Seychelles’ domestic financial system is stable, CBS says |16 June 2018

The Central Bank’s Financial Stability Committee’s second quarterly meeting has concluded that Seychelles' domestic financial system is currently stable.

The meeting was held on May 29 during which the committee considered a number of ongoing as well as upcoming developments that could possibly have an implication on the financial stability of the country.

The members of the Financial Stability Committee (FSC) shared the aspects of these discussions to the media yesterday.

The FSC is a high-level committee chaired by the governor of the Central Bank, Caroline Abel.  The other members are the chief executive of the Financial Services Authority (FSA) Dr Steve Fanny, the Secretary of State in the Ministry of Finance, Trade, Investment and Economic Planning Patrick Payet, and the director of the Financial Intelligence Unit (FIU) Philip Moustache.

"Our evaluation and analysis of the local financial institutions – whether they be banks or other services such insurance – have not provided the committee with cause for concerns to indicate that the financial system not stable," pronounced Governor Abel.

In fact, quantitative and qualitative assessments of the banking and financial sector have resolved that the sector is at present fairly resilient to economic and financial shocks.

These assessments involved stress-testing and scenario analysis wherein historical data were considered to identify the realistic shocks that could impact the financial system.

"The results demonstrate financial stability and that the banks are resilient at the level that the committee is comfortable with. As usual though, this is something that is continuously monitored," said the senior financial stability analyst at the CBS, Sarah Lang.

Close monitoring is conducted on a monthly and quarterly basis to ensure that the members of the committee are ready to take corrective action should the need arise.

Similarly to the FSC meeting earlier this year, the issue of de-risking and withdrawal of correspondent banking relationships remained a key focal point on their agenda.

De-risking refers to financial institutions such as corresponding banks closing the accounts of clients perceived as high-risk for money laundering or other financing abuses.

Governor Abel said that de-risking poses serious threats to our local banking sector. Seychelles' banks are twice disadvantaged due to the country's small economy of scale resulting in low levels of international transactions as well as through the outside world's negative perception of the local financial sector.

To address this issue, the FSC earlier this year started engaging with international institutions in order to help them gain a better understanding of our financial landscape.

"This initiative has been successful in parts evidenced by some large international banks that have visited Seychelles and the Central Bank for a greater insight," Governor Abel added.

In the same light, the FSC is encouraging the banks in Seychelles to also meet with their corresponding banks and overseas partners at least once a year in order to build a better rapport.

Meanwhile, Governor Abel said the committee is also emphasising on communicating to the outside world on the various initiatives being undertaken by the country in securing its financial system.

"This is expected to counter the negative perception overseas that Seychelles has unfairly earned through scandals, such as the Panama papers and so forth. It will prove that Seychelles is a financially reliable country."

In response to if Seychelles is actually a tax haven, Mr Fanny replied that the nature of the country's tax system does not encourage tax evasion.

"Seychelles has what is considered as a territorial tax system which means that those businesses who operate in the country pay their taxes here, and those who operate elsewhere pay their taxes in that jurisdiction."

Whilst some offshore companies are registered in Seychelles, they operate overseas and in principle should be paying taxes in whichever country they are operating in, clarified Mr Fanny.

Mr Moustache added on that the FIU conducts numerous investigations on financial institutions including in the offshore sector but the unit is constrained by the lack of human resource.

"This is especially true in the context of people who are experts in financial crimes investigations," noted Mr Moustache.

To mitigate the issue, CBS and FSA are hoping to become regulators in regards to money laundering through amendments in Anti-Money Laundering Act.

This will allow the two institutions to conduct similar investigations to FIU hence reducing the burden on the unit.

The FSC is expected to release a detailed report of its second quarterly meeting soon.