Financial System at Risk Due to Change in Laws

After the Nicaraguan Assembly approved a bill that forces local banks to allow public officials sanctioned by OFAC to have an account, there are fears that the country will be isolated from the international financial system.

Thursday, February 11, 2021

A statement issued by the National Assembly on February 3 explains that the deputies approved the Law Initiative of Reform and Addition to the Law for the Protection of the Rights of Consumers and Users, a legislative project which guarantees a better and greater protection of the rights of consumers and users in the access to goods and services as a human right recognized by the Nicaraguan State.

According to the official statement "... this reform will correct the unequal relationship between the provider of financial services and the user of such services. In this sense, Deputy Gutiérrez pointed out that this law requires financial institutions to notify the users of these services in a reliable manner about a decision to deny or cancel a financial service, and to justify or argue the reasons for such decision."

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After learning of the changes, the Nicaraguan business sector warned about the risks involved with the modifications approved by the National Assembly.

In a press conference held hours after the deputies' vote, Michael Healy, president of the Superior Council of Private Enterprise (Cosep), said that they analyzed "... the approval of this reform in the Board of Directors and they see it with great concern and we also support the communication published by Asobanp which has a very critical position due to the fact that this law is putting the financial system in the worst situation ever in the last 30 years."

According to opposition deputies and business groups, the changes to the legislation will allow sanctioned officials to open bank accounts and affect the national financial system.

For Healy, this unilateral decision of the government to try to force banks to take measures that are prohibited by international financial entities puts the national financial system at risk of disappearing, since it would lead, among other negative effects, to the closing of correspondent bank accounts.

The sending of remittances to Nicaragua would be another of the things that could be affected, if banks are forced to reactivate or open accounts of sanctioned officials.

Mario Arana Sevilla, former president of the Central Bank of Nicaragua, told that ".... in an extreme case that the relationship between the local financial system and the corresponding banks is affected, alternative mechanisms for sending remittances will have to be sought, but they will be more expensive, they will not be through the financial system".

An article in published on February 11, explains that not only banks are required to reestablish financial relations with those sanctioned and all those affected by the Office of Foreign Assets Control (OFAC), as these persons could contract services with insurance companies, participate in the operations of the Stock Exchange and contract the services of a bonded warehouse.

See articles "What would the total loss of remittances by Ortega's imposition on banks mean for Nicaragua?" and "Not only banks are forced to resume operations with those sanctioned. These are other financial entities forced".

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