Faced with the regulatory compliance costs of high-risk jurisdictions, many banks have taken the derisking route – cutting down correspondent networks and retreating from certain markets. In the latest edition of The Banker, Richard Jones, CEO of Crown Agents Bank and Duarte Pedreira, the bank’s head of trade finance, offer their insights into the causes and effects of the derisking trend – and suggest that a rebuilding is underway in trade finance.
The article, “How derisking became a humanitarian issue”, highlights the widespread pressure for banks to reduce their exposure to high-risk environments perceived as economically unviable. “Derisking is driven by the growing costs and changing risk-reward dynamics of a more stringent regulatory environment,” explains Jones. “In any portfolio of a bank’s business, there are a number of relationships that are on the edge of being economically viable. The changing AML/CFT regulatory environment has made these a lot more costly.”
Some banks, however, are taking the time – and investing the resources – to manage these risks. According to Jones, “There aren’t many fundamental risks that can’t be managed. It’s mostly a question of a bank’s cost versus its appetite.”
Pedreira agrees: “Crown Agents Bank is working with a number of Caribbean lenders to rebuild their trade finance capabilities. This is because the Caribbean is a de facto derisked market in which many exporters and importers very quickly lost access to trade finance services following the withdrawal of correspondent banking relationships from the region. In Africa, correspondent banks are increasingly engaging in capacity-building initiatives with their respondent partners in areas such as AML and KYC compliance. As such, the overall quality of banking services is going up.”
The article can be read here.