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S/FIN/M/87  
 
 22 April 2016  
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Committee on Trade in Financial Services    
 
REPORT OF THE MEETING HELD ON 18 MARCH 2016 
NOTE BY THE SECRETARIAT1 
The Committee on Trade in Financial Services held a meeting on 18 March 2016 under the 
Chairmanship of Ms Maha Gabbani (Kingdom of Saudi Arabia). The proposed agenda was 
contained in Airgram WTO/AIR/CTFS/4. An annotate d agenda by the Chairperson was issued prior 
to the meeting (JOB/SERV/228). Since consultations for the appointment of chairpersons for the subsidiary bodies of the Council for Trade in Serv ices had not been finalized at the time of the 
meeting, the Committee adopted the agenda withou t the proposed item (F), "Appointment of the 
Chairperson for the Committee".  
1  ITEM A – ACCEPTANCE OF THE FIFTH PROTOCOL TO THE GATS  1.1.  The Chairperson recalled that Brazil was the only Member that had yet to accept the 
Fifth Protocol.  1.2.  The representative of Brazil said that the domestic procedures for the acceptance of the Fifth 
Protocol had been finally completed, and that Brazil  was in a position to deposit its instrument of 
acceptance. For this reason, he informed the Committee that Brazil had requested the Council for 
Trade in Services to re-open the Fifth Protocol for acceptance by Brazil (see document S/C/W/365). 
1.3.  The Chairperson congratulated Brazil for the acceptance of the Fifth Protocol.  
1.4.  The Committee took note of that statement. 
2  ITEM B – REGULATORY ISSU ES IN FINANCIAL SERVICES 
2.1.  The Chairperson recalled that at the previo us meeting, the Committee heard presentations by 
the IMF and the Islamic Financial Services Board. Unfortunately, the Global Forum on 
Transparency and Exchange of Information for Ta x Purposes, which had also been invited, was 
unable to attend this meeting. The Secretariat would follow up with the Global Forum so as to 
ensure their participation at a future meeting of the Committee.  
2.2.  In addition, the Chairperson said that th e Secretariat was working on a factual report on 
recent developments in international standard-setting, on the basis of inputs from relevant 
international standard-setting bodies, namely  the Basel Committee, the IAIS, IOSCO and the 
Financial Stability Board. The Chairperson indicated that the report would be circulated prior to the next meeting. 
2.3.  The representative of Canada reiterated his delegation's support for work in this area. In his 
view, it was important to continue extending these invitations to international organizations so 
that the Committee stayed abreast of relevant developments in global financial regulatory reforms. He also stressed that discussions under this agenda item should focus on elements that affect 
trade in financial services. The Committee should retain a trade policy perspective. He extended 
                                               
1 This document has been prepared under the Secret ariat's own responsibility and is without prejudice 
to the positions of Members or to thei r rights and obligations under the WTO. S/FIN/M/87 
 
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  his delegation's appreciation to the Chair and the Secretariat for their efforts to keep the 
Committee informed of recent developments in th is area, and for contacting – and ensuring the 
participation of – international organizations, such as the Global Forum and others, at meetings of the Committee.  
2.4.  The Committee took note of those statements and decided to revert to this agenda item at 
the next meeting.  
3  ITEM C - TRADE IN FINANCIA L SERVICES AND DEVELOPMENT  
3.1.  The Chairperson recalled that the Secretariat was working on an addendum to the 
Background Note on Financial Inclusion and the GATS (S/FIN/W/88), in order to address the 
barriers to financial inclusion, building on paragraph 4.1 of said Note. She also recalled that, when making the request to the Secretariat, Members stressed the importance of avoiding duplication of 
discussions on financial inclusion per se  that were taking place in specialized fora, and, instead, to 
link this discussion to trade in financial services  and focus on how trade - and trade policy - in 
financial services may contribute to financial inclusion. She added that the Secretariat would take 
due account of that guidance, and would circul ate the document before the next meeting. 
3.2.  No Member took the floor under this agenda item. 3.3.  The Committee took note of the Chairperson's statement and decided to revert to this 
agenda item at the next meeting.  4  ITEM D – RECENT DEVELOPMENTS  IN FINANCIAL SERVICES TRADE 
4.1.  The Chairperson recalled that as a standing fe ature of the agenda, this item had been used in 
the past to either present and discuss recent de velopments in individual Members' markets or 
introduce proposals that eventually led to specific dedicated discussions or seminars.  
4.2.  She added that Jamaica had requested the inclusion of a sub-item in order to make a 
statement on "de-risking and correspondent banking".¨ 
4.3.  The representative of Jamaica delivered the statement on behalf of the members of the 
Caribbean Community (CARICOM). She said that, in recent years, the countries and territories of 
the Caribbean region had been grappling with the impact of measures associated with de-risking 
as they affect the provision of correspondent banking services to financial institutions. De-risking 
measures limited the access of CARICOM economies to the global payments and financial system 
and significantly impaired the viability of a number of critical domestic financial and banking services. Given the importance of international finance and banking services to economic growth 
and development, CARICOM decided to pursue discussions at various levels, both in the region and 
internationally, to identify the best means of ad dressing and mitigating the impact of reduced 
access to international banking and financial services and markets caused by de-risking measures. 
This statement was in furtherance of this object ive. With this presentation, CARICOM hoped to 
begin a process of sensitising Members to some of the specific challenges that de-risking posed for trade and ultimately, to encourage consideration of  more trade conducive and less trade-distorting 
solutions to the real and pressing concerns which global counter-terrorist-financing and anti-
money laundering regulations sought to address.  
4.4.  She then explained the concepts of "correspondent banking" and "de-risking". 
"Correspondent banking" , which could broadly be defined as the provision of banking services by 
one bank (the "correspondent bank") to another bank (the "respondent bank"), was essential for 
customer payments, especially across borders, and for the access of banks to foreign financial systems. The ability to make and receive international payments via correspondent banking was 
vital for businesses and individuals.
2 Correspondent banks were private sector institutions that, 
pursuant to recommendations issued by the Financ ial Action Task Force (FATF), were required to 
evaluate risks when doing business with other banks and jurisdictions. 
                                               
2 Financial Stability Board, "Report to the G20 on actions taken to assess and address the decline in 
correspondent banking", 6 November 2015, available at http://www.g20.org/English/Documents/PastPresidency/201512/P020151228331333658003.pdf . S/FIN/M/87 
 
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  4.5.  The practice of ending banking relationships with clients or closing accounts deemed to be of 
"high risk" was referred to as "de-risking".  According to a statement issued by the FATF in 
October 2014, "de-risking refers to the phenomenon of financial institutions terminating or 
restricting business relationships with clients or categories of clients to avoid, rather than manage, 
risk in line with the FATF’s risk-based approach. De-risking can be the result of various drivers, 
such as concerns about profitability, prudential  requirements, anxiety after the global financial 
crisis, and reputational risk."3 
4.6.  The adoption of a de-risking strategy by global banks, which provided correspondent banking 
services for domestic banks across the world, was apparently in response to a complex combination of factors, including generally increasing costs of compliance, changes in risk appetite, uncertainty in cross border and local regulatory environments and "know your customer's 
customers" (KYCC) requirements. Increases in the cost of compliance resulted from incidents of 
record-setting fines and precedent-setting criminal prosecutions and enforcement actions. These were brought against financial institutions and their executives for violations of Bank Secrecy 
Act/Anti-Money Laundering (BSA/AML) and Sanctions laws in certain jurisdictions in 2014. 
According to regulatory authorities, risk management-related weaknesses associated with BSA/AML and Office of Foreign Assets Control comp liance were at the core of several of the most 
high-profile and costly enforcement actions taken by regulators and law enforcement in the 
United States in 2014/2015. One entity was fined US$9 billion for breaching sanctions law, while another paid US$2.05 billion in penalties for disclosure failures. Banks sanctioned for regulatory infringements experienced a downward trend in profitability and an erosion of shareholders’ 
value.
4  
4.7.  To mitigate against this negative impact, some global banks opted to exit whole business 
lines that carried increased risk, instead of improving risk management and controls and 
evaluating customers individually. It appeared that several global banks concluded that the 
potential downsides of maintaining certain busi nesses deemed high risk (for example, money 
services businesses, third-party payment processors) outweighed the possible benefits. 
Throughout 2015, the situation further deteriorated as a number of international banks terminated 
Correspondent Banking Relations (CBRs) with several banks in the Caribbean. This had a significant impact on products and services widely used by CARICOM financial institutions, such as cheque clearing, clearing and settlement, cash management services, international wire transfers, 
and trade finance.  
4.8.  A survey conducted by the World Bank ov er the period April to September 2015 on the 
decline in correspondent banking services also indicated that foreign exchange services and 
foreign currency bank note services had been affected. The survey also indicated that the client 
segments most affected were money services operators and remittance companies. Further, the survey revealed that the decline in corresponde nt banking services occurred in varying degrees 
across Latin America and the Caribbean, Africa, East Asia and the Pacific, Europe and Central Asia, 
and the Middle East. The Report also highlighted th e main drivers and/or causes of the actions by 
the global banks and confirmed that roughly half of the emerging market and developing economy 
jurisdictions surveyed had experienced a decline in correspondent banking relationships and were 
under threat of exclusion from the global payments system. Such declines were reported, in 
particular, in small jurisdictions with low volumes of business/transactions as well as those with significant offshore banking activities. The Caribbean was identified as the most adversely affected 
region despite there being no evidence of lax AML/CFT systems in the Caribbean. 
4.9.  CARICOM was committed to the international certification process of the IMF/World Bank 
Financial Sector Assessment Programme (FSAP), Caribbean Financial Action Task Force (CFATF), 
and the Global Forum on Transparency and Exchan ge of Information for Tax Purposes. Bilateral 
commitments were also made under the United States implementation regime for the Foreign Account Tax Compliance Act (FATCA ). However, despite full compliance with regulatory practices 
recommended by the FATF and Global Forum Stan dards and certification by peer reviews and 
                                               
3 FATF, " FATF clarifies risk-based approach: case-by-case, not wholesale de-risking", 23 October 2014, 
available at http://www.fatf-gafi.o rg/documents/news/rba- and-de-risking.html . 
4 World Bank, "Withdrawal from Correspondent Banking:  Where, Why, and What to do About it", 
November 2015, World Bank, Washington D.C., available at http://www-
wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/11/24/090224b083395501/3_0/Rende
red/PDF/Withdraw0from000what0to0do0about0it.pdf . S/FIN/M/87 
 
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  FSAPs, international transactions in those countries that scrupulously applied these measures were 
still considered to be at risk for violating national sanctions and prohibitions in certain jurisdictions. 
4.10.  The financial services sector, and specifically banking, continued to be vital for the 
development of Caribbean Economies. Indeed, this sector was the second largest contributor to 
Gross Domestic Product (GDP) in the Caribbean region after Tourism. In the beginning, the role of 
the banking sector in the Caribbean was to finance trade and other commercial activities. As time progressed and the global economic environment fu rther evolved, its functions were expanded to 
include other activities such as providing a source of investment particularly in the context of 
international banking services offered in some jurisdictions.  
4.11.  Already, the countries of the CARICOM region were experiencing challenges in integrating 
into the global economy by virtue of their size, susceptibility to external shocks and fragility and 
vulnerability of their small economies. This termination of CBRs was therefore a worrying 
development as it has the potential to threaten the Region’s economic stability and capacity to remain properly integrated into the global financial, trade and economic systems. Given the 
important role that the financial sector played in the growth and development of a country’s 
economy, these actions had negative implications for economies in the region, including with regard to remittance transfers, payment of pensions, and facilitation of trade financing. 
4.12.  Closure of correspondent banking accounts presented a tangible threat to international 
trade finance, particularly for developing countries in the Caribbean and elsewhere. Correspondent banking relationships were the connective tissue linking various points across the global financial system, offering local banks access to international financial markets and, more importantly, 
foreign currency. This was important for developing country markets, as the majority of the 
world’s cross-border capital flows, including commodity markets and trade finance, was conducted in US dollars. The US dollar was used for 44.6% of all world payments, followed by the euro (28%) 
and the British pound (8%). As financial institutions in these countries closed correspondent 
accounts of foreign banks, they effectively reduce d or cut off access to the currencies required to 
conduct international trade and enable international investment. This could have a significant 
impact on economic growth of developing countri es. The research conducted by the WTO revealed 
that over 80% of global trade relied on trade fina nce. If developing countries, like those in the 
Caribbean, did not have access to trade finance, they were in a disadvantageous position. 
4.13.  Any reduction in global remittance flows would have a clear and tangible impact on 
countries where remittances accounted for a significant portion of their GDP, as well as on the 
vulnerable communities which received billions of dollars sent in global remittances each year. In 2014, total global remittances were estimated at US$583 billion
5 of which annual flows to the 
Caribbean amount to US$10 billion. Numerous reports highlighted the personal and dire 
repercussions of any curtailment of remittance flows, including family members’ inability to pay for health care, food, housing, and school f ees, and to purchase goods in commerce. 
4.14.  Although de-risking was partly intended to reduce the vulnerability of the formal financial 
sector to abuse from money launderers and terrorist financiers, it had been argued that the practice in fact had the opposite effect. With the closure of correspondent banking relationships at many major financial institutions, affected respondent institutions had been forced to rely on 
smaller overseas banks and credit unions that may not have adequate capacity to deal with 
higher-risk customers. The termination of correspondent banking account relationships might also encourage entities to move into less regulated channels, thus reducing transparency and limiting 
monitoring capacities counter to the principles promulgated by the FATF.  
4.15.  She then highlighted the different actions pursued at the regional and international levels. 
Within Latin America and the Caribbean Ministers: (i) expressed concern at the progressive decline 
in correspondent banking relationships with developing countries, particularly those in the 
Caribbean, in light of recent de-risking actions by certain major international banks; (ii) urged the international financial community to make additional and strenuous efforts to resolve the problems States in the region face due to the loss of correspondent banking relationships, which presented 
                                               
5 World Bank, "Remittances growth to slow sharply in 2015, as Europe and Russia stay weak; pick up 
expected next year", 13 April 2015, available at http://www.worldbank.org/en/news/press-
release/2015/04/13/remittances-growth-to-slow-sharply-in-2015-as-europe-and-russia-stay-weak-pick-up-
expected-next-year . S/FIN/M/87 
 
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  profound difficulties for their national economies and which affected their financial and 
international trade security; and (iii) called upon the Financial Stability Board, the FATF, the IMF and other relevant institutions to further examine the dimensions and implications of the issue with special focus on Caribbean States; to clarify regulatory and supervisory expectations from 
global banks; to provide guidance to assist banks in their assessment and management of risk, as 
well as to enhance the relationship and exch ange of information between correspondent and 
respondent banks; and to assist in domestic capacity building to address the issue.  
4.16.  Heads of Government of CARICOM also (i) deplored the progressive decline in 
correspondent banking relationships available to the banking sector in Members, as a result of the 
de-risking strategies employed by the global bank s. They opined that the withdrawal, restricted 
access and /or the higher cost of such services, allegedly in response to the heightened regulatory 
posture of regulatory authorities, would destabilize the financial sector in Members with deleterious 
effects on growth and economic progress, as well as national security; (ii) emphasized that CARICOM Members complied with all global regulatory standards, including those established by 
the FATF and the Global Forum, and had been sc rutinized in every detail by the IMF and other 
multilateral institutions. Indeed, they characterized the actions of the correspondent banks as an economic assault which was tantamount to an economic blockade against Members; and (iii) 
agreed to create greater international awareness of the challenge confronting the Community. 
4.17.  Consistent with this latter call, Jamaica, speaking on behalf of CARICOM, was seeking to 
sensitise this Committee and the membership of the World Trade Organisation to the scope and 
impact of this issue, which arose in connection with a vitally important aspect of trade in financial 
services. The aim was to encourage deeper reflecti on on whether the global responses in the areas 
of AML and CFT could better take into account the impact on trade. Trade in financial services was directly affected by the removal of correspondent banking services to providers of financial 
services in certain jurisdictions. Such actions, taken on whatever basis, had a direct and 
immediate impact on the ability of providers of financial services to trade in such services and deliver important products in the domestic and international markets. The consequences of these 
measures for the trade and economic activities th at relied on smooth and effective functioning of 
the financial services sector were dire. Indige nous banks relied completely on correspondent 
banking services for their engagement in global trade in - and provision of - certain financial services. Shutting these down reduced the scope for growth and development of local financial 
services sectors, thereby having the unintended consequence of limiting entry into, or 
discontinuing linkages required for, trade in financial services by local financial service providers which did not have their own global network.  
4.18.  CARICOM took the opportunity to highlig ht the impact of the overwhelming number of 
unilateral and international standards and regulations which its members were compelled to implement. While CARICOM's record of compliance was solid and effective, there was a need for 
more considered approaches to the provision of financial and technical resources to implement 
such standards and regulations, with due attention to the need for transition periods where appropriate. 
4.19.  CARICOM encouraged its trading partners to make every effort to ensure that initiatives 
taken at the international level to secure and maintain the integrity of the global financial systems 
took into account the needs of the countries of the Caribbean and other developing countries, particularly as they affected their ability to participate effectively in global trade in financial 
services and in global trade in general. This remained crucial to address the challenges of inclusive 
and sustainable development.  
4.20.  She added that CARICOM would continue to update Members on developments in this 
important matter and would welcome Members’ due consideration of the concerns raised and the 
challenges identified. While taking this initiative to bring the matter to the attention of this Committee, wide and deep consultations were being advanced in other fora and bilaterally. In raising this matter that directly affected trade in financial services, it was CARICOM's intention to 
ensure that the WTO remained focused on all matters affecting trade and that Members were 
apprised of challenges as they arose. 
4.21.  The representative of Haiti echoed the st atement made by Jamaica on behalf of CARICOM. 
Like other members of CARICOM, Haiti was very  concerned by the negative impact of these 
regulations which effected financial institutions which, although small, played a very important role S/FIN/M/87 
 
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  within its economy. The Haitian delegation would suggest that CARICOM's trading partners take 
into account the specific situation of the economies in the region before adopting such regulations unilaterally. He finally encouraged Haiti's trading partners to cooperate with the relevant CARICOM 
authorities in order to find mutually beneficial approaches to de-risking, so as to allow banks in the 
region to continue operations abroad without losing correspondent banking relationships.  
4.22.  The representative of Dominica associated with statement by Jamaica on behalf of 
CARICOM. Within the Eastern Caribbean a number of foreign banks experienced the stringent 
regulatory controls of their home regulators  requiring correspondent banks to know their 
customers' customers. The International Business Companies (IBCs) had experienced the most significant impact within the Eastern Caribbean, as correspondent banks closed entire business lines and terminated or placed onerous restrictions on accounts of former prime-rated customers. 
The loss of businesses had been estimated in some  instances in excess of several million of US 
dollars. As a result, several local banks had had to reroute some of their lost relationships with other jurisdictions and banks, usually at a higher expediency cost and greater stringency. For local 
banks who had maintained relationships, there had been onerous restrictions within the past 12 to 
24 months, as correspondent banks increased their standard charges by 10 fold in some cases and only recently another international bank imposed a fee for any balances above US$6 million. Local 
banks had met with refusal to clear foreign denominated cheques and while others were told that 
there would be no foreign cheque clearance for at least the next 6 to 12 months. There had also been increased stringent regulatory requirements  placed on local banks, especially with the 
opening of new accounts. As indicated by Jamaica, Dominica's authorities were examining these 
issues and were conducting consultations both within the region and in other fora. Dominica would 
continue updating Members on developments in this area and would welcome Members' 
consideration of the concerns and challenges identified. 
4.23.  The representative of Barbados joined the statement made by Jamaica on behalf of 
CARICOM, which sought to raise awareness of these important issues at the WTO. 
4.24.  The representative of Nigeria thanked Jamaica for making Members aware of these issues. 
Members should further discuss what the Committee could do with regard to these issues. 4.25.  The Committee took note of the statements made and decided to revert to this issue at the 
next meeting.  5  ITEM E - OTHER BUSINESS 
5.1.  There were no issues raised under Other Business. 
 
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