Central Bank of Seychelles – Financial stability |13 March 2017

Seychelles takes concrete actions to limit de-risking

De-risking being one of the most serious threats to financial stability, Seychelles is doing its utmost to comply with international standards as global banks are being ruthless in their worldwide purge of correspondent banking relationships.

Boasting an offshore sector, Seychelles is deemed as high risk and as a result big banks, especially those in the United States of America and Europe, are de-risking themselves to avoid paying big fines.

Naadir Hassan, head of financial services supervision division within the Central Bank of Seychelles (CBS), explained to the local media on Friday that “de-risking means correspondent banks terminating corresponding relationships with local banks”.

CBS governor Caroline Abel and financial stability analyst Nicholas Cétoupe were also present to give details about the country’s financial stability.

A correspondent bank is a bank that local banks will have banking relationship with to ease international payments.

As a result of de-risking, thousands of relationships have already gone and many more are sure to go if concrete actions are not taken and those are not given the right publicity.

“The issue of de-risking has been brought about since the increasing threats of terrorists and with the international law enforcement agencies focusing on reducing financing of terrorism and also after the 2008 financial crisis to mitigate the risks of tax evasion,” Mr Hassan explained.

Being a small jurisdiction whose contributions in terms of profitability of global banks is insignificant and deemed a high risk jurisdiction on the basis of having an offshore sector, Mr Hassan noted that Seychelles’ case is made worst through “the negative media coverage on offshore entities registered in Seychelles involved in certain scandals”.

What happens then when banks from small countries like Seychelles get shut out of the global financial system or become either unbanked or less-banked?

“Because correspondent banks terminate relationships with local banks, it means it is becoming more and more difficult for local banks to make international transfers. This could impact on Seychelles making, for example, payments for imports, transfer of stipends to students studying overseas, transfer of money to any individuals in any other country, payment of fuel etc.,” explained Mr Hassan.

He added that it also impacts on our ability to receive payments. For example, tourists coming to Seychelles who make their payments in their countries of origin, but the payments are delayed or do not go through.

“This issue is becoming more and more relevant in terms of the increase in transactions originating and terminating in Seychelles that are not being entertained. We have observed that most of the major American banks are refusing to on board Seychelles banks and now this has escalated to some European banks as well,” added Mr Hassan.

He pointed out that Seychelles needs to ensure its regulatory and supervisory framework for anti-money laundering and combating the financing of terrorism (AML/CFT) is in line with international regulations and that it is being implemented in that manner.

“We have started engaging with international regulators and correspond banks to understand the issue a bit more and try to bring comfort that Seychelles is doing its best to address this problem. We also have to try our best to minimise the risks that Seychelles poses and that means having a discussion on how the offshore sector looks. This discussion has already started with the authorities and also with the industry itself. We need to be more proactive in terms of communications to show the international community that Seychelles is doing its utmost to comply with international standards,” said Mr Hassan.

CBS governor Caroline Abel added that it is mostly international business companies (IBC) which are involved in scandals, adding that “it is difficult to monitor what they do as they are only registered in Seychelles but do their business in other parts of the world.”

She added that because all offshore jurisdictions are considered high risk, Seychelles has to relook at its offshore sector and update its laws.

 “People may have noticed that they have to answer more questions posed by their banks. This is because local banks have to comply with the demands of foreign banks that don’t want to pay heavy fines when transactions are not done as they should,” said CBS governor Abel.