Issue link: https://maltatoday.uberflip.com/i/1132126
20.06.19 5 NEWS senting Malta as a place that upholds the highest standards of conduct," Cassar said. Cassar went on to describe four main reasons why corre- spondent banks are increas- ingly choosing to terminate the services they offer to ju- risdictions around the world. "First, more correspondent banks are finding that the business is not viable due to high compliance costs com- pared to lower volumes and low returns," Cassar said. "Second, the regulatory en- vironment is also marked by more rigorous, compliance and prudential enforcement requirements – whether re- lated to economic and trade sanctions, money launder- ing and tax transparency, compounded by the fact that there are often obstacles to cross-border information sharing," he pointed out. "Third, the business carries high risks of substantial pen- alties imposed by regulators, as various well-publicised cases in recent years confirm." "And fourth, where regula- tory expectations about the respondent banks, their ju- risdictions and business risks are unclear, or cannot be mit- igated, the pressures on the correspondent banks mount." Cassar stressed that the mat- ter was serious in nature and could potentially undermine financial stability, growth and development goals and lead to the financial exclusion of certain categories of custom- ers, businesses and countries. "is is borne out by reports and studies which also point to the risk that transactions will be driven into the shadow mar- ket and weaken the role that an organised financial sector can and should play in national de- velopment," he added. Termination of USD correspondent services will affect various sectors A financial sector practi- tioner who spoke with Busi- nessToday said that ING's termination of its BOV USD correspondent services will affect various sectors where trading is done in US dollars. e function of a correspond- ent bank, he said, was to act as an intermediary between one bank and the other, if the two banks in question don't have a direct relationship. "If a Maltese person or com- pany wants to make a payment to another person or company in US dollars through BOV, and if BOV doesn't have a direct relationship with the payee's bank, then BOV has to send the dollars from the pay- er's account to the bank ac- count of the payee through the use of an intermediary bank." "If, for example, the payee's bank is JP Morgan and BOV has no direct relationship with JP Morgan, then BOV would use ING to pass the payment through, and ING would in turn send it to JP Morgan." Several transactions in var- ious areas are still carried out in US dollars in Malta, he said. Notably, oil purchased for Malta is paid for in US dol- lars. However, there are more everyday scenarios when US dollars are used, for instance if an individual is paying to buy a product online from a United States online shop- ping website. Moreover, he said that there were still instances – albeit less than in the past - where exports from Malta are paid for in US dollars. Asked whether he believed it would be possible for BOV to find a long-term solution to the problem, the practitioner said that the bank would prob- ably be able to build a rela- tionship with another bank. However, BOV would have to be subjected to a due diligence process by the other banks, he said, and this process would have to be finalised by 14 De- cember, the date ING will stop clearing US dollar transac- tions for the bank. ING's withdrawal of grave concern, Finance Minister's silence is deafening – Nationalist Party In a statement on Wednes- day, the Nationalist Party said it was "gravely concerning" that ING would be withdraw- ing its BOV correspondent banking services, and that the impact of this "could be sig- nificant." Through a joint statement from economy spokeswoman Kristy Debono and finance spokesman Mario de Marco, the PN said that it had con- sistently warned the govern- ment and results about the risk Maltese banks, particu- larly BOV, faced in retaining correspondent banking rela- tionships and subsequently starting relationships with new correspondent banks. "The possibility of BOV hav- ing difficulties to process USD transactions could potentially lead to a collapse of these vital sectors. As expressed by the Malta Banker's Association (MBA), this development hits at the heart of Malta's finan- cial system. It is even more worrying if this action was not a direct consequence or directly related to BOV's op- erations," the party said. "The Minister of Finance's silence on the matter is deaf- ening," it said. The Opposition had criti- cised the government and its lack of a serious commitment in the fight against the crime of money laundering, it said, and the government's inac- tion was impacting Malta's reputation, which in turn is affecting the financial servic- es industry. The same criticism was lev- elled against the government in the draft Moneyval report, the final version of which will be adopted and published in the coming weeks, the PN noted. "e risk-reward factor for the correspondent banks to keep or start a relationship with a local bank is too high since we are a small economy and our local banks have rel- atively small volumes. us, it will not be economically viable for these correspondent banks to carry out the rigorous an- ti-money laundering and com- pliance procedures that they must adhere to," it insisted. e PN went on to say that it was not enough to have legis- lation in place if the same leg- islation was not rigorously im- plemented and that it does not suffice to strengthen the Finan- cial Intelligence Analysis Unit if its reports regarding "the suspicious activities of high level government officials" are ignored by the police. It also does not suffice to strengthen the Malta Finan- cial Services Authority if as a regulator it is not truly in- dependent and if its actions remain politically driven, it said. "It is deplorable to say the least, that the Prime Minister downplays this reality and jus- tifies a major bank losing its only correspondent bank by saying it is a victim of its own success," the party said. country's reputation could correspondent banks' de-risking "I am aware that a good number of Maltese banks continue to be serviced by their USD correspondents... But things can change and a decision by a correspondent to de-risk may be triggered by general reputational concerns about Malta"