LON­DON–This week the Com­mon­wealth is con­ven­ing a meet­ing of banks, fi­nan­cial gu­rus and glob­al reg­u­la­tors to ex­plore its re­port on so­lu­tions to a prob­lem that is threat­en­ing de­vel­op­ment in vul­ner­a­ble economies.

The prob­lem is "de-risk­ing"–the grow­ing trend of in­ter­na­tion­al banks to cur­tail re­la­tion­ships with lo­cal banks in vul­ner­a­ble economies. These in­ter­na­tion­al banks are now avoid­ing bank­ing cus­tomers they deem low prof­it or high risk, in part be­cause of new reg­u­la­tions that are de­signed to stop the fi­nanc­ing of ter­ror­ism and fight cor­rup­tion.

The Dis­con­nect­ing from Glob­al Fi­nance Re­port high­lights the de­te­ri­o­rat­ing num­ber of cor­re­spon­dent bank­ing re­la­tion­ships (CBRs)–part­ner­ship arrange­ments be­tween small lo­cal banks and ma­jor in­ter­na­tion­al banks.

The Ex­ec­u­tive Sec­re­tary of the Fi­nan­cial Ac­tion Task Force (FATF)–the in­ter­na­tion­al an­ti-mon­ey laun­der­ing and counter fi­nanc­ing ter­ror­ism stan­dard set­ter–will join a Com­mon­wealth pan­el of ex­perts to­mor­row to ex­am­ine the so­lu­tions pro­posed by the re­port. The British Bankers' As­so­ci­a­tion, HS­BC Hold­ings, San­tander and the Wolfs­berg Group will al­so at­tend the event at the Com­mon­wealth head­quar­ters in Lon­don.

"In a tougher reg­u­la­to­ry en­vi­ron­ment, many in­ter­na­tion­al banks are weigh­ing up the prof­its de­rived from these re­la­tion­ships against the risks posed by do­ing busi­ness with these clients and de­cid­ing that it is just not worth it. For ex­am­ple, the risk of be­ing land­ed with huge fines if it turns out the small­er cus­tomers they are work­ing with are be­ing used to laun­der mon­ey or fi­nance ter­ror­ism." Com­mon­wealth ex­pert Sam At­tridge said.

She added: "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. Not on­ly is there a risk that fi­nan­cial sta­bil­i­ty is un­der­mined, but the abil­i­ty of many of the most mar­gin­alised coun­tries to achieve their sus­tain­able de­vel­op­ment goals is un­der threat."

The Com­mon­wealth 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.

The pa­per 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. 31 of our 53 Com­mon­wealth coun­tries sur­veyed in the re­port de­scribed the loss of cor­re­spon­dent bank­ing as one of their top con­cerns. This 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 per cent of the amount trans­ferred in many coun­tries," he said.

Ma­haraj stressed that the Com­mon­wealth Sec­re­tari­at is com­mit­ted to fur­ther re­search and on­go­ing di­a­logue and ad­vo­ca­cy on the is­sue, in­clud­ing work­ing more close­ly with the FATF.

"Our sur­vey cap­tures the voic­es of de­vel­op­ing coun­tries' cen­tral banks, and their mes­sage is clear 'we need ur­gent ac­tion on this'. Our pan­el dis­cus­sion will give us the op­por­tu­ni­ty to de­fine the Com­mon­wealth's role in achiev­ing that del­i­cate bal­ance be­tween pro­tect­ing our com­mu­ni­ties from ter­ror­ism and cor­rup­tion, and en­sur­ing that de­vel­op­ing economies con­tin­ue to have ac­cess to the re­la­tion­ships and ser­vices they need to thrive."