Dutch audit

Emerging markets vs. transaction banking

Political goals vs. banks

In the financial industry I see an interesting cocktail of economic potential vs. politicians who use economic sanctions to achieve political goals vs. banks who struggle with their compliance risks.

Let me try to explain this cocktail to you. The biggest growth potential for corporates is in the emerging markets countries. Based on international compliance standards coming from OFAC and EEAS quite a number of these countries are labeled as high-risk countries, and sanctions apply. Banks are seen as the gatekeepers of the financial industry. Financial authorities are policing banks to assure their operating model is compliant with mandatory compliance standards. If banks are not compliant and breach regulations, they are penalized. To mitigate this risk banks pull out of these markets and terminate all correspondent banking relationships. Not having a correspondent banking relationship means no capability to do letters of credit or direct settlement of payments.

Tailor-made bank strategy including a settlement model 

I will use an example to explain. A corporate wants to sell its products to an emerging market country. Contracts are signed, but the bank is not able to settle payments as they no longer support business. It is an interesting market for the corporate with decent revenue. Due to sanctions the bank is refusing any funds. Even if the products sold are not sanctioned. From a regulatory perspective it is a legitimate sale. The corporate is allowed to deliver the goods. The regulator can not force the bank to cooperate as it is regarded as a strategic decision of an independent commercial institution. The result of this all, corporate frustrated about missing a good sales opportunity. The bank had to disappoint a customer, and the politicians miss opportunities for economic growth.

All unwanted effects. Is this necessary? No, because there are viable solutions to overcome these issues. A tailor-made bank strategy including a settlement model will do the trick.