The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Gaming Bill and accompanying regulatory package fails to address the multi-million dollar ‘parallel banking system’ created by a web shop industry that is unlikely to “suddenly give that up”, Tribune Business was told yesterday.

K P Turnquest, the Opposition’s finance spokesman, said the Government’s proposed web shop ‘legalisation’ plans made no provision for the ‘loan portfolio’ that the industry has built up via mortgages and ‘pay day’ lending to Bahamians.

Suggesting it was highly unlikely that web shop operators could immediately ‘transition’ these funds into the former commercial banking industry, or whether they would indeed want to, Mr Turnquest said this was among several unresolved issues and questions surrounding the Christie administration’s initiative.

“Anecdotally, we understand they are engaged in that business at the moment,” he said of web shops and lending money. “What’s going to happen now?

“All of a sudden, are they going to give that up and transfer that to a bank? We’ll have to be careful to see how they adapt.

“It’s unlikely that all of a sudden they’ll get rid of their loan portfolios, so will they transfer them to some other entity that will likely be unregulated?”

The Government’s regulatory package, designed to facilitate the Bahamian web shop industry’s legalisation, appears designed to prevent FUTURE lending activities.

For instance, the Gaming Board tender seeking applications for gaming house operator and gaming house premises licence, stipulates that the latter can only be used for gaming and lawfully approved activities. Licensed web shops will also be unable to extend credit to domestic Bahamian players.

Yet the Bill and regulations, as Mr Turnquest suggests, appear silent on what to do with the web shop industry’s existing loan and investments portfolio, which is thought to total a multi-million dollar sum and be intertwined with virtually every segment of the Bahamian economy.

Denied access to the formal commercial banking system, at least for now, web shop operators and owners have instead sought to generate returns on their multi-million dollar earnings via lending to both Bahamians and legitimate businesses, plus investments in areas such as real estate projects.

This helped fuel the Bahamian economic activity at a time when the conventional banking sector was pulling back, weighed down by bad loans, and provided an alternative to keeping web shop money ‘under the mattress’.

But Wendy Craigg, the Central Bank governor, acknowledged earlier this year that the regulator had increasing concerns about the web shop gaming industry’s seeming evolution into a parallel, unregulated banking system offering mortgages and pay day loans.

She added that anecdotal evidence showed lending activities by web shops appeared to be “significant”, and was something that threatened to destabilise both the formal, legal banking sector and wider Bahamian economy.

The Governor told Tribune Business that such practices threatened to undermine efforts by the Central Bank, and banking industry, to get a better grip on the creditworthiness of Bahamian borrowers via the planned Credit Bureau.

Mrs Craigg said: “To the extent that the web shops are providing credit, it is highly probable that mortgages, from a domestic perspective, did not decline.

“Also, from a system perspective this frustrates the ability of a regulated entity to have an accurate overview of a person’s credit position, as someone borrowing from a web shop operator is unlikely to declare that loan when seeking additional financing from the formal market.

“This would represent yet another unknown in a credit market at a time when we are seeking to have a better handle on the exposures of borrowers. While the Credit Bureau will help to achieve this objective, the extent to which lending is taking place outside of the regulated sector will hamper our efforts in this regard.”\

Mrs Craigg added, that, as a regulator, “the extent to which such activity is taking place outside of the regulatory net is cause for concern.

“Besides creating an uneven playing field, vis-a-vis regulated activity, it distorts the amount of credit activity actually taking place in the domestic market and the country’s economic data,” she said.

Mr Turnquest, meanwhile, said Prime Minister Perry Christie “pretty much admitted” in the House of Assembly that the Central Bank and commercial banking industry were still considering whether the Gaming Bill package met international regulatory standards, and if they would accept web shop deposits, respectively.

“So, again, it’s a case of rushing the legislation before all parties are agreed, and it will likely lead to us having to come back and amend the legislation in the future,” Mr Turnquest said.

“That’s a hell of a way to run a country, in my opinion. How do you make these fundamental changes without considering all the factors?... What’s the big rush?”

Tribune Business revealed yesterday that web shop owners will be allowed to hold an equity interest in more than one legalised operator, even though the Government wishes to see ownership that is “as broad-based as possible”.

These two objectives, contained in the same paragraph in the Gaming Board licence tender document, are seemingly contradictory.

And web shop owners will only be allowed to own an interest in multiple operators at ministerial ‘whim’ or discretion.

Mr Turnquest suggested that the legislation would drive web shop industry consolidation that favoured the larger, deeper pocketed operators, who would have the ability to acquire smaller rivals that failed to obtain licences. Operator numbers, and web shop houses, will likely decline.

“It seems to open the window to what’s been speculated,” Mr Turnquest said of the multiple ownership interests. “There will be a master operator, operating under one licence, and they will sub-licence smaller houses.”

The FNM finance spokesman agreed that it was the failure of successive governments, both FNM and PLP, “to enforce the law and bring these guys to heel” that had led to the present situation with web shops.

He warned that rogue, unlicensed operators will still likely set up outside a regulated web shop industry, suggesting that legalisation by itself would not cure the problem.

“The mindset has not changed. You have greed, and you have the need,” Mr Turnquest told Tribune Business. “Once you start going crooked, it’s very difficult to come straight.”

The “tremendous risk” created by web shop gaming meant it either had to be regulated or shot down, Mr Turnquest agreed.

He added that the Government’s refusal to release the advice it received from the Financial Action Task Force (FATF) again showed the need for a Freedom of Information Act, so Bahamians could hold it accountable “on the back end, if not the front end”.