There is a phrase in global banking that sounds technical and neutral but carries enormous consequences for small economies: de-risking. When major international banks decide that the compliance costs of maintaining relationships with smaller or offshore jurisdictions outweigh the commercial returns, they simply withdraw. They terminate correspondent banking relationships, restrict services, and exit quietly, leaving local banks, businesses, and remittance providers scrambling to find alternatives.
Driven by stricter anti-money laundering and counter-terrorism financing rules, many global banks have curtailed their correspondent banking services, especially in lower-income and smaller economies. Correspondent banks hold deposits from other banks and provide cross-border payment services, enabling local banks of exporters and importers to make trade-related payments without direct bilateral account relationships. They also offer trade finance services such as letters of credit, which mitigate non-payment risks.
The Caribbean has been among the worst-affected regions in the world. Economies throughout the Caribbean, as well as parts of Africa, Eastern Europe, the Middle East, and the South Pacific, were the hardest hit by the loss of correspondent banking relationships in the 2015–2018 period. The damage was not merely reputational. The region comprises small, open economies that rely on international payments systems to facilitate trade flows, remittances, foreign direct investments, and credit card settlements; any disruption to this is destabilising.
The Cayman Islands has not been immune. Despite being one of the world’s leading international financial centres, the preferred domicile for hedge funds and private funds, with continued growth across all financial services sectors, Cayman has experienced the pressure of global de-risking firsthand. The trend has limited the amount of services several local and regional banks now provide to their clients and forced remitters to lay off staff amid increased costs.
The asymmetry at the heart of the problem is structural. Most Caribbean governments and banks have seen a steady decline in correspondent banking relationships as institutions across the world deem the region as too small to be profitable due to high compliance costs and the perception that the region is a high-risk jurisdiction. In other words, it is not necessarily evidence of wrongdoing that triggers withdrawal, it is the cost-benefit calculation of a global bank operating at scale, for whom the effort of due diligence in a small market rarely pencils out.
According to the Bank for International Settlements, rising costs and uncertainty about how far customer due diligence should go to avoid regulatory sanction are cited by banks as among the main reasons for de-risking. Other factors include profitability considerations and concerns over potential liability and reputational damage.
The broader irony is that de-risking frequently creates the very conditions it claims to prevent. When legitimate businesses are locked out of the formal financial system, economic activity does not stop, it is simply pushed underground. By forcing small businesses to operate in cash, the region’s economy is driven into the shadows: untraceable, unregulated, and opaque.
That logic has now been formally acknowledged at the highest level of global financial governance. In June 2025, the Financial Action Task Force (FATF) adopted updated guidance supporting simplified measures in low-risk cases, stating that “financial exclusion represents a real risk to achieving effective implementation of the FATF Standards.” The guidance further emphasises that “wholesale de-risking is contrary to the risk-based approach and contributes to broader financial exclusion.”
For the Cayman Islands, the timing of this shift is significant. On 27 October 2023, the Cayman Islands was removed from FATF’s grey list after two years of dedicated efforts to meet global AML standards. Following the FATF delisting, the UK officially removed Cayman from its high-risk AML list on 5 December 2023, with the EU following suit. These delistings greatly eased compliance burdens and enhanced confidence for US banks and institutional investors. The jurisdiction now faces its fifth-round FATF mutual evaluation from 2026, and compliance momentum remains strong.
The Cayman Islands Monetary Authority‘s (CIMA) Financial Stability Report 2023–2024 found that locally incorporated banks remained well-capitalised and liquid, with capital ratios “comfortably above” regulatory minimums and non-performing loan levels low by international standards.
Yet the broader de-risking threat has not disappeared. The impact of de-risking is not confined to a single sector or geography. It is a global phenomenon that undermines both economic activity and personal security. For a jurisdiction as globally interconnected as the Cayman Islands, where the financial services sector underpins much of the domestic economy, maintaining robust correspondent banking access remains essential.
The FATF’s new direction offers an opening. Regulators and banks are now being encouraged to move away from blanket exclusions and towards genuinely proportionate risk assessments, a standard the Cayman Islands, with its post-grey-list compliance record, is well-placed to meet. Whether global banks follow the guidance in practice, or continue to treat small jurisdictions as too costly to serve, remains the central question.
