REMARKS: Keynote Remarks by the Hon. Mark Brown, Cook Islands PM & Pacific Islands Forum Chair to the Pacific Banking Forum

Remarks and Speeches
08 July 2024

Keynote Remarks by the Hon. Mark Brown, Cook Islands PM & Pacific Islands Forum Chair to the Pacific Banking Forum

8th July 2024 - Brisbane, Australia

•    Hon Stephen Jones, Assistant Australian Treasurer
•    Mr Brian Nelson, Under Secretary of the US Treasury for Terrorism and Financial Intelligence
•    Hon David Adeang, President of the Republic of Nauru, 
•    Mr Baron Waqa, Secretary General of the Pacific Islands Forum, 
•    Hon. Finance Ministers and senior officials representing Pacific Islands governments,
•    Pacific central bank governors and banking commissioners, 
•    Senior representatives of Australian and United States regulators,
•    Senior representatives of Australian, United States and Pacific banks,
•    Senior representatives of our key Multilateral Development Partners,
•    Representatives of the private sector, civil society organisations, and members of the media,
•    Distinguished participants,
•    Ladies and Gentlemen,

1.    Kia orana, bula vinaka and good morning to you all.

2.    It is an honour for me to deliver a few remarks at this important forum.

3.    Before I begin, I would like to acknowledge the traditional custodians of the land we are gathering on today: the Turrbal and Yuggera people.

4.    I would also like to thank the governments of Australia and the United States for organising this important event to address the issue of correspondent banking relationships (CBRs) in our Blue Pacific. I am hopeful that we will consider and arrive at practical outcomes that will assist members of our Pacific Islands Forum that are grappling with the closure of their CBRs in the region. To the US and Australia and the international regulators – there is a positive aspect to this issue.  In this room are the very people who are intimately familiar with the issues and are very well versed in the causes of the withdrawal of CBR’s.

5.    We do not need a survey to be done, to tell you that we are already aware that pre-pandemic, a large number of local banks in the Pacific had their correspondent banking relationships terminated.   Local banks were simply informed of their nostro accounts being closed because Correspondent banks are “de-risking”.

6.    Simply put, if a relationship is deemed outside of risk-appetite, one must de-risk, or dis-associate.

7.    We challenge the double-standards, applied to local banks in the Pacific.

8.    ANZ Banking Group, a triple-A rated bank operates in the Pacific Region.  The Country Risk assessment applied to them by their Correspondent Bank in assessing the provision of correspondent banking relationship in a Pacific country, should be no different to that same country risk assessment for a local bank.  

9.    The assessment simply weighs up the regulatory environment of that jurisdiction and determines if laws and frameworks and regulatory infrastructure sufficiently exist.

10.    So why can our Country risk be assessed on one hand ok, but on the other, not.

11.    This begs the questions, is this really simply a ‘de-risking’ issue, or a net risk versus return issue, or in other words simply about net profit.  The withdrawal of CBRs, is a well-documented global phenomenon affecting many emerging markets and developing economies, but especially so for Forum Island Countries (FICs).

12.    The issues associated with the decline of correspondent banking relationships in the Pacific affect the ability of local banks to connect with International Financial Institutions and access cross-border payment services. Thereby affecting the financial systems at a sovereign level, squeezing out government owned bank’s ability to play in their own back yards.  Affecting the ability of Pacific countries to meaningfully participate in global supply chains.

13.    In a nutshell, the opposite of financial inclusion.  

14.    This is Pacific regional financial exclusion.

15.    Given we are here to foster dialogue between policymakers, regulators, commercial banks, technical assistance providers and other relevant stakeholders, support the Pacific Islands Forum Secretariat’s (PIFS) CBR roadmap initiatives, let us not start with the lowest Pacific assessment in mind.

16.    Current data tells us that the number of active correspondents for Pacific banks has declined significantly since 2011 to unsustainably low levels.  I liken it to the impacts of climate change – carbon emissions. The G20 countries are responsible for 80% of these emission, which are the cause of increased climate disasters that disproportionately impact Pacific Island Countries (PIC), who are responsible for 0.03% of those carbon emissions. Your actions have consequences for us – not least being the slow onset impacts of the gradual erosion of our foreshores.  The similar impacts of AML/CFT requiring reporting obligations and the legislative requirements on our countries has a similar eroding effect on our ability to create a viable and profitable financial industry. We are seeing the severe contraction of financial services provided by PIC as a result.  

17.    All of our countries must tow the line in its AML and CFT initiatives or risk being hit by the big stick of BLACKLISTING. Of the trillions of dollars that circles the world every night only a fraction of a percent comes through our Pacific countries – yet the compliance and reporting obligations are costliest for us.

18.    In an increasingly global world, PICs are uniquely vulnerable to the withdrawal of CBRs that underpin international trade, tourism, remittances, and humanitarian financial flows. Our financial systems are characterized by low levels of financial access and an uneven development of national payment systems. Our countries still maintain old legacy financial banking platforms that cannot integrate with modern systems operated by Australia, NZ, EU and the US because they are expensive, and due to the tiny scale and small volume of business it makes it prohibitive for these banks invest and pay for modern systems.  

19.    I liken our systems to a horse and cart with old map books for guidance.  Please do not suggest a solution that is the equivalent of teaching us how to look after your horse better or worse we will give you a horse to go faster.  No, we need an upgrade to a system like driverless cars with modern GPS.  Help our banks – you want to improve our ability to maintain CBRs, than put some money towards paying to upgrade our banks to modern banking platforms.  

20.    Despite recent innovations, the Pacific remains the highest cost money transfer corridor in the world.  I recall as Finance Minister in 2011, the forced closure of small retail money transfer operators overnight as a consequence of AML initiatives. This compelled some of the poorest earners to use the established banks to transfer small amounts at very expensive costs in remittances.  For the smallest amounts and the lowest volumes of transaction we are the most expensive.  The cost of sending money to the Pacific is still high compared to other regions. On average, Pacific workers in Australia and New Zealand pay between 8.7 percent and 11.2 percent to send money to Samoa, Vanuatu, and Tonga. This is higher than the global average of 6.4 percent, or the regional average for East Asia & Pacific of 5.8 percent and the UN Sustainable Development Goal global target of 3 percent by 2030. This is twice the cost of sending US$200 from the United States to Haiti (equivalent to 4.9 percent).

21.    We have some countries in the region that have found ways to alternative CBR’s.  These providers are adept at operating in small markets by being innovative.  Let’s look at how we have operated within these constraints and adapt them to those more at risk.  We don’t need to reinvent the wheel.

22.    PICs with only a small number of banks or with a higher proportion of locally owned banks, are more vulnerable to CBR withdrawal. Kiribati, for example, has a single bank and is highly vulnerable to losing its CBRs. The only international bank in the Marshall Islands has expressed its intention to leave, and the domestic bank has only one CBR left. Nauru is expected to lose its only bank by June 2025, leaving it without CBRs unless it can find a new service provider. Despite having several banks, Fiji, Samoa, Solomon Islands, Tonga, and Vanuatu are still vulnerable to sudden withdrawals. While Fiji has a sophisticated domestic payments infrastructure and maintains sufficient CBRs at the country level, it still reports bank-specific problems. We are all vulnerable.

23.    Some countries facing the loss of CBRs in key currencies are engaged in outreach efforts to establish new CBR arrangements but have faced significant delays and higher costs. Once lost, securing new CBRs is a lengthy and challenging process with the potential to cause significant disruption in financial flows. The challenges are more pronounced for US dollar and Euro accounts.

24.    Ladies and gentlemen, this is why our meeting in the next two days is so important for our Blue Pacific region. When this Forum was announced last year by President Biden and Prime Minister Albanese, our people were excited.  Earlier this year in February I met with the World Bank and US regulators to raise this issue.  One of the things that we need to consider and for regulators to consider is a tailored approach to Pacific issues.  Have we considered raising the threshold for reporting compliance from $10,000 to $100,000?  What can you buy for $10,000 that threatens the world so much that you need to report this transaction for investigation.  Of the trillions of dollars that circle the world each day, only a fraction comes thru our systems.  How many legitimate transactions are bound by this threshold that takes up time and money for our small jurisdictions? Why not allow our national regulators the discretion to determine higher thresholds and significantly reduce the reporting burden to international regulators.  

25.    I respectfully request that this Forum produce practical and helpful solutions to address this key concern in our Pacific region, for our Pacific people.  Our countries depend on us, and the very people whose livelihoods depend on us expect a positive outcome from this important Forum. I see in this room a wealth of experience and enormous goodwill, as well as technical expertise and skill sets to help us address this critical issue. Let’s work together to fix the problem

26.    Meitaki ma’ata, Vinaka vakalevu and thank you for the opportunity provide some remarks at this critical moment this morning.