Al-Shaeibi: This Notice Signals a Serious Risk in the Relationship Between the Libyan Banking Sector and International Financial Institutions

Economic expert Omran Al-Shaeibi an article saying: Social media platforms have circulated the letter sent by the Central Bank to the Audit Bureau based on the warning issued by the U.S. Federal Reserve to the Central Bank regarding subjecting its dollar-denominated transactions to review and auditing.

This notice signals a serious risk in the nature of the relationship between the Libyan banking sector and international financial institutions and requires dealing with it with utmost seriousness. This measure falls under the “de-risking” policy described by the Financial Action Task Force (FATF), where financial institutions terminate or restrict commercial relationships with clients or categories of clients to avoid risks instead of managing them, in line with FATF’s risk-based approach.

What is the significance of this measure and its implications?

Firstly, the loss of institutional trust, as this procedure expresses deep doubts from the Federal Reserve about the Central Bank of Libya’s ability to manage its financial operations in accordance with international standards, affecting the reputation of the Central Bank and consequently reducing international transactions.

Secondly, complicating international financial operations and subjecting them to rigorous reviews or involving a third party in auditing processes, as noted in the letter, which could lead to disruptions in critical financial operations such as collecting oil revenues or facilitating essential imports.

Thirdly, direct economic repercussions due to restrictions on dollar-denominated transactions that could result in delays in fulfilling the state’s external obligations, negatively affecting national economic stability and impacting the state’s ability to provide essential goods or maintain monetary stability.

The application of the “de-risking” policy by international financial institutions, according to the FATF, is not only related to risks of money laundering and terrorism financing but also reflects a comprehensive view of the concerned institution and its adherence to the forty international standards set by the FATF. This does not require formal justification, as it pertains to risk management based on internal evaluations.

The Central Bank must improve its procedures and prove its ability to adhere to international standards to regain the trust of correspondent institutions, prevent delays in international financial transactions, avoid disruptions in financial flows with the outside world, enhance anti-money laundering and terrorism financing measures, develop a robust system for implementing “Know Your Customer” procedures, raise transparency levels in managing financial operations, involve reputable and trusted financial institutions as third parties to manage risks, seek advisory support from international financial institutions to improve compliance standards, and work on a long-term strategy.

When the Central Bank was stormed in the past period through uncalculated methods, it prompted international institutions to take measures that will remain strict until confidence in the financial institutions of the Libyan state is renewed.

We also trust the new board of directors and the technical staff at the bank to overcome this obstacle successfully.