Emphasise ‘Robust Regulation’ To Halt Correspondent Loss


Tribune Business Editor


The Bahamas’ “robust regulatory framework” and favourable ratings by international watchdogs should encourage correspondent banks to maintain relationships with this nation’s financial institutions, a well-known compliance officer believes.

Emmanuel Komolafe, chief risk and compliance officer at Colina Holdings (Bahamas), said the Government and financial institutions needed to promote the relative strength of this nation’s supervisory regime to stave off any withdrawal of correspondent banking services.

He argued that with ‘country risk’ and regional (Caribbean) risk often cited by correspondent banks as the reason for terminating relationships with local institutions, the Bahamas should be better-placed than other nations to withstand the ‘de-risking’ trend.

“The Bahamas has fared well in evaluations of our anti-money laundering /counter terror financing (AML/CFT) framework by the Caribbean Financial Task Force, and has a robust regulatory framework for the financial services industry,” Mr Komolafe said in a paper sent to Tribune Business.

“In fact, the AML/CFT and KYC (Know Your Customer) requirements in the Bahamas are often described as being more stringent than those in other jurisdictions; in particular, OECD and G-20 countries.

“The country has not been identified as having ‘Strategic AML/CFT deficiencies” by the Financial Action Task Force, is not subject to any sanctions by the UN and has performed well in OECD peer reviews. This should be factored into the country risk assessments of correspondent banks.”

Calling on correspondent banks to account for this progress in assessing the Bahamas and its financial institutions, Mr Komolafe said the Government, working with regulators and the private sector, “should make it a point to emphasise the strength of our existing AML/CFT framework in presentations made to promote the Bahamas as an international financial centre(IFC).

Correspondent banks are those that allow Bahamian financial institutions to provide services in their home countries, using their physical and electronic banking infrastructures.

They give Bahamian banks, and their clients, access to the international capital markets and financial system, enabling transactions to clear and be settled on a timely basis, and foreign currency deposits to be taken.

Foreign correspondent banks thus provide a vital gateway to the world economy and financial system. This access, though, has tightened in recent months as international banks respond to increased global regulatory pressures to either place tighter controls on or drop altogether their correspondent banking relationships.

Mr Komolafe warned that as a small, open economy that relies on financial services and global trade, the Bahamas would suffer negative consequences if it lost its correspondent banking relationships.

“The importance of correspondent banking relationships to financial institutions within the Bahamian financial services industry cannot be emphasised enough,” he said.

“In order to effectively service clients and customers locally, it is imperative that financial institutions operating within - and from within - the Bahamas are able to facilitate cross-border transactions and access financial services in other jurisdictions.

“This is where correspondent banks play a crucial role as the gateway to the international market and facilitators of international trade. As an international financial centre (IFC) and premier tourist destination with an international clientele of individuals and companies across the globe, it is vital that we keep a watchful eye on developments in correspondent banking.”

Mr Komolafe said standalone Bahamian-owned banks and money transmission businesses were especially vulnerable to ‘de-risking’, due to their relatively small size and perceived risk.

“While this may be less of an issue for Bahamian banks with foreign parents or with headquarters in a G-20 country, our local and regional banks may be challenged in this regard,” he warned.

“This reality was confirmed following the Central Bank of the Bahamas’ survey on the impact of de-risking measures by large, internationally active banks. The results of that survey revealed that de-risking by global correspondent banks has mainly impacted local commercial banks and standalone international banks.”

The Central Bank of the Bahamas survey, published in January 2016, acknowledged that local institutions were being subjected to “heightened due diligence” by their US correspondent counterparts.

Abhilash Bhachech, the Central Bank’s inspector of banks and trust companies, confirmed that Bahamian institutions were already feeling the effects of correspondent ‘de-risking’.

Referring to the Central Bank’s correspondent banking survey conducted in June 2015, Mr Bhachech said: In sum, the results indicated ‘de-risking’ of global correspondent banks has mainly impacted local commercial banks and standalone international banks.

“While the impact does not appear to be systemic, the bank has observed several instances of scrutiny and/or downsizing of correspondent relationships initiated both locally and internationally,” he said.

“For example, while four banks reported having a correspondent banking relationship terminated, all were able to find replacements. However, the level of difficulty or ease with which they were able to replace their correspondent bank was due in part to the nature of their operations, as well as the foreign correspondent bank’s onboarding requirements.”

Mr Bhachech added: “A small number of banks confirmed that de-risking has had an adverse impact on their operations, and an even smaller number has advised that this has had an impact on their remittance services.

“In the event of a withdrawal of a correspondent bank, 15 banks (or 30 per cent) indicated that they had a contingency plan in place for its replacement.

“Thirty-five banks indicated they had no contingency plan in place.”

The Central Bank received 53 responses from the 97 public banks and trust companies that it sent the correspondent banking survey to.


Economist 5 years ago

The Central Bank has Banks Supervision Dept. they have, and have always had, the power to police the banks. We have laws in place, we just don't enforce anything. But they don't care as they still get paid.


bogart 5 years ago

Central Bank only seem to address issues from Bank to Central Bank and not by individuals who they will tell to go find a lawyer. Duh! So which Bank will complain upon itself. Look at the lack of compliance by the Bank of the Bahamas and allowed to compete with other Banks who spend millions to maintain and market their products and market share. Its really dumb not to have some Consumer Protection Agency or Ombudsman for individuals to go to give complaints. What is the cost to fund a small 5 person Agency, one million pa? versus to find out all the dirty laundry being aired in world press! What robust regulation? Speaking of Know your Customer Regulations, when bank customers show up with work permits which are good only for one year does the banks verify that these accounts end after one year or do they continue even though the work permits are not renewed? Who uses these ATM Cards or can a legit person open an account and can give the Card to a friend to use to deposit and withdraw funds through the machine?


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