication – International Migration in the Americas - noted that economic growth for Latin America and the Caribbean during the 2011-2013 period averaged over four (4) percent across countries – nearly double that of the United States and Canada, and in the context of these growth rates, international migration – both permanent and temporary movements – increased by seventeen (17) percent for Latin American and Caribbean countries. The report also found that increasing levels of immigration in the Latin America and Caribbean countries are essentially due to increasing intra-regional migration. 

Of course, integrally linked to these migration patterns are the remittance flows associated with the movement of persons. The issue of remittances is also a critical component of the International Migration in the Americas publication. The 2015 edition notes that prior to 2008 remittance flows into the Latin American and Caribbean region had reached average annual growth rates of about seventeen (17) percent.  However, following the economic crisis remittance levels fell by more than ten (10) percent in 2009, followed by a modest rebound of six (6) percent in 2011, and a subsequent leveling off. Remittances to Latin America and the Caribbean reached $66.9 billion in 2015 compared with $63.2 billion in 2008. When juxtaposed against flows of Official Development Assistance (ODA), remittances to the region are substantial. Net ODA to Latin American and Caribbean countries in 2008 were $9.4 billion or 14.8 percent of remittances, and $10.08 billion ¹ or 15.5 percent of remittances in 2014.

The magnitude of the remittances to our region, as stand-alone flows or when compared with net ODA, underscores their significance. Remittances are a tool for poverty alleviation and improving the living conditions for millions of people in our region, and an important gateway to financial services for the unbanked.  For recipient families remittances cover the costs of expenses for consumer goods, education, health and small business investment. In this context, given the importance of remittances, maintaining downward pressure on the costs of sending these resources is vital. Increased competition and transparency in cross-border money transfers can play an important role in remittance cost reduction.

While transparency in remittance costs is critical, a better understanding of these flows will support efforts to establish a public policy framework that ensures competition, efficiency and safety in remittance markets, and the development of products and services which better serve remittance beneficiaries.

Financial inclusion as a catalyst for growth

Ensuring that people from all segments of society have affordable and convenient access to financial services that meet their needs is the objective of financial inclusion and at the heart of some of the work undertaken by the OAS. The provision of financial services by a range of providers reaching everyone who can use them, including the poor, the disabled and other excluded groups, particularly micro, small and medium sized businesses and others outside the formal sector, is important to achieving this goal.

In 2014, the OAS, in partnership with the U.S. Department of State, the Cities for Financial Empowerment (CFE) and the New York City Department of Consumer Affairs Office of Financial Empowerment, organized a conference on “Partnerships for Financial Inclusion in Latin America and the Caribbean.”  Ministers and senior government officials from twenty-six (26) OAS member states as well as more than 100 representatives from the international banking sector, foundations, and NGOs took part and shared their experiences on financial empowerment programs, products and services as well as challenges and opportunities for the region.

I just want to take a few moments to highlight some of the principal takeaways from that conference as these may have some relevance to some of the issues being addressed during this conference, in particular, during the presentation later this afternoon on financial inclusion.

In considering the benefits of financial inclusion and asset building, the main conclusions were that:

1. Embedding financial counseling into already familiar services such as employer programs is one way to gain trust with clients;
2. It is important to develop programs to keep financial transactions inexpensive and easy – this is completely consistent with my earlier point about keeping downward pressure on costs for remittance transactions;
3. The rapid advancement of technology is creating significant opportunities to provide financial services to the region’s marginalized communities;
4. Improving access to financial products holds promise for low income communities in the Latin American and Caribbean region; and the Caribbean region is interested in furthering dialogue on how best to build capacity and micro-credit for various audiences including the youth.

The right legislative and regulatory framework is critical to improving accessible quality financial services for all segments of society. In this sense it becomes critical that governments of the region seek to enact the appropriate measures for management and oversight to protect consumers while simultaneously enabling providers to deliver services at reasonable costs. Very critical to this process is the development of a legal framework for microfinance which protects consumers as well as setting up simplified procedures for identifying, certifying and verifying low risk categories or activities, and for the harvesting of reliable data.
This suggests that there is a clear role for both public policy and the financial sector to support integration of the various publics into the financial sector. The speed at which both are able to enact the necessary changes in responding to these challenges will serve to empower currently excluded groups and enhance opportunities for economic participation and growth.

Let me highlight that the OAS Development Cooperation Fund (DCF, formerly known as FEMCIDI) is implementing a project on financial inclusion in Antigua and Barbuda with the Ministry of Social Development. The program aims at building a financial empowerment program geared towards targeted indigent households within the context of the National Social Protection Strategy. At the end of the project, the Country will have a Financial Empowerment Center where low-income families can receive one-on-one financial advice and guidance to help them navigate the increasingly complex financial mainstream and improve their financial health.

Cyber Security and Anti-money Laundering Assistance offered by the OAS:

However, while evolving technology has enabled the financial sector to provide new and improved services to their customers, tremendously improving the efficiency and ease of banking online in the Caribbean; on the other hand, as a wise man once said, “Progress brings problems,” and this new digital age brings its own share of problems.

Preventing criminal actors from laundering illicitly gained funds through the formal financial system and preventing hackers from exploiting cyber-vulnerabilities have become increasingly complex challenges facing our member states.

The OAS, through its Anti-Money Laundering Program and its Cyber Security Program, provides its member states with critical technical assistance to help them address these challenges, as well as help them increase security and confidence in their finance sector.

The Anti-Money Laundering Program has provided training to FIUs and Law Enforcement agencies, as well as model legislation, guides and best practices documents in areas such as the protection of financial intelligence information,  the administration of seized and forfeited assets, and the use of special investigative techniques in the area of money laundering. We are currently promoting the establishment of a Caribbean Asset Recovery Network, aimed at providing the Caribbean region with an informal inter-agency network of asset recovery practitioners in order to increase our Member States' effectiveness in depriving criminals of their illicit profits.

The OAS Cyber Security Program has developed a 7-Point Action Plan to increase cyber security in its member states. The plan includes the following elements:  National Cyber Security Strategies, Cyber Security Trainings and Workshops, Computer Security Incident Response Team (CSIRT) Development and Hemispheric Network, Cyber-Crises Management Exercises, Awareness Raising, Cyber Security Technical Assistance Missions and Access to Cyber Security Expertise.

By developing national strategies and establishing national incident response teams, the financial sector has become a key partner and ally for governments, accompanying these processes as committed key stakeholders.  This has been evident in the development of national strategies and CSIRTs in our Caribbean member states such as the Bahamas, Barbados, Dominica, Jamaica, Guyana, Suriname, Trinidad and Tobago, where the financial sector has participated in national round tables and even the small working groups.

Role of OAS Permanent Council in Correspondent Banking and De-risking

Regarding the central issue of de-risking and correspondent banking, in March of this year, a special meeting of the Permanent Council was convened to address the impact of de-risking and the severing of correspondent banking relationships on the economies of certain member states, particularly those from the Caribbean.  This meeting was chaired by the Permanent Representative of Antigua and Barbuda, H.E. Ronald Sanders, and then Chair of the Permanent Council.  During this session, which brought together various speakers, a draft declaration was presented by the Permanent Mission of Antigua and Barbuda and co-sponsored by several affected CARICOM Member States. 

Among other things, the draft declaration reaffirmed that the matter of the severing of correspondent banking relationships with commercial banks in some Member States by global banks poses a severe threat to the economic growth, social development and political stability of small economies by curtailing their ability to participate in standard international financial and economic transactions. 

While the draft declaration is still being negotiated, as the hemisphere’s main political forum, the OAS was able to provide a platform to those member states whose economies are severely affected by the issue to share information and help raise awareness.  We expect that this draft declaration will soon be considered again by the Permanent Council.

Finally, I wish to congratulate the CCAA for organizing this conference on topics of such importance to our region.  To all the speakers and participants, your valuable experiences and shared knowledge will help to shed light on these pressing challenges.  I can only hope that the discussions will help countries to continue to devise and implement strategies that make our economies more resilient and adaptive to changing times.

I thank you.

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